Section 1 Interpretation of this Act

What legislation did the Taxes Consolidation Act replace?

(1) The Taxes Consolidation Act 1997, which became law on 30 November 1997, took effect from 6 April 1997. The Consolidated Act replaced the repealed enactments:

(a) the Income Tax Act 1967,

(b) the Income Tax (Amendment) Act 1967,

(c) the Capital Gains Tax Act 1975,

(d) the Corporation Tax Act 1976,

(e) the Capital Gains Tax (Amendment) Act 1978,

(f) the Finance Acts 1967 to 1997 inclusive (the parts dealing with income tax, corporation tax and capital gains tax),

(g) the Finance (Taxation of Profits of Certain Mines) Act 1974,

(h) the Finance (Miscellaneous Provisions) Act 1968,

(i) the Income Tax (Amendment) Act 1986, and

(j) the Waiver of Certain Tax Interest and Penalties Act 1993.

The consolidated legislation takes effect:

(a) in relation to income tax, for 1997-98 and later tax years,

(b) in relation to corporation tax, for accounting periods ending on or after 6 April 1997, and

(c) in relation to capital gains tax, for 1997-98 and later tax years.

The repealed legislation continues to apply for 1996-97 and previous tax years and accounting periods ending before 6 April 1997 (section 1097(1)).

Is there a collective term for the law relating to income tax?

(2) In the Taxes Consolidation Act 1997 and any Finance Acts which subsequently amend it, the Income Tax Actsmeans the legislation relating to income tax in the Taxes Consolidation Act 1997 and in any other Act; the Corporation Tax Acts means the legislation relating to corporation tax in the Taxes Consolidation Act 1997 and in any other Act;the Tax Acts means the Income Tax Acts and the Corporation Tax Acts; the Capital Gains Tax Acts means the legislation relating to capital gains tax in the Taxes Consolidation Act 1997 and in any other Act.

Are external references to the Act as amended?

(3) Where an Act is mentioned in the Taxes Consolidation Act 1997, the reference is to that Act as amended by any other Acts.

Example

The Companies Act 1963 means the Companies Act 1963 as amended by the Companies (Amendment) Act 1982, the Companies (Amendment) Act 1983, the Companies (Amendment) Act 1986, the Companies Act 1990, and the Companies (Amendment) Act 1990, the Companies (Amendment) Act 1999, the Companies (Amendment) (No. 2) Act 1999, etc.

Are references to “Part”, “Chapter”, “section”, etc, to be taken as internal?

(4) Any references in the Taxes Consolidation Act 1997 to “section”, “Part” etc. are to be taken as internal cross references within the Act: they do not refer to a section, Part etc. in any other Act unless another Act is specifically indicated.

Are references to “subsection”, “paragraph”, “subparagraph”, etc, to be taken as internal?

(5) Any references in the Taxes Consolidation Act 1997 to “subsection”, “paragraph” etc. are to be taken as internal cross references within the particular provision of the Taxes Consolidation Act 1997 (section, Schedule, paragraph etc.): they do not refer to a subsection, paragraph etc. in any other provision unless another provision is specifically indicated.

Section 2 Interpretation of Tax Acts

What definitions are used for both income tax and corporation tax?

(1) This subsection defines terms that are used throughout the Taxes Consolidation Act 1997 for both income tax and corporation tax.

A body of persons includes not only a company, but “any body corporate…fellowship and society of persons”, whether or not incorporated. A partnership (section 1007) is not a “body of persons” within this definition.

Capital allowance means any of the following allowances:

(a) industrial building allowance, industrial building annual allowance, machinery or plant initial allowance, machinery or plant wear and tear allowance (Part 9),

(b) allowances for farm buildings and structures, farm pollution control structures, and milk quotas (Part 23),

(c) mine development allowance, marginal coal mine allowance, mine rehabilitation allowance, and marginal mine allowance (Part 24 Chapter 1),

(d) allowance for capital expenditure on purchase of patent rights (Part 29).

An inspector means:

(a) an inspector of taxes (section 852),

(b) A Revenue officer who carries out duties similar to those of an inspector, including making of assessments and dealing with appeals – this appears to mean a higher executive officer (HEO), or

(c) a Revenue officer who “acts in the execution of” tax legislation.

The appropriate inspector means:

(a) the inspector who last wrote to you from Revenue,

(b) the inspector to whom you would normally send your return,

(c) the inspector in charge of the Revenue district you live or your business is located,

(d) in any other case, the inspector of returns (see (1A)).

A local authority means a county corporation or borough corporation, a county council, or an urban district council.

A company’s ordinary share capital is its entire issued share capital excluding shares with a right to a dividend at a fixed rate.

If income tax or corporation tax is to be chargeable, the person must have a source of income. If tax is chargeable on the income from a source, the source is within the charge to tax. If a person has no source of income, there can be no charge to tax.

A profession includes a vocation.

Income tax is an annual tax, and must be reimposed by the Dáil each year. The income tax year (year of assessment) is a calendar tax year. The 2012 tax year (the year of assessment 2012) runs from 1 January 2012 to 31 December 2012.

A body corporate is a group of persons which has had conferred on it by law an identity separate from the members comprising it, for example:

(a) a company incorporated under the Companies Acts, e.g., Clery & Co. (1941) Ltd,

(b) a company established by special statute, for example, the E.S.B,

(c) a co-operative society registered under the Industrial and Provident Societies Acts,

(d) a company incorporated by Charter, for example, the Bank of Ireland.

A body corporate does not include an unincorporated society or other body, i.e., a group of persons, whether specially recognised by law or not, which has no identity separate from its members. For example:

(a) a friendly society, for example, a thrift society or a loan society registered under the Friendly Societies Acts,

(b) an association formed for some social or charitable object which has not formed itself into an incorporated company,

(c) a sports club which has not formed itself into an incorporated company,

(d) a trade union.

It is open to these unincorporated societies or bodies (other than trade unions) to convert themselves into bodies corporate by incorporation under the Companies Acts (Inspector manual 1.0.2).

Company includes an unincorporated association: Conservative and Unionist Central Office v Burrel, [1982] STC 335. An unincorporated association is a person: Frampton and another (Trustees of the Worthing Rugby Football Club) v IRC, [1985] STC 186.

Although ordinary share capital generally means the shares that bear the risk of success of failure and usually carry the voting rights, the term can include participating preference shares: Burman v Hedges and Butler Ltd [1979] STC 136. See also Tilcon v Holland, [1981] STC 365.

Although profession is not defined (other than to say that it includes a vocation), it means “an occupation requiring purely intellectual skills or of any manual skill, controlled, as in painting, sculpture, or surgery, by the intellectual skill of the operator…”: IRC v Maxse, 12 TC 41. See notes to section 18 for further relevant cases.

Vocation means a “calling”. It is “a word of wide significance meaning the way in which a man passes his life”:Partridge v Mallandaine, (1886) 2 TC 179. See notes to section 18 for further relevant cases.

Although a trade includes “every … adventure or concern in the nature of trade” (section 3), there is no corresponding charge on once-off transactions of a professional nature.

Who is the inspector of returns?

(1A) The inspector of returns is an officer nominated by Revenue to accept deliver of certain income tax, corporation tax and capital gains tax returns and other documents.

The name of the person nominated as inspector of returns must be published in Iris Oifigiúil.

Does the word “tax” have a specific meaning?

(2) Where the word tax is used in relation to income tax or corporation tax, and neither tax is specified, it means either tax.

Do income tax provisions automatically apply for corporation tax?

(3) Although many income tax provisions are applied for the purposes of corporation tax, with “corporation tax” to be read for “income tax”, the fact that a section refers only to income tax does not prevent the section from also applying for corporation tax.

What does “tax credit” mean?

(3A) The phrase tax credit, in relation to a distribution, takes its meaning according to the law applicable at the time the distribution was made.

Can husbands and wives be of either sex?

(3A) Following the establishment of same sex marriage references in the Tax Acts to a married man, a married woman, a man,  a woman, a husband or a wife can refer to either sex as the context requires.

Section 3 Interpretation of Income Tax Acts

What definitions apply for income tax?

(1) This subsection defines terms that are used throughout the Taxes Consolidation Act 1997 for income tax.

The standard rate (currently 20%) and higher rate (currently 40%) of income tax are referred to throughout the income tax code.

Although “income” is not defined, your total income means your income from all “sources”, calculated in accordance with income tax rules contained in this Act, as reduced by any deductions which this Act requires to be set against specific income or to be allowed in computing total income (for example, a premium under an approved retirement annuity contract, section 787, or a trading loss when claimed under section 381).

Your chargeable tax for a tax year is the tax chargeable on your total income (which, if you are jointly assessed to tax, includes your spouse’s income) for that year.

The income of a child, or a person of unsound mind (an incapacitated person) is taxed through that person’s guardian or trustee (see section 878).

A relative includes any person of whom the claimant has custody, who, while under the age of 16, is maintained at the claimant’s expense.

Because trade includes “every … adventure or concern in the nature of trade”, the profits or gains arising from “once off” transactions can be taxed as income (see section 18).

Total income

Dividends are taxed in the year in which they are receivable: IRC v Hawley, (1927) 13 TC 327; Dreyfus v IRC, (1963) 41 TC 441; Potel v IRC, (1970) 46 TC 658. The period of accrual is not relevant: Lambe v IRC, (1933) 18 TC 212;Dewar v IRC, (1935) 19 TC 561; IRC v Lebus’s Executors, (1946) 27 TC 136; Champneys’ Executors v IRC, (1934) 19 TC 375.

Balancing charges are treated as part of total income: IRC v Lloyds Bank Ltd and another (Scott’s Executors), (1963) 41 TC 294.

Bonus shares are not regarded as income: IRC v Blott, (1921) 8 TC 101. Distributions credited to a loan account are:IRC v Doncaster, (1924) 8 TC 623.

The fact that income is applied for a specific purpose does not reduce the charge to tax: IRC v Paterson, (1924) 9 TC 163; Perkins’ Executor v IRC, (1928) 13 TC 851; IRC v Parsons, (1928) 13 TC 700; Sinclair v IRC, (1942) 24 TC 432;IRC v Hood Barrs (No 2), (1963) 41 TC 339. See also Lord Wolverton v IRC, (1931) 16 TC 467.

A bankrupt’s income is regarded as that of the trustee not the bankrupt: IRC v Fleming, (1928) 14 TC 78.

Payments made under tax-effective covenants (section 792) are deductible in computing total income (Revenue precedent IT95-2525, 11 May 1995).

Whether trading exists

A person carries on a trade if he/she regularly buys something and sells it at a profit. In other words, if he/she “habitually does and contracts to do a thing capable of producing a profit”: Erichsen v Last, (1881) 1TC 351, 4 TC 422.

A tax avoidance scheme is therefore not a trade: Ransom v Higgs, [1974] STC 539. See also Kilmorie (Aldridge) Ltd vDickinson, (1974) 50 TC 1.

The carrying on of a trade may be contrasted with the sale of a capital asset, i.e., the realisation of an investment which is generally not taxable. Although the realisation of an investment is usually a once-off transaction, such transactions have been held by the courts on many occasions to constitute an adventure in the nature of trade.

The badges of trade

In 1954, a UK Royal Commission reported that trading had six definitive characteristics or “badges of trade”. The UK Revenue have expanded these to nine features (underlined below) used to determine whether a transaction is a trading transaction:

(a) The subject matter of the realisation, i.e., the nature of the asset: Commodities and manufactured products are not normally the subject of investment. Assets such as antiques, gold coins, fine wines and privately held shares are normally held as investments.

The sale by a moneylender of a large quantity of toilet paper bought while he was in Berlin on a separate matter was held to be an adventure in the nature of trade in Rutledge v IRC, (1929) 14 TC 490.

The quick sale, at a profit, of silver bullion bought as a hedge against inflation was held to be an adventure in the nature of trade in Wisdom v Chamberlain, (1968) 45 TC 92.

In Personal Representatives of PJ McCall (deceased) v CIR, 1 ITR 28, profits accruing on the sale of whiskey which had increased in value while in bond were regarded as trading profits.

Trading interest in same field: If the person making the sale has a trading interest in the same field, that fact is evidence of trading: Gloucester Railway Carriage and Wagon Co Ltd v IRC, (1925) 12 TC 720. In that case, receipts from the sale of old railway carriages, although fixed assets, were held to be trading receipts.

See also Agricultural Credit Corporation Ltd v Vale, 1 ITR 474 where a lending company was held taxable on profits from the realisation of investments, and Browne v Bank of Ireland Finance Ltd, 3 ITR 644. In that case, the profit realised on the disposal of government stocks held to satisfy Central Bank liquidity requirements was held to be a trading receipt. But the person making the sale may be involved in a completely different field: IRC v Fraser, (1942) 24 TC 498. That case involved the sale of whiskey by a woodcutter.

In McLellan Rawson & Co Ltd v Newall, (1955) 36 TC 117, the purchase and resale of woodland by a timber merchant was held not to be a trading profit.

Further cases in relation to the purchase and sale of assets:

Held to be trading: Smith Barry v Cordy, (1946) 28 TC 250; Crole v Lloyd, (1950) 31 TC 338; Rhodesia Metals Ltd (in liquidation) v Commissioners of Taxes, (1940) 19 ATC 472; Benyon (T) and Co Ltd v Ogg, (1918) 7 TC 125;Murphy v Australian and Investment Co Ltd, (1948) 30 TC 244; Cooper v C and J Clark Ltd, [1982] STC 335.

Held not to be trading: Cohen’s Executors v IRC, (1924) 12 TC 602; Commissioner of Taxes v British Australian Wool Realisation Assn Ltd, (1930) 9 ATC 449.

(b) The length of the period of ownership, i.e., the interval between purchase and sale. Property meant to be dealt in is normally realised within a short time after its acquisition: Rutledge v IRC, (1929) 14 TC 490. Property held as an investment is usually held for several years or more.

Nevertheless, the purchase of property which is on the verge of being sold cannot properly be regarded as an investment: Eames v Stepnell Properties Ltd, (1966) 43 TC 678. In that case, agricultural land bought by an “investment company” was sold within three years to the Council for development.

(c) The frequency or number of transactions by the same person: A number of similar transactions will lead to a presumption that trading is being carried on. In Pickford v Quirke, (1927) 13 TC 251, the taxpayer was a member of four different syndicates which bought and sold assets of spinning companies. The syndicates had no common members, apart from the taxpayer. The court held that the taxpayer was trading and the other syndicate members were not.

Dividendstripping operations are not regarded as trading: Lupton v FA and AB Ltd, (1971), 47 TC 580.

(d) Supplementary work on or in connection with the property realised, i.e., modification pending sale. Work on the property or promotion of the property is evidence of dealing: IRC v Livingston, (1926) 11 TC 538. In Cape Brandy Syndicate v IRC, (1921) 12 TC 358, the taxpayers bought South African brandy, shipped it to the UK, blended it with French brandy, recasked the new blend and sold it in several lots. The transactions were held to be an adventure in the nature of trade.

Method of acquisition: In Hudson’s Bay Company Ltd v Stevens, (1909) 5 TC 424, the company acquired lands in Canada under Royal Charter. The acquired lands were later surrendered to the Crown in exchange for other lands. Parts of the replacement lands were sold from time to time. It was held that the sale of the replacement lands was not trading as there was no evidence of intention to deal.

Property acquired involuntarily, for example under a will, may be sold without being characterised as trading. In IRC v Donaldson’s Trustees, (1963) 41 TC 161, the sale by trustees of the deceased’s cattle was held not to be trading. See also Armitage v Moore, (1900) 4 TC 199; Baker v Cook, (1937) 21 TC 337; Weisberg’s Executrices v IRC, (1933) 17 TC 696; Wood v Black’s Executor, (1952) 33 TC 172. This may be contrasted with the decision inPattullo’s Trustees v IRC, (1955) 36 TC 87. In that case the trustees were held liable on profits arising, since the deceased’s death, from crop farming and cattle fattening.

Method of securing sale: In Martin v Lowry, (1926) 11 TC 297, the sale of surplus airforce linen by an agricultural machinery contractor using an elaborate selling organisation was held to be an adventure in the nature of trade.

(e) The circumstances responsible for the realisation: If the realisation was caused by a sudden emergency need for cash, this may negate the idea of planned dealing.

(f) Motive: i.e., profit-seeking motive. It may be possible to infer the purpose of the transaction from the surrounding circumstances. If the motive (intention) in acquiring the property was to hold it as an investment, it indicates the taxpayer was not trading. If the motive was to resell the property, it indicates the taxpayer was trading: IRC v Reinhold, (1953) 34 TC 389.

A taxpayer who over a period of time sold 30 driving schools he started was held to be trading in Leach v Pogson, (1962) 40 TC 585, on the basis that when he sold the first school it was his intention to start another (and sell that).

Commission is therefore taxed as a trading receipt: Orchard Wine and Spirit Co v Loynes, (1952) 33 TC 97. More recently, see Clark v British Telecom Pension Scheme Trustees and another, [1998] STC 1075 in which sub-underwriting commission paid to trustees of an exempt approved pension scheme was held to be trading income (as it was derived from operations of a commercial character provided for reward).

A decision to transact business through a company is evidence of trading: Lewis Emmanuel and Son Ltd v White, (1965) 42 TC 369. In that case, the company was held liable on profits from share dealing transactions. However, loss-making speculative trading by an individual on the stock exchange, i.e., in shares, was held not to be trading inSalt v Chamberlain, [1979] STC 750.

Profits from commercial trading (for example, a restaurant) are chargeable to tax, even if the trade is not carried on with a view to a profit: Grove v YMCA, (1903) 4 TC 613. Thus, in Exported Live Stock (Insurance) Board v Carroll, 2 ITR 211, a statutory body set up to implement a compulsory insurance scheme was treated as carrying on a trade.

Non-commercial or charitable activities, which have no hope of making a profit, are not regarded as trading (see author’s notes to section 207): Religious Tract and Book Society of Scotland v Forbes, (1896) 3 TC 415. Losses arising on such activities are therefore not allowable. See also Veterinary Council v Corr, 2 ITR 204. In that case, surplus income from registration and annual fees accruing to a body performing statutory functions was not regarded as trading income. Similarly, in The Racing Board v O’Culacháin, 4 ITR 73, statutory levies made by the Racing Board were not regarded as trading receipts.

Method of financing: The fact that money has been borrowed to finance a venture is indicative of trading: Harvey v Caulcott, (1952) 33 TC 159.

The manner in which profit that has already been earned is spent is not material in deciding whether a transaction was a trading transaction: Mersey Docks and Harbour Board v Lucas, (1883) 2 TC 25. See also Paddington Burial Board v IRC, (1884) 2 TC 46.

The following miscellaneous receipts have been held to be income from trading:

(a) Card winnings: Burdge v Pyne, (1968) 45 TC 320.

(b) Company promotion: OK Trust Ltd v Rees, (1940) 23 TC 217.

(c) Construction rebates for railway sidings: Westcombe v Hadnock Quarries Ltd, (1931) 16 TC 137. These were held to be capital in Legge v Flettons Ltd, (1939) 22 TC 455.

(d) Contango received by a sharedealer: Multipar Syndicate Ltd v Devitt, (1945) 26 TC 359.

(e) Harbour dues: Sowrey v King’s Lynn Harbour Mooring Commissioners (1887) 2 TC 20.

(f) Newsfilm service receipts: British Commonwealth International Newsfilm Agency Ltd v Mahany, (1962) 40 TC 550.

(g) Payments in kind: Temperley v Smith, (1956) 37 TC 18.

(h) Publications activity regarded as a separate trade: British Broadcasting Corporation v Jones, (1964) 41 TC 471.

(i) Rebates: Pope v Beaumont, (1941) 24 TC 78.

(j) Receipt for variation of contract: Shadbolt v Salmon Estate (Kingsbury) Ltd, (1943) 25 TC 52.

(k) Receipts connected with a sale of shares: Lamport and Holt Line Ltd v Langwell, (1958) 38 TC 193.

(l) Receipts for assignment of contract: Thomson (George) and Co Ltd v IRC, (1927) 12 TC 1091.

(m) Receipts from the production of grass meal from land used by the military: O’Connell v Shackleton and Sons,[1982] ILRM 451.

(n) Receipts from the sale of a betting system: Graham v Arnott, (1941) 24 TC 157.

(o) Receipts of a railway company with substantial investment and rental income: IRC v Dublin and KingstonRailway Co, 1 ITC 131; [1930] IR 317.

(p) Receipts accruing to a limited partnership set up to finance film production: Ensign Tankers (Leasing)Ltd v Stokes, [1992] STC 226.

(q) Record royalties: Electric and Musical Industries Ltd v IRC, (1950) 29 ATC 157.

(r) Sale of rounds: Bonner v Frood, (1934) 18 TC 488.

(s) Unclaimed deposits: Jays the Jewellers Ltd v IRC, (1947) 29 TC 274; Elson v Prices Tailors Ltd, (1962) 40 TC 671 but not in Morley v Tattersall, (1938) 22 TC 51.

The following miscellaneous receipts have been held not to be income from trading:

(a) Profits arising to a commodity broker trading from home: Wannell v Rothwell, [1996] STC 450.

(b) Charges levied by a company administering a holiday pay scheme: Building and Civil Engineering Holidays Scheme Management Ltd v Clark, (1960) 39 TC 12.

(c) Profits accruing to a company financing a joint venture: Stone and Temple v Waters, [1995] STC 1.

(d) A gain accruing to executors on completing a contract initiated by the deceased: Cohan’s Executors v IRC, (1924) 12 TC 602.

See also Jenkinson v Freedland, (1961) 39 TC 636; Shingler v Williams (P) and Sons, (1933) 17 TC 574.

Are liquidators’ profits trading receipts?

In City of Dublin Steampacket Co v Revenue Commissioners, 1 ITR 318, a company in liquidation was held to be carrying on business even after the liquidator had been appointed. Profits arising to the liquidator were held not to be trading receipts in IRC v ‘Old Bushmills’ Distillery Co Ltd, (1927) 12 TC 1148 and Wilson Box (Foreign Rights) Ltd v Brice, (1936) 20 TC 736.

Are transactions in land “trading”?

Land may be traded (i.e., bought and sold at a profit) and/or held as an investment. Once-off transactions in land may be categorised under either heading depending on the particular facts of the case. In Taylor v Good, [1974] STC 148, 49 TC 294, the taxpayer bought land, obtained planning permission to build houses on it, and sold it at a substantial profit. The transaction was held not to be a trading transaction even though acquiring the planning permission clearly constituted supplementary work on the property realised.

The question to be answered in land transactions is: “Was the taxpayer investing the money, or was he doing a deal?”: Browne-Wilkinson VC in Marson v Morton, [1986] STC 463. In that case, the disposal, within three months of its acquisition, of land acquired as a long-term investment was held not to be a trading transaction. This may be contrasted with the decision in Kirby v Hughes, [1992] STC 76. In that case, a builder who was living with his parents bought, improved and sold two properties. The taxpayer was held to be trading. For an Irish case in this regard, seeSpa Estates Ltd v O hArgáin, Kenny J, Unreported, 20 June 1975.

Commercial transactions in land are now generally taxed as trading transactions (see notes to Part 22). Non-trading gains on the disposal of land are taxed under the capital gains tax law (Part 19).

Are profits of mutual societies trading profits?

If the profits (surplus) of a mutual society or club go back to the society’s members, the society cannot be regarded as trading, because a person cannot trade with himself: Styles v New York Life Insurance Company Ltd, (1889) 2 TC 460.

However, profits arising from providing goods or services to non-members are regarded as trading profits: Carlisle and Silloth Golf Club v Smith, (1913) 6 TC 198. See also Carnoustie Golf Course Committee v IRC, (1929) 14 TC 498; IRC v Stonehaven Recreation Ground Trustees, (1929) 15 TC 419; IRC v Cornish Mutual Assurance Co Ltd, (1926) 12 TC 841; IRC v Eccentric Club Ltd, (1923) 12 TC 657; Jones v The South-West Lancashire Coal Owners’ Association Ltd, (1927) 11 TC 790; Faulconbridge v National Employers’ Mutual General Insurance Association Ltd, (1952) 33 TC 103 and IRC v Eccentric Club Ltd, (1923) 12 TC 657.

For Irish cases, see Kennedy v Rattoo Co-operative Dairy Society Ltd, 1 ITR 315, and Revenue Commissioners v Y Ltd, 2 ITR 195.

A society is not regarded as mutual unless the surplus is distributed among the members in proportion to the amounts contributed by each member: Doctor’s Cave Bathing Beach (Fletcher) v Jamaica Income Tax Commissioner, [1971] 3 All ER 1185.

See also Municipal Mutual Insurance Ltd v Hills, (1932) 16 TC 430, 198; Liverpool Corn Trade Association v Monks, (1926) 10 TC 442; English and Scottish CWS Ltd v Assam Agricultural Income Tax Commissioner, (1948) 27 ATC 332 and Staffordshire Egg Producers Ltd v Spencer, (1963) 41 TC 131.

Example

You are a DIY enthusiast who buys a house for €50,000. While living in the house, you spend six months completely renovating it. You then sell it for €100,000.

You buy another house and repeat the process four times over a period of three years. The inspector of taxes may assess the profits from your trade of house-improving.

It may be possible to convince the inspector that your gains are capital, and not derived from a trade of house improving.

See also Oram v Johnson, [1980] STC 222, and Sansom v Peay, [1976] STC 494.

Example

You are a car enthusiast who buys and renovates old VW Beetles, and has done so for many years.

On each car you make a profit of between €2,000 and €3,000. On average you buy and renovate four cars per year.

For a tax year, your profits from this hobby were €11,000. Your other income was €25,000.

It would be difficult to convince the inspector that you are not trading.

What is earned income?

(2) Earned income includes:

(a) income from an employment or past employment,

(b) income from the carrying on of a trade or profession.

Unearned income would, therefore, include dividends, interest or rental income from property, i.e., income that has not been “earned”.

Earned income means income earned by an individual’s personal exertion and the term does not therefore include income received by a Lloyd’s name who is not engaged full-time in the Lloyd’s underwriting market: Koenigsberger v Mellor, [1993] STC 408.

Earned income includes income of an active partner after expenses: Frame v Farrand, (1928) 13 TC 861; and charges:Adams v Musker, (1930) 15 TC 413; Dealler v Bruce, (1934) 19 TC 1; Lewin v Aller, (1954) 35 TC 483. It does not include income of a passive partner i.e., a partner who does not carry on the trade or profession (for example, a limited partner or sleeping partner). Although a limited partner is prohibited by law from being actively engaged in the management of the partnership, the income of a limited partner could be earned income if he/she were engaged in the business in a non-managerial capacity.

Income arising from a purchased life annuity (see section 788) may be treated as earned income if the annuity was bought in lieu of a pension that would have been treated as earned income under the rule in Hancock v General Reversionary and Investment Co Ltd, (1918) 7 TC 358.

Unearned income has traditionally been treated in tax law as distinct from income actively derived from an employment, trade or profession.

The following types of income have been held to be earned income:

(a) A short term gain on sale of goodwill: Peay v Newton, (1970) 46 TC 653.

(b) Dividends on shares held by employees: White v Franklin, (1965) 42 TC 283 and Racknell v IRC, (1952) 33 TC 201.

(c) Trustees’ annuities: Dale v IRC, (1953) 34 TC 468 but not trust income in general: Fry v Shiel’s Trustees, (1914) 6 TC 583.

The following types of income have been held to be unearned income:

(a) Income from securities received by a banking partnership: Bucks v Bowers, (1969) 46 TC 267.

(b) Interest received by a solicitor on clients’ deposit accounts: Brown v IRC, (1964) 42 TC 42 and Northend v White and others, [1975] STC 317.

(c) Dividends received by an accountant allegedly for services: Evans v Pearce, (1973) 49 TC 120.

(d) Pension to a retired partner under the partnership deed: Pegler v Abell, (1972) 48 TC 564 and Lawrence v Hayman, [1976] STC 227.

(e) Share of profits paid to a retired partner where the consultancy services were minimal: Hale v Shea, (1964) 42 TC 260.

Does earned income include pension and employment income?

(3) Earned income also includes income from a self-employed pension scheme, and generally includes any Schedule E type income.

Do references to income tax “profits or gains” include chargeable gains?

(4) To prevent double taxation, the word “gains” in “profits or gains” taxed under the Income Tax Acts does not include chargeable gains that are taxed under the Capital Gains Tax Acts.

Section 4 Interpretation of Corporation Tax Acts

What definitions apply for corporation tax?

(1) This section defines terms that are used throughout the Taxes Consolidation Act 1997 for corporation tax.

Corporation tax is charged on the profits (income and chargeable gains) of every company (any body corporate including a trustee savings bank) at the rate applicable for each financial year (the calendar year, from 1 January to 31 December).A company’s profits, for tax purposes, are its profits as computed under generally accepted accounting principles (GAAP) which:

(a) in the case of a company the accounts of which are prepared under international accounting standards (IAS) mean International Financial Reporting Standards (IFRS),

(b) in all other case, means Irish GAAP.

Corporation tax is not charged on the profits of agricultural committees, health boards, local authorities or vocational educational committees. The profits of European Economic Interest Groupings are taxed on the individual members of such a grouping.

A distribution also includes a scrip dividend i.e., additional shares issued by an Irish resident quoted company which are taxed in the hands of the recipient on the basis of the shares’ cash value (section 816(2)(b)).

A non-resident company trading in the State is taxed through the branch or agency carrying on the trade in the State.

For corporation tax purposes, trade includes a vocation, office or employment.

Do income tax definitions apply for corporation tax?

(2) The income tax definitions which extend to corporation tax are not confined to those listed in section 3(1). Other definitions expressed elsewhere in the Taxes Consolidation Act 1997 for income tax (usually for specific purposes) also extend to corporation tax (for the same specific purpose).

Are payments received in trust treated as income of the recipient?

(3) Distributions received by another person on behalf of or in trust for a company are treated as received by that company.

Distributions received by a company on behalf of or in trust for another person are not treated as received by that company.

What does “profits brought into charge to corporation tax” mean?

(4) Profits brought into charge to corporation tax means profits before charges on income, management expenses, and any other items which are deductible from total profits (for example, certain trading losses or group relief).

Total income brought into charge to corporation tax means total income from all sources included in any profits brought into charge to corporation tax.

The amount of profits on which corporation tax falls finally to be borne means the amount on which tax is charged, after allowing all deductions.

In Cronin v Youghal Carpets (Yarns) Ltd, (1985) 3 ITR 229 it was held that profits or gains brought into charge means profits after allowing group (loss) relief.

Example

X Ltd had the following corporation tax computation for the year ended 31 December 2012:

Rental income 3,000 (a)
Investment income 3,000 (b)
Trading income 25,000 (c)
Total income brought into charge 31,000 (a) (b) (c)
Corporation tax on chargeable gain 3,000 (10,000 x 30%)
Gain to be included in computation 24,000 (3,000/12.5%) (e)
Profits brought into charge 55,000 (a) (b) (c) (e)
Profits on which tax falls finally to be borne 55,000

When is a dividend treated as paid?

(5) A dividend is generally regarded as paid when it becomes due and payable.

A final dividend is due and payable on the date it is declared, unless the resolution declaring it specifies that it is due and payable on a future date: Hurll v IRC, (1922) 8 TC 292.

An interim dividend is due when it is paid: Potel v IRC, (1970) 46 TC 658.

How should apportionments be made for corporation tax?

(6) Any apportionments required to be made for corporation tax purposes are to be made on a time basis.

In Marshall Hus and Partners Ltd v Bolton, [1981] STC 18, the company claimed that profits for a set of accounts covering six accounting periods should be allocated on a time basis. The UK Revenue sought to allocate the relatively small number of transactions to their respective accounting periods. The court held that if a more accurate basis of assessment was available (as it was in this case) apportionment on a time basis was not necessary.

Are accounts prepared under an international accounting standard (IAS) compliant?

(7) Where the EU adopts an IAS subject to some modification, generally accepted accounting practice (GAAP) in relation to IAS accounts is regarded as allowing the IAS standard with or without the modification. Accounts prepared on either basis will be regarded as IAS compliant.

Section 5 Interpretation of Capital Gains Tax Acts

What definitions apply for capital gains tax?

(1) This section defines terms that are used throughout the Taxes Consolidation Act 1997 for capital gains tax.

Land includes any interest in land, for example, a leasehold interest.

A lease of land includes a sublease, tenancy or licence to use land. A lease of any other kind of property includes any agreement whereby payments are made for the use of the property.

A legatee includes a person who takes property under a will or intestacy, or by survivorship.

A unit trust is a trust where the unit holders participate as beneficiaries in profits arising on the buying and selling of shares or other property.

The capital gains tax year (year of assessment) is the same as the income tax year. The 2012 tax year (the year of assessment 2012), therefore, runs from 1 January 2012 to 31 December 2012.

Can husbands and wives be of either sex?

(1A) Following the establishment of same sex marriage references in the Capital Gains Tax Acts to a married man, a married woman, a man,  a woman, a husband or a wife can refer to either sex as the context requires.

How is a married woman treated for capital gains tax?

(2) For capital gains tax purposes, a woman is treated as living with her husband, and civil partners are treated as living together, if the couple would be so treated for income tax purposes.

Is deemed disposal expenditure deductible?

(3) Several capital gains rules provide that assets are to be treated as sold and immediately reacquired by the seller. This does not mean that any expenditure related to the notional sale and reacquisition is deductible.

Section 6 Construction of references to child in Tax Acts and Capital Gains Tax Acts

Does a stepchild or an adopted child qualify as a child?

A child includes a stepchild and a child who has been formally adopted under Irish or equivalent foreign adoption law. An adopted child is regarded as the child of its adoptive parents, not the child of its biological parents.

The Revenue view is that an adopted child remains the child of the natural parent for the purposes of covenant relief (see section 792).

Example

You own a large farm which you propose to gift to your adopted son.

Your adopted son is treated as your child for the purposes of retirement relief (section 599 – disposal within the family).

Section 7 Application to certain taxing statutes of Age of Majority Act, 1985

What is the age of majority?

(1) The Age of Majority Act 1985 reduced the age of majority from 21 years of age to 18 years of age.

Is incapacitated child credit available if the incapacity arises between 18 and 21?

(2) You do not lose your entitlement to the single person cild carer credit (section 462B) or the incapacitated child tax credit (section 465) if your child becomes incapacitated between the ages of 18 and 21 years.

Example

A widowed single parent, you have two children B and C, aged 17 and 20 respectively living with you. C became mentally incapacitated following a motor bike accident at the age of 19.

You remain entitled to the incapacitated child tax credit (section 465) in respect of C.

You do not lose your entitlement to the one parent family tax credit when B reaches 18 years of age, as long as C is alive.

Section 8 Construction of certain taxing statutes in accordance with Status of Children Act, 1987

Does a child born outside marriage qualify as a child for tax purposes?

(2) For the purposes of income tax, corporation tax, capital gains tax, capital acquisitions tax and stamp duty, children born out of wedlock have the same legal status as children born in wedlock.

See Inspector Manual 1.0.1, 15.1.29.

Example

You own a large farm which you propose to gift to your “illegitimate” son.

The disposal qualifies for retirement relief (section 599 – disposal within the family).

Section 9 Subsidiaries

What is a subsidiary?

(1)-(2) A 51% subsidiary is a company whose ordinary share capital is owned, directly or indirectly, as to 50% or more, by another company.

A 75% subsidiary is a company whose ordinary share capital is owned, directly or indirectly, as to 75% or more, by another company.

A 90% subsidiary is a company whose ordinary share capital is owned, directly or indirectly, as to 90% or more, by another company.

A wholly-owned subsidiary is a company whose entire ordinary share capital is owned, directly or indirectly, by another company.

A company in liquidation cannot be a parent company because such a company is no longer the beneficial owner of its assets: Ayerst v C and K (Construction) Ltd, [1975] STC 345; IRC v Olive Mill Spinners Ltd, (1963) 41 TC 77.

The granting by a 75% parent company of an option to another shareholder to buy 5% of its 75% holding did not prevent the grantor from qualifying as a 75% parent: Sainsbury plc v O’Connor, [1991] STC 318.

When are shares owned?

(3) Ownership means beneficial ownership, i.e. full entitlement to the shares and the income arising from them.

Does indirect ownership count?

(4) The rules for determining how much one company owns of another company are set out in (5) to (10) below.

What if ownership is held through a series of companies?

(5)-(6) If one company owns shares of a second company, which owns shares of a third company, the first company is deemed to own part of the third company’s shares.

Any three or more companies of which one owns ordinary share capital in the next, as described in the above example, is called a series.

The series is composed of the first owner, the last owned company, each company in the chain (an intermediary).

Any two companies are referred to as a chain of intermediaries.

A company in a series which owns capital of another company in the series is called an owner. If a company directly owns ordinary shares in another company in a series the two companies are directly related.

Example

A Ltd owns shares in B Ltd, B Ltd owns shares in C Ltd, and C Ltd owns shares in D Ltd.

A Ltd indirectly owns shares in C Ltd and D Ltd etc.

What if 100% ownership is held through a series of companies?

(7) If every owner in a series owns 100% of the ordinary share capital of the next company then the first owner owns 100% of the ordinary share capital of the last owned company.

What if fractional ownership is held through a series of companies?

(8) If each owner in a series owns a fraction of the ordinary share capital of the next company, then the first owner owns a fraction of the ordinary share capital of the last owned company.

How is ownership worked out where companies are related?

(9) Where each owner in a series owns a percentage of the ordinary share capital of the company to which it is directly related, the first owner owns the percentage of the ordinary share capital of the last owner which is arrived at by multiplying the intermediate percentages.

Example

If A Ltd owns 80% of B Ltd, which owns 100% of C Ltd, which in turn owns 75% of D Ltd, then A Ltd indirectly owns 60% of D Ltd (80% x 100% x 75%).

D Ltd is, therefore, a 51% subsidiary of A Ltd, while B Ltd and C Ltd are 75% subsidiaries of A Ltd.

How is ownership worked out where there is a series of indirect ownerships?

(10) Where the first owner owns shares in the last owned company directly or indirectly through one or more series, to calculate how much it owns of the last owned company, total the various percentages owned through each separate series.

Example

Building on the preceding example, if A Ltd also owns 40% of E Ltd, which in turn owns 50% of D Ltd, then A Ltd indirectly owns a further 20% of D Ltd (40% x 50%).

In this case, A Ltd ends up indirectly owning 80% of D Ltd (60% + 20%) making D Ltd a 75% subsidiary of A Ltd.

Section 10 Connected persons

Who is my relative?

(1) Your relative means your brother, sister, ancestor or lineal descendant. For capital gains tax purposes, a relative also includes an uncle, aunt, niece or nephew.

You control a company if you can control the company’s affairs or obtain more than half the company’s shares, voting power, income, or assets (on a winding up) (section 432).

A settlement includes any trust, disposition, covenant, agreement or arrangement, and any transfer of money or other property.

A settlor is a person who makes a settlement (trust) and can include any person who directly or indirectly funds the settlement.

For meaning of settlement and arrangement, see notes to section 794.

Settled property means property held in trust except where another person is absolutely entitled against the trustee. It includes land held on certain trusts under a will, Crowe v Appleby, [1976] STC 301, but not land held jointly (concurrently or in common): Kidson v Macdonald and another, [1974] STC 54; Harthan v Mason, [1980] STC 94.

When do the “connected person” rules apply?

(2) The connected person rules in (3) to (8) apply for income tax, corporation tax and capital gains tax unless the context indicates otherwise.

Who am I connected with?

(3) You are connected with:

(a) your spouse*,

(b) your relatives,

(c) your relative’s spouse,

(d) your spouse’s relative, and

(e) the spouse of your spouse’s relative.

* For “spouse” read “spouse/civil partner”.

A husband and wife in divorce proceedings are regarded as connected until the divorce is final: Aspden v Hildesley, [1982] STC 206.

Example

The following table illustrates the connected person rules for income tax and corporation tax purposes:

Your ancestor, D
D’s spouse, DS
Your parent, E
E’s spouse, ES
Your brother, B You Your sister, I
B’s spouse, BS I’s spouse, IS
Your child, F
F’s spouse, FS
Your lineal descendant, G
G’s spouse, GS
Y’s ancestor, N
N’s spouse, NS
Y’s parent, O
O’s spouse, OS
Y’s brother, L Your spouse, Y Y’s sister, T
L’s spouse, LS T’s spouse, TS
Y’s child, Q
Q’s spouse, QS
Y’s lineal descendant, R
R’s spouse, RS

(c) You are connected with the spouse of each of your relatives: B’s spouse BS, I’s spouse IS, E’s spouse ES, D’s spouse DS, F’s spouse FS, G’s spouse Gs.
(b) You are connected with your relatives: brother B, sister I, parent E, ancestor D, child F, lineal descendant G.(a) You are connected with your spouse Y.

(d) You are connected with Y’s relatives: Y’s brother L, Y’s sister T, Y’s parent O, Y’s ancestor N, Y’s child Q, Y’s lineal descendant R.

(e) You are connected with the spouses of Y’s relatives: L’s spouse LS, T’s spouse TS, O’s spouse OS, N’s spouse NS, Q’s spouse Qs, R’s spouse RS.

Example

The following table illustrates the connected person rules for capital gains tax purposes:

Your ancestor, D
D’s spouse, DS
Your uncle, A Your parent, E Your aunt, H
A’s spouse, AS E’s spouse, ES H’s spouse, HS
Your brother, B You Your sister, I
B’s spouse, BS I’s spouse, IS
Your nephew, C Your child, F Your niece, J
C’s spouse, CS F’s spouse, FS J’s spouse, JS
Your lineal descendant, G
G’s spouse, GS
Y’s ancestor, N
N’s spouse, NS
Y’s uncle, K Y’s parent, O Y’s aunt, S
K’s spouse, KS O’s spouse, OS S’s spouse, SS
Y’s brother, L Your spouse, Y Y’s sister, T
T’s spouse, TS
Y’s nephew, M Y’s child, Q Y’s niece, U
M’s spouse, MS Q’s spouse, QS U’s spouse, US
Y’s lineal descendant, R
R’s spouse, RS

(c) You are connected with the spouse of each of your relatives: B’s spouse BS, I’s spouse IS, E’s spouse ES, D’s spouse DS, F’s spouse FS, G’s spouse GS. You are also connected with your uncle A’s spouse, AS, your aunt H’s spouse HS, your nephew C’s spouse CS, and your niece J’s spouse JS.

(b) You are connected with your relatives: brother B, sister I, parent E, ancestor D, child F, lineal descendant G. You are also connected with your uncle A, your aunt H, your nephew C, and your niece J.(a) You are connected with your spouse Y.

(d) You are connected with your spouse Y’s relatives: Y’s brother L, Y’s sister T, Y’s parent O, Y’s ancestor N, Y’s child Q, Y’s lineal descendant R. You are also connected with Y’s uncle K, Y’s aunt S, Y’s nephew M, and Y’s niece U.

(e) You are connected with the spouses of Y’s relatives: L’s spouse LS, T’s spouse TS, O’s spouse OS, N’s spouse NS, Q’s spouse Qs, and R’s spouse RS. You are also connected with K’s spouse KS, S’s spouse SS, M’s spouse MS, and U’s spouse US.

Who is a trustee connected with?

(4) A trustee is connected with:

(a) the settlor,

(b) any person connected with the settlor,

(c) a close company (or a company which, if it were resident in the Republic of Ireland, would be close) whose participators (at any time during a tax year or accounting period when it is close) include the trustees of, or a beneficiary under the settlement.

Who is a partner connected with?

(5) A partner is connected with:

(a) every other partner in the partnership,

(b) each partner’s spouse, and

(c) a partner’s relatives.

Who is a company connected with?

(6) A company is connected with another company if a third company or group of persons, either directly or through connected persons, controls the first two companies.

See Floor v Davis, [1979] STC 379, IRC v Harton Coal Co Ltd (In Liquidation), (1960) 39 TC 174.

Is a company connected with its shareholders?

(7) A company is connected with persons who, directly or through connected persons, control the company.

See Steele v EVC International NV, [1996] STC 785.

Are joint controlling shareholders connected?

(8) Persons who acting in concert can control a company are connected with each other, and with any person who acts on their direction to control the company.

Section 11 Meaning of “control” in certain contexts

What is “control” of company?

You control a company if either through holding shares or through special voting powers, you can ensure that the company’s affairs are conducted in accordance with your wishes.

You control a partnership if you have a right to more than half of the partnership income or assets.

This definition of control is used, for example, for seed capital relief (section 493(7)).

The voting power required to secure control is usually contained in the company’s articles of association or other documents: IRC v Lithgows Ltd, (1960) 39 TC 270. For cases on indirect control see: IRC v Clark (FA) and Sons Ltd, (1941) 29 TC 49; British-American Tobacco Co Ltd v IRC, (1942) 29 TC 49; S Berendsen Ltd v IRC, (1957) 37 TC 517

Casting votes may be treated as part of the controller’s voting power: IRC v B W Noble Ltd, (1926) 12 TC 911 and IRC v Monnick Ltd, (1949) 29 TC 37. Votes exercised as trustee may also be treated as part of the controller’s voting power: Bibby (J) and Sons Ltd v IRC, (1945) 29 TC 167; John Shields and Co (Perth) Ltd v IRC, (1950) 29 TC 475 andIRC v Silverts Ltd, (1951) 29 TC 491.

Votes exercised as attorney may not be treated as part of the controller’s voting power: IRC v James Hodgkinson (Salford) Ltd, (1949) 29 TC 395.

Votes which cannot be exercised are ignored: Appleby (Joseph) Ltd v IRC, (1950) 29 TC 483.

Shares with special rights: see IRC v Harton Coal Co Ltd (In Liquidation), (1960) 39 TC 174.

Example

X Ltd has authorised share capital of 100,000 shares costing €1 each, which have no vote, and 200 voting shares costing €5 each.

You own 101 voting shares. Therefore you control the affairs of X Ltd.

Section 12 The charge to income tax

What are the income tax schedules?

Income tax is charged under four Schedules:

Schedule C,

Schedule D,

Schedule E, and

Schedule F.

Income is not defined. It is described by Schedules which date from the time income tax was first introduced as a temporary tax in 1799 by William Pitt, the chancellor of the exchequer. The rate was 10% and the tax was payable by anyone earning more than £60 a year.

The four original Schedules taxed income in descending order of importance: income from land, income from personal property and trades, income arising outside Great Britain, and income not falling within the other categories. Each taxpayer was required to complete a single return of income comprising income under 19 different headings (Cases) with different deductions for each Case.

The temporary income tax was repealed by Henry Addington, Pitt’s successor, but was reintroduced in 1803 to finance the war with France. Wealthy landowners had objected to the notion of a single return disclosing the taxpayer’s entire wealth to a local assessor of lower social status. As a result, when the tax was reintroduced, a return for each of the 19 different headings could be sent to a different surveyor, ensuring that no surveyor had a complete picture of the taxpayer’s wealth. Although income tax was again abolished after the war with France ended in 1816, it was permanently reintroduced in 1842 by Sir Robert Peel, the Tory prime minister.

The system of charging income tax under Schedules, i.e., the schedular system, assumes that the taxpayer has asource of income, for example, land, personal property, or a trade. It follows that if a taxpayer has no source of income, he/she cannot be charged to income tax. The source (or capital) is the tree; income is the fruit of the tree.

A source of income does not include a potential source of income such as an interest-free loan: Walker v Centaur Clothes Group Ltd, [1998] STC 814.

Because income tax is an annual tax, for income to be taxed in a tax year the source of the income must exist in that tax year. On this basis receipts arising after a trade has ceased could fall out of assessment and not be taxed as their source has ceased to exist. Such receipts are taxed under section 91. Similarly, income arising before an employment commences, or after the employment ceases could fall out of assessment and not be taxed. Such receipts are taxed under section 112(2).

The Schedules are mutually exclusive. In other words, a source of income may only be taxed under the Schedule to which it is correctly attributable: Salisbury House Estates Ltd v Fry, (1930) 15 TC 266. This means that the more generous Schedule D deductions may not be claimed against Schedule E employment income: Mitchell and Edon v Ross, (1961) 40 TC 11. Letting of property was held to be the carrying on of a business in American Leaf Blending Co Sdn Bhd v Director General of Inland Revenue, [1978] STC 561.

Although the Schedules are mutually exclusive, the Cases are not: Liverpool and London and Globe Insurance Co v Bennett, (1913) 6 TC 327. See also Lowe v J W Ashmore Ltd, (1970) 46 TC 597.

Example

You have the following sources of income:

Income from profession of entertainer

50,000

Pension from former employment

5,000

Income from Irish company dividends

4,000

The pension is regarded as employment income chargeable under Schedule E.The entertainment income is chargeable under Schedule D (Case II).

The company dividend income is chargeable under Schedule F.

Section 13 Extension of charge to income tax to profits and income derived from activities carried on and employments exercised on the Continental Shelf

What are offshore exploration activities?

(1) Exploration or exploitation activities are activities relating to exploration or exploitation of the sea bed and its natural resources either within Irish territorial waters or a designated area, i.e., a block on the Continental Shelf in which the Government has granted offshore exploration rights.

Exploration or exploitation rights are rights to assets generated from exploration or exploitation activities.

Prior to this legislation, an oil or gas exploration company which was not resident in the Republic of Ireland (ROI), but was exploring for oil or gas on the Continental Shelf outside Irish territorial waters, would not be chargeable to Irish tax unless it had an ROI branch or agency.

Are offshore exploration profits taxed?

(2) Profits derived from offshore exploration activities are treated as arising from an activity in the ROI.

Are offshore exploration profits of a foreign company taxed?

(3) Profits derived from offshore exploration activities carried on by a foreign company are treated as arising from an ROI branch.

Are profits of a licence holder taxed?

(4) The holder of an offshore exploration licence is deemed to be the agent of a person who carries on exploration/exploitation activities on its behalf.

Are offshore rig employees subject to Irish tax?

(5) Employees working on an offshore platforms in designated areas are regarded as working in the Republic of Ireland and caught for PAYE.

See Clark v Oceanic Contractors Inc, [1983] STC 35, which dealt with the UK taxability of workers on North Sea rigs.

How is tax collected from offshore licence holders?

(6) The detailed rules in Schedule 1 regarding information to be provided to the inspector and collection of tax apply to such licence holders.

Section 14 Fractions of a euro and yearly assessments

Is income tax an annual tax?

(1)-(2) Every income tax assessment and charge must be made for a tax year (section 2).

Section 15 Rate of charge

What is the standard rate of income tax?

(1) Income tax is charged for every tax year at the standard rate (currently 20%).

What is the higher rate of income tax?

(2) The higher rate (currently 41%) applies to the part of an individual’s taxable income which exceeds the standard rate band (see (5) below).

What is the standard rate band for a married couple?

(3) A jointly assessed married couple (section 1017) or civil partnership (1031C) may increase their standard rate band by the lower of:

(a) €24,800, or

(b) the lower of their two incomes (specified income).

Example

Husband’s salary 46,000
Wife’s income from part-time job 4,000
Total 50,000

The standard rate band applicable is €49,400 (i.e., €45,400 increased by €4,000 – the lower of the two incomes, which is itself lower than €23,800).

What is the “specified income” of a married couple?

(4) In (3), the net income (specified income) of either the husband or the wife means income after deductions attributable to a particular source of income.

What is the standard rate band for a single person?

(5) For 2015, income is taxed as follows:

(a) single person: first €33,800 at 20%, balance at 40%.

(b) single parent: first €37,800 at 20%, balance at 40%.

(c) married couple or civil partnership: first €42,800 at 20%, balance at 40%. But see (3) above.

Example

2015 Single individual with employment income of €40,000.

Total income 40,000
33,800 at 20% 6,760
6,200 at 40% 2,480
40,000 9,240
Less tax credits:
Single person (section 461) 1,650
Employee (section 472) 1,650 3,300
Tax 5,940

This tax is deducted from your salary through the PAYE system (section 985).

Section 16 Income tax charged by deduction

How do I account for tax I have deducted at source?

(1) A person making an annual payments (section 237) must deduct tax at source and account for such tax to Revenue.

Example

15.06.2012 You covenant to pay X €2,000 on 20.06.2012, 2013, and 2014, i.e., in each of the three tax years 2012, 2013, and 2014.

You must deduct tax at 20% from the 20.06.2012 payment so the net payment to X is €1,600.

X must include the gross sum receivable €2,000) in his/her total income for 2012. X will receive a tax credit for the €400 deducted at source.

What rate applies to tax deducted at source?

(2) Although your income may be chargeable to tax at the higher rate, the standard rate applies to annual payments.

Section 17 Schedule C

What is Schedule C tax?

(1) A bank or paying agent (a person responsible for paying dividends and interest payable from the public revenue of any government or foreign public authority) must deduct Schedule C tax from the amount payable in the Republic of Ireland.

In the case of UK Treasury Stock, the Schedule C tax is deducted from the gross amount receivable (not the amount payable in the State).

The UK Courts have held that the Schedule C charge does not apply to other types of interest: Esso Petroleum Co Ltd v Ministry of Defence, (1989) 62 TC 253.

Example

An Irish resident is due to receive €1,000 interest on US treasury bonds.

Interest on US Treasury bonds 1,000
Less 15% US income tax deducted 150
Received in Ireland 850
Less 20% Schedule C withheld by Irish bank: €1,000 x 20% 200
Net amount received 650

The bank must pay to the Irish Revenue the Schedule C tax withheld (€200).

Example

An Irish resident is due to receive €1,000 interest on UK treasury stock.

Interest on UK Treasury Stock 1,000
Less 20% UK income tax deducted at source 200
Received in Ireland 800
Less 20% Schedule C withheld by Irish bank 160
Net amount received 640

The bank must pay to the Irish Revenue the Schedule C tax withheld (€160).

How is Schedule C tax collected?

(2) Schedule C tax is collected by self-assessment. The pay and file procedures and dates are set out in Schedule 2.

Does Schedule C tax apply to cheque clearing?

(3) The words “or otherwise” in section 17(1) were considered wide enough to include clearing of a cheque. The encashment tax rule in (1) does not apply where the banker merely clears a cheque or arranges for the clearing of a cheque. A banker that acts as a collecting agent remains obliged to deduct encashment tax.

See Tax Briefing 35, March 1999.

Section 18 Schedule D

What is Schedule D?

(1) Schedule D is the heading under which business, rental and interest income is taxed.

What are the Schedule D Cases?

(2) Schedule D has five subdivisions known as Cases:

Case I: Charges the profits of any trade including a quarry or a mine. It also includes profits from canals, docks, rights of markets, tolls, railways, bridges and ferries.

Case II: Charges the profits of any profession.

Case III: Charges the following types of income:

(a) Interest (untaxed), annuities and annual payments.

(b) Discounts.

(c) Profits on government securities which are not charged under Schedule C.

(d) Interest paid on government securities (section 36).

(e) Income from foreign securities that is not taxed under Schedule C.

(f) Income from foreign property (including a trade carried on abroad), including a foreign employment (but not in respect of the part of the income from the employment which is attributed to work carried on in the ROI).

Case V: Charges rental income from any premises, and income from easements (for example, granting of rights of way).

Case IV: Charges any miscellaneous income that does not fall within Cases I, II, III or V (and is not chargeable under Schedules E or F).

Income from an office, employment or pension is not taxed under Schedule D unless the office, employment of pension is a foreign possession, in which case it is taxed under Case III.

Case I

What does “trade” mean?

For the meaning of “trade”, see notes to section 4. A single company can carry on several trades, for example, milling, hardware, furniture, fancy goods, wholesale grocery, public house: McElligott (P) and Sons Ltd v Duigenan, (1984) 3 ITR 178.

As to whether there are one or more trades, see Highland Railway Co v Special Commissioners (1885) 2 TC 151;Scales v Thompson (George) and Co Ltd, (1927) 13 TC 83; Laver and Laver v Wilkinson, (1944) 26 TC 105; IRC v William Ransom and Son Ltd, (1918) 12 TC 21 and North Central Wagon and Finance Ltd v Fifield, (1953) 34 TC 59.

The special seller’s prize payable by the National Lottery to Lotto agents who sell winning Lotto tickets is taxable under Case I (Revenue Precedent GD9407, 25 May 1994).

Payments made by German Rehabilitation Programmes to Irish foster parents to accommodate German youths are taxable under Case I. If the foster parents are employees of the German payer, the payments are chargeable under Schedule E (Revenue Precedent IT 95-2520, 24 April 1996).

Can letting of land or buildings be a trade?

Letting of land or buildings is not a trade and is taxable under Schedule D Case V: Webb v Conelee Properties Ltd, [1982] STC 913. It may be taxable as a hotel-type trade if the landlord exercises constant supervision over the property and provides services in connection with the property: Páircéir v EM, (1971) 2 ITR 596.

Therefore, Revenue do not generally accept that income from Bord Fáilte-registered holiday cottages is chargeable under Case I. The Case under which the income is to be charged is to be determined by the circumstances of each case (Revenue Precedents IT90-3103 3 July 1990 and IT95-3544 6 June 1996).

The Appeal Commissioners have held that income from an “aparthotel”, i.e., a block of apartments together with shops, cleaning apartments, laundry, security, advertising expenditure, long-term letting and short-term lettings, was chargeable under Case I as letting of rooms and not under Case V. In a later case, with similar facts, where less services were provided, the Appeal Commissioners held that the income was chargeable under Case V: 8 AC 2000.

Can receipt of deposit interest be a trade?

The general position in relation to deposit interest is that it is prima facie passive income and is assessable as Case III/Case IV income. In order for an alternative treatment to apply, there is a very high burden of proof on the taxpayer.

Deposit interest which derives from the investment of regulatory capital is assessable Case I: Tax Briefing 44, June 2001

How do I tell capital from revenue receipts?

A receipt cannot be taxed as a trading receipt unless it is a revenue receipt i.e., a receipt in the nature of income, as opposed to capital. Capital receipts cannot be taxed as trading receipts. This area of revenue law has been the subject of hundreds of cases which can be illustrated by the analogy of the tree and its fruit. The source of income (or capital) is the tree; income is the fruit of the tree. A payment received for the fruit of the tree is a trading receipt; a payment received for the tree itself is a capital receipt.

Capital gains are now taxed under Part 19, but it remains in the interest of a taxpayer to accrue a gain as capital rather than income as the current rate of capital gains tax (section 28) is significantly lower than the rate applicable to income (section 15).

Is compensation for the loss of an asset a capital or revenue receipt?

The general rule is that compensation for the permanent loss of a (fixed) asset is taxed as capital. On the other hand, compensation for:

(a) the loss of use of an asset,

(b) the loss of trading stock, or

(c) the loss of profits,

is taxed as a trading receipt. The leading case is Glenboig Union Fireclay Company Ltd v IRC, (1922) TC 427. In that case, a fireclay company was paid by a railway company not to mine near the railway line for fear of damage the mining might cause. It was held that the receipt was a capital receipt, as it had been received for the permanent sterilisation of an asset i.e., the permanent loss of a fixed asset. See also Barr Crombie and Co Ltd v IRC, (1945) 26 TC 406; British-Borneo Petroleum Syndicate Ltd v Cropper, (1968) 45 TC 201; Creed v H and M Levinson Ltd, [1981] STC 486; IRC v West (Francis) and others, (1950) 31 TC 402.

See also IRC v Williams Executors, 26 TC 23, where the recipient was taxed on the receipt of insurance on the life of a key employee.

What about compensation for the loss of use of an asset?

Compensation for the loss of use of an asset is taxed as trading income: Burmah Steamship Co Ltd v IRC, (1930) 16 TC 67; Vaughan v Archie Parnell and Alfred Zeitlin Ltd, (1940) 23 TC 505; Johnson v Try (WS) Ltd, (1946) 27 TC 167;Waterloo Main Colliery Co Ltd v IRC (No 1), (1947) 29 TC 235; London and Thames Haven Oil Wharves Ltd v Attwooll, (1966) 43 TC 491; Wiseburgh v Domville, (1956) 36 TC 527.

Is compensation for the loss of trading stock taxable?

Compensation for the loss of trading stock is taxed as trading income: Green v Gliksten (J) and Son Ltd, (1929) 14 TC 364; R v British Columbia Fir and Cedar Lumber Co Ltd, (1932) 15 ATC 624; Gray and Co Ltd v Murphy, (1940) 23 TC 255; Mallandain Investments Ltd v Shadbolt, (1940) 23 TC 367; Keir and Cawder Ltd v IRC, (1958) 38 TC 23. But it is not taxed if related to capital assets: Crabb v Blue Star Line Ltd, (1961) 39 TC 482.

Is compensation for the loss of profits taxable?

Compensation received for the cancellation of a business contract which defined the territories the company could operate in was held to be a capital receipt in Van Den Berghs Ltd v Clark, (1935) 19 TC 390. This was because the contract in question was so fundamental as to constitute the company’s entire profit-making apparatus. See alsoSabine v Lookers Ltd, (1958) 38 TC 120; British-Borneo Petroleum Syndicate Ltd v Cropper, (1968) 45 TC 201; Barr, Crombie and Co Ltd v IRC, (1945) 26 TC 406. The relevant Irish cases are O’Dwyer v Irish Exporters and Importers Ltd (in liquidation), 1 ITR 629 and Guinness v CIR, 1 ITR 1.

A payment received from the Department of Agriculture for grubbing up an orchard is capital in nature, and is chargeable under capital gains tax rules (Revenue Precedent IT95-3511, 15 August 1995).

Compensation for the suspension of a milk quota is also regarded as capital (Revenue Precedent IT 89-2037, 23 October 1989).

Compensation received for cancellation of a less fundamental agency agreement is regarded as trading income: Kelsall Parsons and Co v IRC, (1938) 21 TC 608; IRC v Fleming and Co (Machinery) Ltd, (1951) 33 TC 57; Elson v James G Johnston, Ltd, (1965) 42 TC 545; IRC v David MacDonald and Co, (1955) 36 TC 388; Fleming v Bellow Machine Co Ltd, (1965) 42 TC 308.

Compensation received by an actor for agreeing not to carry on his profession for 18 months was held to be a capital sum in Higgs v Olivier, (1952) 33 TC 136. This may be contrasted with the decisions in IRC v Biggar, [1982] STC 677 and White v G and M Davis, (1979) 52 TC 597.

In general, compensation for loss of profits is taxed as trading income: Thompson v Magnesium Elektron Ltd, (1943) 26 TC 1. In Alliance and Dublin Gas Consumers Co Ltd v McWilliams, 1 ITR 426, the company was held chargeable on compensation received for compulsory detention of its ships. See also Corr v Larkin, 2 ITR 164, where the taxpayer was held chargeable on sale proceeds from a loss of profits policy, and Gray v Penrhyn (Lord), (1937) 21 TC 252 where a successful claim against an auditor was held to be a trading receipt. But compensation treated as part of the proceeds of the compulsory sale of land may not be taxable as income: IRC v Glasgow and South Western Railway Co, (1887) 12 AC 315.

Damages received for loss of profits are generally taxed as trading income: Deeny and others v Gooda Walker Ltd, [1996] STC 39, which concerned damages received by Lloyd’s members from negligent agents. See also: Anglo-French Exploration Co Ltd v Clayson, (1956) 36 TC 545, Blackburn v Close Bros Ltd, (1960) 39 TC 164.

In the following cases, the court took account of taxation in deciding the amount of damages to be awarded: British Transport Commission v Gourley, (1955) 34 ATC 305; West Suffolk County Council v W Rought Ltd, (1956) 35 ATC 315; Spencer v MacMillan’s Trustees, (1958) 37 ATC 388; Thomas McGhie and Sons Ltd v British Transport Commission, (1962) 41 ATC 144; Lyndale Fashion Manufacturers Ltd v Rich, [1973] STC 32; Brayson v Wilmot-Breedon, (1976) 12 CL 56. See also Stoke-on-Trent City Council v Wood Mitchell and Co Ltd, [1979] STC 197.

Are receipts from disposal of assets taxable?

The disposal of a capital asset generally gives rise to a capital receipt; the disposal of a current asset gives rise to a trading receipt. Receipts from the sale of slag heaps were held to be capital in Beams v Weardale Steel Coal and Coke Co Ltd, (1937) 21 TC 204; Shingler v Williams (P) and Sons, (1933) 17 TC 574; Roberts v Belhaven’s (Lord) Executors, (1925) 9 TC 501; Rogers v Longsdon, (1966) 43 TC 231.

Profits on the disposal of investments were held to be capital in Dunn Trust (The) Ltd v Williams, (1950) 31 TC 477;Shiner v Lindblom, (1960) 39 TC 367 and IRC v Scottish Automobile and General Insurance Co Ltd, (1931) 16 TC 381. A sum received by a parent from the liquidation of a non-trading subsidiary was treated as a capital receipt in the hands of the parent: Guinness and Mahon v Browne, 3 ITR 373.

Proceeds from the sale of carriages previously leased to customers were held to be trading receipts in Gloucester Railway Carriage and Wagon Co Ltd v IRC, (1925) 12 TC 720.

Sales of investments by dealing companies were treated as trading receipts in Hesketh Estates Ltd v Craddock, (1942) 25 TC 1; Bolson (J) and Son Ltd v Farrelly, (1953) 34 TC 161; Associated London Properties Ltd v Henriksen, (1944) 26 TC 46. See also Frasers (Glasgow) Bank Ltd v IRC, (1963) 40 TC 698; Northern Assurance Co v Russell (1889) 2 TC 551. A sharedealer’s profit on exercising a call option is taxable, but not until the shares are sold: Varty v British South Africa Co Ltd, (1965) 42 TC 406.

Are exchange gains taxed as trading income?

A gain accruing to a trader on the disposal of foreign currency is generally regarded as trading income: Imperial Tobacco Co of Great Britain and Ireland v Kelly, (1943) 25 TC 292; Landes Bros v Simpson, (1935) 19 TC 62. But some currency gains may be capital: Davies v The Shell Company of China Ltd, (1951) 32 TC 133. See alsoBeauchamp v F W Woolworth plc, [1989] STC 510; Overseas Containers (Finance) Ltd v Stoker, [1989] STC 364.

Section 79 allows trade-related currency gains on hedging instruments to be treated as part of trading income. Corresponding payments are deductible revenue expenses.

Are grants subject to tax?

Capital grants are not taxable: Watson v Samson Bros, (1959) 38 TC 346; Seaham Harbour Dock Co v Crook, (1931) 16 TC 333.

Revenue grants are: Smart v Lincolnshire Sugar Co Ltd, (1937) 20 TC 643; Brown (Charles) and Co v IRC, (1930) 12 TC 1256; Burman v Thorn Domestic Appliances (Electrical) Ltd, [1982] STC 179. See also Poulter v Gayjohn Processes Ltd, [1985] STC 174 and McGowan v Brown and Cousins (trading as Stuart Edwards), [1977] STC 342. InO’Cléirigh v Jacobs International Ltd, 2 ITR 165, the Irish case in this regard, the court held that IDA training grants were taxable. Sections 225227 now specifically exempt such government funded grants.

A medical research grant was taxed in Duff v Williamson, (1973) 49 TC 1.

A payment received from Bord Iascaigh Mhara, under the Emergency Grant Aid, to compensate a fisherman for poor earnings during adverse weather conditions is taxable as income (Revenue Precedent IT95-3549, 10 October 1995).

The tax treatment of grants which are received by traders, depends on the nature of the grant involved. Where a grant is of a capital nature it is not taken into account in arriving at trading profits but reduces the amount of expenditure which qualifies for capital allowances. Allowable costs for Capital Gains Tax purposes are also reduced by the amount of capital grants.

Grants of a revenue nature should be included when calculating trading profits. Where a payment is received which increases a trader’s income or reduces the trader’s revenue expenditure it is normally of a revenue nature and accordingly is liable to income tax or corporation tax as appropriate.

Employment grants and recruitment subsidies are payments of a revenue nature and accordingly are liable to income or corporation tax unless specifically exempted by tax legislation: Inspector Manual 4.1.10

Are ex-gratia payments subject to tax?

Capital ex-gratia payments are not taxable: Chibbett v Robinson (Joseph) and Sons, (1924) 9 TC 48; Ellis v Lucas, (1966) 43 TC 276; IRC v Brander and Cruikshank, (1970) 46 TC 574; Walker v Carnaby, Harrower, Barham and Pykett, (1969) 46 TC 561; Simpson v John Reynolds and Co (Insurances) Ltd, (1975) 49 TC 693; Murray v Goodhews, [1978] STC 207. In Lawson v Johnson Matthey plc, [1992] STC 466, it was held that a cash payment by a parent to a subsidiary prior to the sale of the subsidiary was a capital payment.

The relevant Irish case is Robinson (T/A J Pim and Son) v Dolan, 1 ITR 427.

In Rolfe v Nagel, [1981] STC 585, an ex gratia payment on termination of a contract was held to be a trading receipt.

Is reimbursement of expenditure subject to tax?

Reimbursement of capital expenditure is regarded as a capital receipt in the hands of the recipient: McLaren vNeedham, (1960) 39 TC 37. In that case, a payment from a petrol company to a petrol station owner, to be spent on improving the petrol station (i.e., for capital purposes) was regarded as a capital payment. Payments towards capital assets are treated as capital in the hands of the recipient: IRC v Coia, (1959) 38 TC 334, Saunders (Walter W) Ltd vDixon, (1962) 40 TC 329.

Reimbursement of revenue expenditure is regarded as a revenue payment: Evans v Wheatley, (1958) 38 TC 216. In that case, a payment by a petrol company to a petrol station owner to reimburse promotion expenses was held to be a revenue payment. Payments towards revenue expenditure are treated as trading receipts in the hands of the recipient:IRC v Falkirk Ice Rink Ltd, [1975] STC 434.

Is the sale of know-how subject to tax?

Know-how, patent and licensing receipts were held to be revenue receipts in British Dyestuffs Corporation (Blackley) Ltd v IRC, (1924) 12 TC 586; Brandwood v Banker, (1928) 14 TC 44; Jeffrey v Rolls-Royce Ltd, (1962) 40 TC 443;Musker v English Electric Co Ltd, (1964) 41 TC 556; Coalite and Chemical Products Ltd v Treeby, (1971) 48 TC 171;Thomsons (Carron) Ltd v IRC, [1976] STC 317; Sturge (John and E) Ltd v Hessel, [1975] STC 573.

Know-how receipts were held to be capital in Evans Medical Supplies Ltd v Moriarty, (1957) 37 TC 540; Murray v Imperial Chemical Industries Ltd, (1967) 44 TC 175.

How should trading profits be computed for tax purposes?

A trader’s profit for tax purposes must be based on accounts that have been prepared using accepted principles of commercial accountancy i.e., the accruals basis: Gresham Life Assurance Society Ltd v Styles, (1890) 3 TC 185,Heather v P E Consulting Group Ltd, (1972) 48 TC 293. Accounts should be prepared on a historical cost basis, not a current cost basis: P J Carroll and Co Ltd v O’Culacháin, 4 ITR 135. In accounts prepared on a historic cost basis the date of receipt of progress payments was ignored in Symons v Weeks and Others, [1983] STC 195.

The accruals basis has been considered in Hall (J P) and Co Ltd v IRC, (1921) 12 TC 382; Dailuaine-Talisker Distilleries Ltd v IRC, (1930) 15 TC 613; IRC v Bell (Arthur) and Sons Ltd, (1932) 22 TC 315; IRC v Gardner Mountain and D’Ambrumenil Ltd, (1947) 29 TC 69; IRC v Oban Distillery Co Ltd, (1932) 18 TC 33 and Wright Sutcliffe Ltd v IRC, (1929) 8 ATC 168. Deposits were considered in Cronk (John) and Sons Ltd v Harrison, (1936) 20 TC 612 and Chibbett v Harold Brookfield and Son Ltd, (1952) 33 TC 467.

Profit is not to be anticipated i.e., unrealised “paper” profits are ignored: Willingale v International Commercial Bank Ltd, [1978] STC 75; Pattison v Marine Midland Ltd, (1983) 57 TC 219, [1984] STC 10; Gallagher v Jones, [1993] STC 534.

A subjective judgment made in the course of preparing the accounts (for example, in relation to depreciation policy, stock valuation) does not invalidate the accounts if the judgment was made in accordance with accounting principles:Johnson v Brittania Airways Ltd, [1994] STC 763. See also Odeon Associated Theatres Ltd v Jones, (1971) 48 TC 257;Chancery Lane Safe Deposit and Offices Co Ltd v IRC, (1965) 43 TC 83.

How should stock be valued?

Stock should be valued at the lower of cost and market value: Whimster and Co v IRC, (1925) 12 TC 813, IRC v Cock Russell and Co Ltd, (1949) 29 TC 387. Stock must be valued when a trade is discontinued (section 89).

For the meaning of cost, see Duple Motor Bodies Ltd v Ostime, (1961) 39 TC 537, and AB Ltd v MacGiolla Riogh, (1960) 2 ITR 419, discussed in Obscure Cases Revisited (3), Suzanne Kelly, Irish Tax Review, January 1998.

For the meaning of market value see Brigg Neumann and Co v IRC, (1928) 12 TC 1191, and BSC Footwear Ltd v Ridgway, (1971) 47 TC 495. See also IRC v Huntley and Palmers Ltd, (1928) 12 TC 1209. The base stock method is not to be used in valuing stock: Patrick v Broadstone Mills Ltd, (1953) 35 TC 44. Opening and closing stock should be valued on the same basis: Bombay Commissioner of Income Tax v Ahmedabad New Cotton Mills Co Ltd, (1929) 9 ATC 574 but see Pearce v Woodall-Duckham, Ltd, [1978] STC 372.

For the purposes of stock relief (now repealed except for farmers – section 666), the value of stock for sale should exclude deposits received: O’Laoghaire v CD Ltd, (1983) 3 ITR 51.

Stock not yet received should not be included in the closing stock figure in the profit and loss account: Green and Co (Cork) Ltd v Revenue Commissioners, 1 ITR 130; Revenue Commissioners v Latchford and Sons Ltd, 1 ITR 240. But see Murnaghan Bros Ltd v O’Maoldomhnaigh, (1990) 4 ITR 304, in which the court held that failure to acquire actual possession of stock does not disentitle the acquirer from including it in his accounts.

Stock removed from the business should be brought into account as if the stock had been sold at market value:Sharkey v Wernher, (1955) 36 TC 275. This rule also applies to dealings with third parties: Petrotim Securities Ltd v Ayres, (1963) 41 TC 389, but does not apply to professions (see Case II below). A trader can use it to his/her advantage to bring stock he/she has received for nothing into his/her accounts at market value: Ridge Securities Ltd v IRC, (1964) 44 TC 373. As to the Irish application of this rule, see Obscure Tax Cases Revisited, Ciaran Ramsay, Irish Tax Review, September 1999).

The cost of work in progress taken over with a business is not deductible: City of London Contract Corporation v Styles (1887) 2 TC 239.

Trading stamp operators are taxed on receipts from sale of stamps: B D Cowen (trading as Ideal Trading Stamp Co) and Cowen’s Ideal Trading Stamp Co (Glasgow) Ltd v IRC, (1934) 19 TC 155.

Compensation of a revenue nature is usually taxed at the time of agreement, Short Brothers Ltd v IRC, (1927) 12 TC 955; Sunderland Shipbuilding Co Ltd v IRC, (1926) 12 TC 955. IRC v Northfleet Coal and Ballast Co Ltd, (1927) 12 TC 1102; Bush, Beach and Gent. Ltd v Road, (1939) 22 TC 519; Greyhound Racing Assn (Liverpool) Ltd v Cooper, (1936) 20 TC 373; Shove v Dura Manufacturing Co Ltd, (1941) 23 TC 779, Sommerfields Ltd v Freeman, (1966) 44 TC 43;Pretoria Petersburg Railway Co Ltd v Elwood, (1908) 6 TC 508; Roberts v W S Electronics Ltd, (1967) 44 TC 525.

Retrospective changes in agreed compensation are to be backdated into the chargeable period to which they relate:English Dairies Ltd v Phillips, (1927) 11 TC 597; Isaac Holden and Sons Ltd v IRC, (1924) 12 TC 768; IRC v Newcastle Breweries Ltd, (1927) 12 TC 927; Lambert Bros Ltd v IRC, (1927) 12 TC 1053; Ensign Shipping Co Ltd v IRC, (1928) 12 TC 1169; Robinson (Jesse) and Sons v IRC, (1929) 12 TC 1241; Frodingham Ironstone Mines Ltd v Stewart, (1932) 16 TC 728; New Conveyor Co Ltd v Dodd, (1945) 27 TC 11; Severne v Dadswell, (1954) 35 TC 649; North v Spencer’s Executors and C H Spencer, (1956) 36 TC 668; Bernhard v Gahan, (1928) 13 TC 723; Simpson v Jones, (1968) 44 TC 599. See also British Mexican Petroleum Co Ltd v Jackson, (1932) 16 TC 570; IRC v Titaghur Jute Factory Ltd, [1978] STC 166.

Trade-in assets received are brought into the accounts at market value: Westminster Bank Ltd v Osler, (1932) 17 TC 381; Gold Coast Selection Trust Ltd v Humphrey, (1948) 30 TC 209.

Under the ordinary rules of commercial accounting, a solicitor’s clients become debtors of the firms when issued with a bill of costs. Accordingly, the amount shown on the bill of costs should be included as debtors in the firm’s accounts (Revenue Precedent IT97-2508, 5 September 1997).

Case II

What is a profession?

For the meaning of “profession” see notes to section 3. The following activities have been held to be professions:

(a) Headmaster of a preparatory school: IRC v North and Ingram, (1918) 2 KB 705.

(b) Journalist: IRC v Maxse, (1919) 12 TC 41.

(c) Architect: Durant v IRC, (1921) 12 TC 245 (obiter).

(d) Actress: Davies v Braithwaite, (1931) 18 TC 198. See also Higgs v Olivier, (1952) 33 TC 136.

(e) Barrister: Seldon v Croom-Johnston, (1932) 16 TC 740. A barrister who on appointment as judge transferred his interest in uncollected fees to a company was held to be personally chargeable on such receipts: O’Coindealbháin v Gannon, 3 ITR 484.

(f) Optician (oculist): Carr v IRC, [1944] 2 All ER 163; but not a trade of selling spectacles (ophthalmic optician):Webster v IRC, [1942] 2 All ER 517; Neild v IRC, [1948] 2 All ER 1071.

(g) Person responsible for marketing artistes’ songs: Radcliffe v IRC, (1956) 56 Taxation 512.

(h) Property valuer: IRC v Peter McIntyre Ltd, (1927) 12 TC 1006; Ward Bateson and Smith v IRC, (1948) 27 ATC 169.

(i) Estate management agent: Escrit and Barrell v IRC, (1947) 26 ATC 33.

(j) A local manager for the Department of Social Welfare who was contractually obliged to provide his own premises and staff: O’Coindealbháin v Mooney, 3 ITR 45.

(k) An insurance agent whose activities were not directly controlled by the company for which he/she acted:MacDermott v Loy, HC 29 July 1982.

(l) Fishing crewmen entitled to share the catch proceeds jointly: McLoughlin v Director of Public Prosecutions, 3 ITR 387. See Inspector Manual 4.1.10.

The following activities have been held not to be professions:

(a) Accountant (unqualified): Currie v IRC, (1921) 12 TC 257. In the following year the Crown did not contest the decision of the General Commissioners that the taxpayer was carrying on a profession.

(b) Photographer: Cecil v IRC, (1919) 36 TLR 164; Crooke v Easson, [1920] SC 721.

(c) Insurance broker: Durant v IRC, (1921) 12 TC 245.

(d) Stockbroker: Christopher Barker and Sons v IRC, [1919] 2 KB 222.

(e) Dance band leader: Loss v CIR, (1945) 2 All ER 683.

(f) Film producer: Asher v London Film Productions Ltd, [1944] 1 All ER 77.

(g) Chartered secretary (where the firm also sold goods): Burt and Co v IRC, [1919] 2 KB 650.

Revenue accept that services provided by the following persons are professional services:

(a) An auctioneer/estate agent.

(b) A quantity surveyor.

Revenue do not accept that services provided by the following persons are professional services:

(a) A public relations company.

(b) An insurance broker.

(c) A livestock auctioneer in a cattle mart.

(Revenue Precedent CTF101.1, 30 June 1994).

What is a vocation?

“Profession” includes a vocation or calling. The following activities have been held to be vocations, and therefore professions:

(a) Bookmaker: Partridge v Mallandaine, (1886) 2 TC 179. Profits arising to a bookmaker from dealing in drawn sweepstake tickets were regarded as part of his bookmaking profits: HH v Forbes, 3 ITR 178.

(b) Jockey: Wing v O’Connell, 1 ITR I55 (see also list in Schedule 23A).

Revenue have accepted a CCJ decision that a payment over and above the fee charged was not a receipt of the profession, but a personal gift (Revenue Precedent 83-4265, 12 December 1983). See also Calvert v Wainwright, (1947) 27 TC 475, and O’Reilly v Casey, 1 ITR 601.

An amateur sportsman is a sportsman who engages in sport purely for recreational purposes, i.e., he/she is not carrying on a trade or profession as a sportsman, and is not an employee of the body providing the gift. In such a case, the gift is not taxable in the hands of the recipient. This is not a general ruling; the circumstances of each case must be considered (Revenue Precedent IT96-2011, 4 December 1996).

A payment received by an amateur sportsman from the media is taxable and should be included in the recipient’s tax return (Revenue Precedent IT89-2043, 15 November 1989).

(c) Land agent: Humphrey v Peare, (1913) 6 TC 201.

(d) Author, dramatist: Glasson v Rougier, (1944) 26 TC 86; Billam v Griffith, (1941) 23 TC 757; Withers v Nethersole, (1948) 28 TC 501. Receipts for sales of manuscript papers are regarded as part of an author’s professional receipts:Wain v Cameron, [1995] STC 555.

A receipt in respect of the sale of copyright is a revenue item, and subject to income tax (or corporation tax) if the seller’s activities are in the nature of a trade. If not the receipt is capital, and the consideration is subject to capital gains tax.

(e) Professional singer: Taylor v Dawson, (1938) 22 TC 189.

(f) Newspaper racing tipster: Graham v Arnott, (1941) 24 TC 157.

The following activities have been held not to be vocations:

(a) Professional gambler: Graham v Green, (1925) 9 TC 309.

(b) Winnings received by a golf professional from betting on his own matches: Down v Compston, (1937) 21 TC 60.

The rule in Sharkey v Wernher (see Case I, Accounting rules) that stock removed from a business should be brought into account as if it had been sold at market value does not apply to professional persons: Mason v Innes, (1967) 44 TC 326.

Can a company carry on a profession?

The UK courts have indicated that a company cannot carry on a profession or vocation: William Esplin v IRC, (1919) 2 KB 731, IRC v Peter McIntyre Ltd, (1927) 12 TC 1006. But a company can provide professional services: MacGiolla Mhaith v Brian Cronin and Associates Ltd, 3 ITR 211.

Profits accruing to a company from exploiting the services of an actress were taxed under the UK Case IV in Black Nominees Ltd v Nicol, [1975] STC 372. A capital payment in respect of the sale by an individual of the right to his future professional income is taxed as income under UK TA 1988 section 775, which was introduced following the decision inJohn Mills Productions Ltd v Mathias, (1967) 44 TC 441. There is no equivalent charge under Irish law, but seeO’Coindealbháin v Gannon, 3 ITR 484 where a barrister was held personally chargeable on post-cessation receipts assigned to a company at the time of his appointment as a judge.

Are clergymen professionals?

The vocational earnings of clergymen of the Church of Ireland are chargeable to tax under Case II of Schedule D. (Inspector Manual 4.1.13)

Case III(a)

What is “pure income profit”?

The income charged under Schedule D Case III is charged without any deduction for expenses and therefore is often referred to as “pure income profit” (see annual payments below).

The income is taxed when it is received by the recipient’s bank: Simpson v Maurice’s Executors, (1929) 14 TC 580. Contrast Paton v IRC, (1938) 21 TC 626, in which it was held that interest is not paid to a bank merely by being debited to an account. See also Macarthur v Greycoat Estates Mayfair Ltd, [1996] STC 1. A cheque is regarded as received when it is credited to the recipient’s bank account: Parkside Leasing v Smith, (1985) 58 TC 282. No income arises if the payment is never received: Woodhouse v IRC, (1936) 20 TC 673.

Unrelieved expenses incurred in unpaid jobs may not be deducted from Schedule D Case III: Shaw v Tonkin, [1988] STC 186.

Subscriptions are not pure income profit in the hands of the recipient organisation: IRC v National Book League, (1957) 37 TC 455, Taw and Torridge Festival Society Ltd v IRC, (1959) 38 TC 603.

What is interest?

Interest is “payment by time for the use of money”: Bennett v Ogston, (1930) 15 TC 374. It is “compensation for the use … by one person of … money belonging to … another”: Re Euro Hotel (Belgravia) Ltd, [1975] STC 682. Where a sum borrowed is repaid within a short time, and the amount repaid exceeds the amount borrowed, the excess is not always “interest”: Ridge Securities Ltd v IRC, (1964) 44 TC 373. To be characterised as interest, the rate of interest must be just. An unreasonably large payment may not qualify as interest: Cairns v McDiarmid, [1983] STC 178. See alsoWestminster Bank Ltd v Riches, (1947) 28 TC 159, Chevron Petroleum (UK) Ltd v BP Development Ltd, [1981] STC 689.

The time a loan is made is the time it was advanced (not a time at which it is outstanding): West v Crossland, [1999] STC 147, which dealt with taxation of preferential employee loans.

Short interest is interest on a loan with a repayment period of less than one year, for example, overdraft interest:Walcot-Bather v Golding, [1979] STC 707. Such interest may be paid gross.

Annual (yearly) interest, i.e., interest on a loan with a repayment period of one year or more, must be paid under deduction of tax. See also IRC v Hay, (1924) 8 TC 636; Barlow v IRC, (1937) 21 TC 354; Goslings and Sharpe v Blake(1889) 2 TC 450; Garston Overseers for the Poor v Carlisle, (1915) 6 TC 659; Re Cooper, (1911) 105 LT 273; Regal (Hastings) Ltd v Gulliver, (1944) 24 ATC 297; IRC v Viscount Broome’s Executors, (1935) 19 TC 667 and Corinthian Securities Ltd v Cato, (1969) 46 TC 93. See also Minsham Properties Ltd v Price, [1990] STC 718.

Interest added to capital remains interest: IRC v Oswald, (1945) 26 TC 435.

Interest includes:

(a) A repayment premium (see example to Case III above): IRC v Thomas Nelson and Sons Ltd, (1938) 22 TC 175.

(b) Disguised interest: Howard de Walden (Lord) v Beck, (1940) 23 TC 384; Lilley v Harrison, (1952) 33 TC 344.

(c) Interest receivable by a building society on mortgage repayments: Leeds Permanent Benefit Building Society v Mallandaine (1897) 3 TC 577.

(d) Interest received by life assurance companies: Clerical Medical and General Life Assurance Co v Carter (1889) 2 TC 437; Revell v Edinburgh Life Insurance Co, (1906) 5 TC 221; Australian Mutual Provident Society v IRC, (1947) 28 TC 388; Ostime v Australian Mutual Provident Society, (1959) 38 TC 492.

(e) Current account interest: IRC v Imperial Tobacco Co (of Great Britain and Ireland) Ltd, (1940) 29 TC 1.

(f) Court-awarded interest: Schulze v Bensted (No 1), (1915) 7 TC 30 and Sweet v MacDiarmid (or Henderson), (1920) 7 TC 640, if the award is truly of interest: IRC v Barnato, (1936) 20 TC 455; and not merely part of the measure of the damages: IRC v Ballantine, (1924) 8 TC 595. See also Riches v Westminster Bank Ltd, (1947) 28 TC 159; The Norseman, (1957) 36 ATC 173. See also Revenue Precedent IT91-3520, 20 February 1991.

(g) The interest component of total sales proceeds: Hudsons Bay Co v Thew, (1919) 7 TC 206, Ruskin Investments Ltd v Copeman, (1943) 25 TC 187.

(h) Purchased annuities: Perrin v Dickson, (1929) 14 TC 608.

(i) Interest received during liquidation: Irish Provident Institution v Brown, (1921) 8 TC 57. In Irish Provident Assurance Co Ltd (in liquidation) v Kavanagh, 1 ITR 45, deposit interest arising during liquidation was chargeable on the liquidator.

(j) Receipts in kind: IRC v Baillie, (1936) 20 TC 187.

(k) Interest from loans made to foreign customers: Scottish Mortgage Co of New Mexico v McKelvie (1886) 2 TC 165, Butler v Mortgage Co of Egypt Ltd, (1928) 13 TC 803, unless very short term in which case Schedule D Case I applies: Smiles v Australasian Mortgage and Agency Co Ltd (1886) 2 TC 367.

(l) Interest on bonds issued to foreign customers: Westminster Bank Executor and Trustee Co (Channel Islands) Ltd v National Bank of Greece, (1970) 46 TC 472.

Interest means gross interest; the use to which the money is put by the recipient does not affect the liability: Phillips v Limerick Co Council, (1925) ITR 66.

Interest does not include:

(a) Interest not actually received: St Lucia Usines and Estates Co Ltd v Colonial Treasurer of St Lucia, (1924) 4 ATC 112; Lambe v IRC, (1933) 18 TC 212; Dewar v IRC, (1935) 19 TC 561; Woodhouse v IRC, (1936) 20 TC 673. Interest on solicitor’s client accounts, and interest earned by guarantors: see notes to section 52.

This approach was recently confirmed in Girvan v Orange Personal Communication Services Ltd, [1998] STC 567, where the court decided that interest is received when it enures to the recipient’s benefit and he/she can call for it – in that case, interest accrued on the closure of the account (not on the quarterly crediting date).

(b) Interest accrued on the sale of securities which is part of the proceeds of sale: Wigmore v Summerson (Thomas) and Sons Ltd, (1925) 9 TC 577 and IRC v Oakley, (1925) 9 TC 582. See also Schaffer v Cattermole, [1980] STC 650, and section 815 which now taxes such interest.

(c) Interest, accrued at death, charged on a deceased: Monks v Fox’s Executors, (1927) 13 TC 171; Mitchell v IRC, (1933) 18 TC 108.

(d) Payment by a guarantor: IRC v Holder and Holder, (1932) 16 TC 540; Hendy v Hadley, [1980] STC 292.

What is an annuity?

An annuity arises “where an income is purchased with a sum of money and the capital has gone and has ceased to exist, the principal having been converted into an annuity”: Foley v Fletcher, (1858) 3 H and N 769, 7 WR 141. For an Irish case, see McCabe v South City and County Investment Company Ltd, (1997) ITR 107.

What is an annual payment?

To be “annual” a payment must have the quality of recurrence, but that does not mean that it need actually recur: Moss’ Empires Ltd v IRC, (1936) 21 TC 264.

An annual payment is a payment that is pure income profit in the hands of the recipient. The recipient must incur no expense in return for the annual payment: Re Hanbury (deceased), (1939) 38 TC 588; Earl Howe v IRC, (1919) 7 TC 289; Campbell v IRC, (1968) 45 TC 427; Essex County Council v Ellam, [1989] STC 317.

In Taw and Torridge Festival Society Ltd v IRC, (1959) 38 TC 603, a charitable society received donations from its members in return for priority booking of theatre seats at a reduced rate. The donations were held not to be annual payments as the society provided reduced rate seating in return.

Maintenance payments were charged in Briggenshaw v Crabb, (1948) 30 TC 331. See now sections 10251026 which deal with maintenance payments made between spouses who have become legally separated or divorced.

In Marchioness Conyngham v Revenue Commissioners, 1 ITC 259, [1928] ILRM 57, (discussed in Obscure Cases Revisited (6), Suzanne Kelly, Irish Tax Review, July 1998), a life tenant of a property was held not chargeable on sums received towards the upkeep and maintenance of the property. The income was not regarded as pure income profit in the hands of the recipient as it was already earmarked for expenditure on the property. Contrast Phillips v Limerick Co Council, (1925) ITR 66 where earmarked interest was taxed.

Other annual payments were held chargeable in: Leahy v Hawkins, (1952) 34 TC 28; Mitchell v Rosay, (1954) 35 TC 496; McMann v Shaw, (1972) 48 TC 330, Westminster Bank Ltd v Barford, (1958) 38 TC 68; Morning Post Ltd v George, (1940) 23 TC 514; Blake v Imperial Brazilian Railway Co (1884) 2 TC 58; Nizam’s Guaranteed State Railway Co v Wyatt (1890) 2 TC 584, and Duncan’s Executors v Farmer, (1909) 5 TC 417.

See also Laird v IRC, (1929) 14 TC 395, which dealt with war injury payments, and Forsyth v Thompson, (1940) 23 TC 374 which dealt with income from a permanent health benefit scheme (now taxed under section 125).

Case III(b)

What is a discount?

See example to Case III. In distinguishing whether a payment is interest, a premium or a discount, one must ask what is the true nature of the payment? A loan may be issued at a premium and also carry interest.

In Lomax v Peter Dixon and Son Ltd, (1943) 25 TC 353, Lord Greene MR outlined the following rules to decide the nature of a payment:

(a) Whether a payment is interest, a premium or a discount is a question of fact, not of law.

(b) In deciding as a question of fact what the nature of the payment is, the factors to be taken into account are: the contract, the term of the loan, the interest rate, and the risk involved.

(c) If a loan carries both interest and a premium/discount, and the interest rate is reasonable, there is no presumption that the premium/discount is disguised interest.

Discount may include:

(a) A profit made on the sale of a treasury bill: National Provident Institution v Brown, (1921) 8 TC 57.

(b) Interest disguised as a premium on repayment: Davies v Premier Investment Co Ltd, (1945) 27 TC 27 andWilson v Mannooch, (1937) 21 TC 178.

(c) A discount on issue: Ditchfield v Sharp, [1983] STC 590. In that case, it was held that the profit made by honouring in full a £2,399,000 four year promissory note that had been acquired for £1,780,000 was income from a discounting transaction.

Case III(f)

What is income from a foreign possession (see also section 71)?

Income from foreign property may include, for example:

(a) Profits from a trade or profession controlled from abroad, including a foreign partnership: Colquhoun v Brooks,(1889) 2 TC 490; San Paolo (Brazilian) Railway Company Ltd v Carter, (1896) 3 TC 407; Trustees of Ferguson deceased v Donovan, 1 ITR 183; O’Connell v R, 3 ITC 167, [1956] IR 97, Newstead v Frost, [1980] STC 123.

A trade controlled from the State is charged under Schedule D Case I, Ogilvie v Kitton, (1908) 5 TC 338, Spiers v Mackinnon, (1929) 14 TC 386. To be charged under Case III, the trade must be carried on entirely abroad. If carried on partly in Ireland and partly abroad, it is taxed under Schedule D Case I or II as appropriate: Davies v Braithwaite, (1931) 18 TC 198.

(b) Foreign alimony (annuity) receivable by a UK resident: IRC v Anderström, (1928) 13 TC 482;

(c) Income from foreign investments. This includes scrip dividends from foreign companies: Poole v Guardian Investment Trust Co Ltd, (1921) 8 TC 167; Associated Insulation Products, Ltd v Golder, (1944) 26 TC 231; but seeLawson v Rolfe, (1969) 46 TC 199. It also includes dividends from capital profits: IRC v Reid’s Trustees, (1949) 30 TC 431.

(d) Foreign annuities: Chamney v Lewis, (1932) 17 TC 318.

(e) Income from land or buildings located abroad.

(f) Income from a foreign employment.

(g) Income from a foreign pension: Bridges v Watterson, (1952) 34 TC 47, and like payments, McHugh v A, 2 ITR 393, including a retirement pension payable by the British Government: Forbes v Dundon, (1964) 2 ITR 491, [1964] IR 447. For a recent case, see Albon and anor v IRC, [1998] STC 1181, where the recipient of a US and a French pension was held chargeable to tax.

The following have not been regarded as income from a foreign possession:

(a) A dividend from a company incorporated in the US but resident in the UK: Bradbury v English Sewing Cotton Co Ltd, (1923) 8 TC 481.

(b) A company distribution which is a refund of capital: Rae v Lazard Investment Co Ltd, (1963) 41 TC 1; Courtaulds Investments Ltd v Fleming, (1969) 46 TC 111.

(c) Remuneration paid in the UK even if all the duties are performed abroad: Pickles v Foulsham, (1925) 9 TC 261;Bennet v Marshall, (1938) 22 TC 73.

In the case of trust, no deduction is allowed for foreign trust administration expenses overseas: Nelson v Adamson, (1941) 24 TC 36, Aikin v Macdonald’s Trustees (1894) 3 TC 306.

Disability benefit receivable by an Irish resident under a US insurance policy is taxable under Case III(f) (Revenue Precedent IT90-3513, 12 December 1990).

Income from Tax Exempt Special Savings Accounts (TESSAs) and Personal Equity Plans (PEPs) is exempt under UK tax law (ICTA 1988 sections 326A, 333). Such income is not exempt in the hands of an Irish resident, and is chargeable under Case III(f) (Revenue Precedent RT/136/97, 6 June 1997).

The exchange rate to be used to convert foreign dividend income to Irish pounds is the exchange rate which applied to the dividend on encashment (Revenue Precedent IT91-3539, 15 March 1991)

Dividends from a UK company: Tax Briefing 40.

Case V

For consideration of the meaning of rents, see Martin v Routh, (1964) TC 106; Jeffries v Stephens, [1982] STC 639.

Income from conacre letting is assessable under Case V (Inspector Manual 4.8.5, 4.8.6).

A “boarding-out allowance” paid by a health board (under SI 225/1993) to a person (landlord) who provides board to an elderly person is taxable. There is no exemption (Revenue Precedent IT97-2515, 19 November 1997).

Rental-income-related currency gains on hedging instruments may be treated as part of rental income. Corresponding payments are deductible as revenue expenses (Statement of Practice SP CT/1/91).

Case IV

Capital receipts are not chargeable under Case IV. Neither are isolated transactions (adventures in the nature of trade):Leeming v Jones, (1930) 15 TC 333. In that case, the taxpayer was assessed under the UK equivalent of Schedule D Case IV on the profit arising on the assignment of options over rubber estates. The court held that as the transaction was not an adventure in the nature of trade, the profit was not assessable under any Schedule or Case (not just Case I). In Pearn v Miller, (1927) 11 TC 610, profits from a probable trading activity were held not to be assessable under the UK Case IV.

There is no professional equivalent to an adventure in the nature of trade. Profits arising on one-off professional engagements are chargeable under Schedule D Case IV. In Hobbs v Hussey, (1942) 24 TC 153, a solicitor’s clerk was assessed under the UK Case IV on profits arising from the sale of his life story to a newspaper. The taxpayer said the payment was a capital receipt for the sale of copyright. The payment was held to be a payment for services provided. Similar decisions were made in Housden v Marshall, (1958) 38 TC 233 and Alloway v Phillips, [1980] STC 490.

Profits accruing to a company from exploiting the services of an actress were taxed under the UK Case IV in Black Nominees Ltd v Nicol, [1975] STC 372. See also notes to Case II. A capital payment in respect of the sale by an individual of the right to income from supplying his professional services is taxed under UK law (TA 1988 section 775) but not under Irish law.

Miscellaneous profits taxed under Case IV have included:

(a) Casual commissions not amounting to a trade: Ryall v Hoare, (1925) 8 TC 521 and Sherwin v Barnes, (1931) 16 TC 278; Lyons v Cowcher, (1926) 10 TC 438;Grey v Tiley, (1932) 16 TC 414.

(b) Insurance commission other than to a broker or professional agent: Way v Underdown, (1974) 49 TC 215, 648;Hugh v Rogers, (1958) 38 TC 270.

(c) Dealings in cotton futures by a commodity broker: Cooper v Stubbs, (1925) 10 TC 29; and by a non-broker:Townsend v Grundy, (1933) 18 TC 140.

(d) Income from letting of racehorses: Norman v Evans, (1964) 42 TC 188.

(e) Payments to a retired partner under a consultancy agreement, where the services provided were negligible: Hale v Shea, (1964) 42 TC 260.

(f) Shipping dues: IRC v Forth Conservancy Board (No 1), (1928) 14 TC 709 and (No 2), (1931) 16 TC 103; unless a sale of a capital asset: Haig (Earl) Trustees v IRC, (1939) 22 TC 725; Beare v Carter, (1940) 23 TC 353; Nethersole v Withers, (1948) 28 TC 501.

(g) Miscellaneous royalties for sand and gravel: T and E Holmes Ltd v Robinson, [1979] STC 351. See section 56which taxes profits from quarries.

(h) A profit arising from an uncompleted sale of patent rights: Green v Brace, (1960) 39 TC 281.

An individual won the grand prize in a US State lottery. The winnings were to be paid to the individual in 20 annual instalments, and under the US tax code, were treated as income. Such payments would be treated as income if the taxpayer became resident in Ireland (Revenue Precedent IT95-3503, 11 April 1995).

The Case IV charge does not apply to:

(a) Profits from dealing in shares: Trenchard v Bennet, (1933) 17 TC 420; Whyte v Clancy, (1936) 20 TC 679. Such gains are regarded as capital, arising on the realisation of an investment.

(b) A gift, not being income: Bradbury v Arnold, (1957) 37 TC 665; Bloom v Kinder, (1958) 38 TC 77; Scott v Ricketts, (1967) 44 TC 303 and Dickinson v Abel, (1968) 45 TC 353. But see Brocklesbury v Merricks, (1934) 18 TC 576 where the recipient of the gift was contractually entitled to demand payment of the gift.

Can income be taxed under another Case?

(3) Although income has been generally categorised above as belonging to Cases I-V, it may, where appropriate, be categorised for particular purposes as belonging to another case. For example, illegal profits from a trade are not liable under Case I; they are liable under Case IV.

Section 19 Schedule E

What is Schedule E?

(1) Schedule E is the heading under which income from an office or employment exercised in the Republic of Ireland is taxed.

What is an “office”?

An office is a post that is filled by an “office holder” (for example a customs officer). It is “a subsisting, permanent, substantive position which had an existence independent of the person who filled it, which went on and was filled in succession by successive holders…”: Rowlatt J in Great Western Railway Company v Bater, (1920) 8 TC 231.

The following are regarded as officeholders:

(a) a director of a company: Lee v Lee’s Air Farming Ltd, [1961] AC 12,

(b) a trustee or executor: Dale v IRC, (1953) 34 TC 468,

(c) a company auditor: Ellis v Lucas, (1966) 43 TC 276,

(d) a local charges registrar: Ministry of Housing v Sharpe, 2 All ER 225.

An office is “permanent” if there is a possibility of it continuing when the present occupant dies or vacates the position. For example, in the case of an election returning officer, the office is still required at each election although the returning officer may change at each election. In Edwards v Clinch, [1981] STC 617, it was held that a civil engineer who occasionally acted as an inspector in Department of the Environment local public enquiries was not an “officer” as there was no “office” which existed independently of its holder.

In Tipping v Jeancard, (1947) 2 ITR 68, the taxpayer was held chargeable under Schedule E on the basis that he held an office (as director of a company incorporated and registered in the State) even though he never exercised the office in the State.

An employment is “more or less analogous to an office”: Davies v Braithwaite, (1931) 18 TC 198. It is a master-servant contract i.e., a contract of services between an employer and his employee, as opposed to a contract for services between a professional person and client.

Employed or self-employed?

“A contract of service implies an obligation to serve and it comprises some degree of control by the master”: Chadwick v Pioneer Private Telephones Ltd, [1941] 1 All ER 522. “A servant is a person subject to the command of his master as to the manner in which he shall do his work”: Yeomans v Noakes, (1880) 6 QBD 530.

Income you receive under a contract of (employment) service is taxed under Schedule E.

Income you receive under a contract for services is taxed under Schedule D Case I or II: Market Investigations Ltd v Minister for Social Security, [1968] 3 All ER 732.

In Davies v Braithwaite, (1931) 18 TC 198, a professional actress claimed that each contract on which she was engaged was a separate employment and so only the income from employments performed in the UK was taxable. The court held that she carried on a single profession, and was taxable on her worldwide income. This decision may be contrasted with the decision in Fall v Hitchen, (1972) 49 TC 433. In that case, a ballet dancer who made several engagements under a standard form contract approved by the British Actors’ Equity Union was held to be an employee.

In Hall v Lorimer, [1994] STC 23, a freelance vision mixer worked on short-term contracts for 20 different production companies. The UK Inland Revenue argued that each short-term contract was an employment contract, as the taxpayer could not dictate the hours or place of work. The Court of Appeal held that he was self-employed, because he took on the risk of bad debt (which is not normal for employment contracts).

What are the characteristics of employment?

You are normally regarded as an employee if you are hired under terms and conditions which include some or all of the following features:

(a) you are under the control of the site foreman/overseer who directs how, when and where your work is to be carried out,

(b) you do not supply materials for the job,

(c) you do not provide plant and machinery other than handtools,

(d) you do not engage his/her own helpers,

(e) you do not sub-contract the work,

(f) you are not exposed to financial risk in carrying out the work,

(g) you receive an agreed weekly/monthly wage,

(h) you are entitled to extra pay for overtime,

(i) you are entitled to sick/holiday pay etc,

(j) you receive country money or expense payments to cover subsistence and/or travel,

(k) you are transported from site to site at the expense of the employer,

(l) you supply labour only,

(m) you contribute to the industry pension and sick pay scheme,

(n) union dues are deducted from payments to you,

(o) you are employed under conditions which comply with relevant registered agreements.

The fact that you are paid by results (a piece worker) does not automatically mean you are a self-employed contractor.

The following were regarded as employed under a contract of service:

(a) Deepsea dockers who shared pooled earnings of the stevedores: Louth and others v Minister for Social Welfare, [1995] 1 IR 238.

(b) A supermarket product demonstrator: Denny (Henry) and Sons (Ireland) Ltd v the Minister for Social Welfare,[1995] ITR 209.

(c) A part-time hospital consultant: Mitchell and Edon v Ross, (1961) 40 TC 11. Medical doctors can be treated as employed or self-employed, depending on the terms of the contract: Inspector Manual 4.1.4, 5.1.1.

(d) Potato gang workers (as employees of the gang leader): Andrews v King, [1991] STC 481.

(e) An evening class teacher: Fuge v McClelland, (1956) 36 TC 571. This case involved a full-time teacher who also taught adult evening courses.

(f) A “partner” in receipt of salary, but not a profit share: Horner v Hasted, [1995] STC 766.

(g) A part time lecturer: Lindsay v IRC, (1964) 41 TC 661. See also Sidey v Phillips, [1987] STC 87 (non-practising barrister assessable under Schedule E on part-time lecturing fees), Walls v Sinnett, [1987] STC 236 (a professional singer who lectured in music at a technical college for 4 days each week was assessable under Schedule E), andBarcroft v Minister for Health and Social Welfare and James Agnew (Social Welfare Appeals Officer), a 1986 High Court decision, where it was held that teachers performed their work under a contract of service and their employments were insurable.

Revenue accepts that lecturers/teachers/trainers who give “once off” lectures (for example, once or twice a year for the same body) are not employees. Revenue do not accept that lecturers/teachers/trainers who give a series of “once off” or guest lectures for the same body are outside the scope of PAYE/PRSI (Tax Briefing 28, October 1997 Inspector Manual 5.1.12, 18.1.1)

(h) A holder of a grant or research fellowship under the EU Human Capital and Mobility Programme is regarded as an employee of the Irish Institute to which he/she is attached. (section 826) (Revenue Precedent RT/406/94, 5 July 1996).

What are the characteristics of self-employment?

You are normally regarded as self-employed if you are hired under terms and conditions which include some or all of the following features:

(a) you are in business on your own account and provide the same services concurrently to others,

(b) you have a fixed place of business to take orders, bookings for contracts, store materials and equipment etc.,

(c) you provide the materials for the job,

(d) you provide your own plant and equipment,

(e) you provide your own insurance cover under the appropriate heading, for example, public liability etc,

(f) you are not under the direction or control of the site foreman/overseer as to the method to be employed in carrying out the work,

(g) you control your own hours of work in fulfilling the obligations of the contract,

(h) you hire helpers at your own expense,

(i) if appropriate you are registered for VAT,

(j) you are exposed to financial risk by having to bear the cost of making good any faulty or substandard work carried out under the contract or has to meet cost overruns,

(k) you are not entitled to overtime pay, sick pay or holiday pay,

(l) you are not entitled to receive payment by way of expenses such as subsistence, travel, country money, costs of moving from site to site etc.

If you are a self-employed in one job you are not necessarily self-employed in the next job: Tax Briefing 33.

These principles are derived from the report of the Employment Status Group: Tax Briefing 43.

The following were held to be independent contractors providing their own services:

(a) A local manager for the Department of Social Welfare who was contractually obliged to provide his own premises and staff: O’Coindealbháin v Mooney, 3 ITR 45.

(b) A insurance agent whose activities were not directly controlled by the company for which he acted: MacDermott v Loy, HC 29 July 1982.

(c) Fishing crewmen (“share fishermen”) entitled to share the catch proceeds jointly: McLoughlin v Director of Public Prosecutions, 3 ITR 387. See also Minister for Social Welfare v Griffiths, (1992) 4 ITR 378; Tax Briefing 47.

(d) An independent contractor who delivered newspapers on behalf of a newspaper distributor: McAuliffe v Minister for Social Welfare, [1995] 1IR 238.

(e) A barrister’s clerk working for each member of chambers for a percentage of gross earnings: McMenamin v Diggles, [1991] STC 419.

(f) A video and television technician: Barnett v Brabyn, [1996] STC 716.

Contract staff supplied by a bureau are regarded as employed by the employment bureau, not the company using the bureau’s service: Minister for Labour v PMPA Insurance Company Ltd, 3 ITR 505. As regards agency workers, Tax Briefing 31, April 1998.

Individuals described as ‘locums’ engaged in the fields of medicine, health care and pharmacy: Tax Briefing Issue 82 – 2009

Use of ‘expression of doubt’: eBrief 05/10

Is income from a public office or employment taxed under Schedule E?

(2) A public office or employment means employment by the State, any Church body, any company or society, any public institution, corporation or local authority.

Income from a public office or employment is taxed under Schedule E.

A company director holds a public office: McMillan v Guest, 24 TC 190.

Section 20 Schedule F

What is Schedule F?

(1) Schedule F is the heading under which distributions receive from an Irish companies are taxed.

Distribution is widely defined to include not only dividends but also any method by which a company’s profits are paid to its shareholders (section 130).

A distribution also includes a scrip dividend, i.e., additional shares issued by an Irish resident quoted company which are taxed in the hands of the recipient on the basis of the shares’ cash value (section 816(2)(b)).

You are chargeable to tax on the gross distribution before withholding tax.

Example

X Ltd, an Irish company, pays you a dividend of €1,000 subject to 20% withholding tax (section 172B).

Dividend 1,000
Withholding tax at 20% 200
Amount received by you 800
Tax chargeable: €1,000 at 41% 410
Less: withholding tax 200
Net additional tax payable by you 210

Can Schedule F distributions be taxed under any other heading?

(2) A distribution chargeable under Schedule F cannot be charged under any other Schedule.

Section 21 The charge to corporation tax and exclusion of income tax and capital gains tax

What is the rate of corporation tax?

(1) The standard rate of corporation tax is 12.5%.

What tax rate applies to profits from a qualifying shipping activity?

(1A) A qualifying shipping trade is where an Irish-owned, Irish-registered, self-propelled ship with gross tonnage of 100 tons or more (a qualifying ship) is used for qualifying shipping activities, i.e., as a ferry, liner, fishing factory ship or for transporting people or supplies to an offshore exploration platform.

Profits from a qualifying shipping trade are taxed at 12.5%.

Are companies liable to income tax?

(2) Ann Irish resident company is not liable to income tax on its profits but may be liable to deduct income tax from charges.

A non-resident company is not liable to income tax on Irish income if such income is chargeable to corporation tax.

Are companies liable to capital gains tax?

(3) Company capital gains are chargeable to corporation tax, not capital gains tax. The exception to this rule is development land gains, which are chargeable to capital gains tax (section 649).

Section 21A Higher rate of corporation tax

What profits are taxed at the higher rate of corporation tax?

(1) The following profits are taxed at the higher rate of corporation tax:

(a) Case III income (untaxed interest and income from foreign property).

(b) Case IV income (miscellaneous income not taxed under any other heading).

(c) Case V income (rental income).

(d) Income from an excepted trade, i.e., a trade consisting one or more of the following excepted operations:

(i) Dealing in or developing land.

This does not include construction operations, i.e., construction type work, including installation of plumbing, electricity, gas, air-conditioning etc, cleaning of buildings, site clearance work, and haulage of building materials and equipment.

Neither does it include dealing or developing in “fully developed” land (qualifying land), i.e., land which at the time of the development, was not expected be further developed, apart from non-material development, within the following 20 years.

Non-material development means an exempt development, i.e., a development which due to its minor impact is exempt from planning law. A non-material development also includes a development which, although not exempt, increases the property’s total floor area by not more than 120%.

(ii) Mining activities (working of minerals).

(iii) Petroleum activities.

In this regard, petroleum activities means:

(a) petroleum exploration activities, i.e., searching for petroleum in a licensed area, testing, appraising and winning access to deposits found, under a licence other than a petroleum lease),

(b) petroleum extraction activities, i.e., activities in:

(i) winning petroleum from a relevant field,

(ii) transporting the petroleum to dry land,

(iii) initial treatment and storage of that petroleum (before it is refined),

(c) acquisition or exploitation of petroleum rights, i.e., the rights to reserves, including an interest in a licence.

Example

31.12.2012 X Ltd had the following profits:

Tax rate Tax
Trading profits 300,000 12.5% 37,500
Rent from UK property (Case III) 23,345 25% 5,836
Irish letting income (Case V) 56,678 25% 14,169
380,023 57,505

This is subject to a credit under the Irish UK double tax treaty, for tax credit for UK tax paid (if any) on the rental income from the UK property.

What if a trade consists partly of excepted operations?

(2) If a trade consists partly of excepted operations and partly of other activities they are treated as two separate trades. The sales and expenses of the combined trade must be apportioned justly and reasonably between the two separate trades

What is the higher rate of corporation tax?

(3) The higher rate of corporation tax is 25%.

Income from an excepted trade means income from that trade, net of the part of the company’s charges which relate to that trade.

Does the higher rate of corporation tax apply to life business?

(4) The higher rate does not apply to income from non-life insurance, reinsurance, and from life business (provided the income in question is attributed to the company’s shareholders).

Section 21B Tax treatment of certain dividends

What rate applies to foreign dividends derived from trading profits?

(1) A company is taxed at 12.5% (previously 25%) on foreign dividends paid from trading profits, i.e., the aggregate of

(i) profits from carrying on the trade, and

(ii) dividends received which are treated as trading profits.

Profits means:

(a) Where the accounts must be laid before the AGM, the after-tax profit shown in the profit and loss account,

(b) In any other case, the after-tax profit shown in the profits and loss account for the territory in which the company is incorporated, prepared in accordance with generally accepted accounting principles.

In general, for the 12.5% rate to apply, the dividend paying company must be resident in a relevant territorythroughout the period out of the profits of which the dividend was paid.

However, the 12.5% rate also applies to dividends received by a quoted company from trading profits of a subsidiary in a non-treaty country. Foreign dividends received by a portfolio investor company (one having a holding of less than 5%) are exempt if the dividend forms part of the company’s trading income.

A relevant territory means an EU State, a non-EU State with which Ireland has a tax treaty, a territory for which a treaty has not yet come into effect, and a territory that has ratified the Convention on Mutual Assistance in Tax Matters.

The period out of the profits of which a dividend is paid means the period in question, or failing that the period in which the profits arose, or failing that, the last period for which accounts were made up and which ended before the dividend became payable.

In determining the period out of the profits of which a dividend is paid, if the dividend exceeds the profits available for distribution, the excess is treated as paid out of the preceding period’s profits and so on, as necessary.

A company is not treated as owning 75% of another company’s shares unless that first company is entitled to 75% of the profits available for distribution and 75% of the assets in the event of the company being wound up.

Can a dividend paid from non-trading profits qualify as paid from trading profits?

(2) In general, a dividend paid by a company that has trading and non-trading profits is regarded as paid from trading profits in the same proportion as trading profits bear to total profits.

A dividend paid from profits other than trading profits qualifies as paid from trading profits if-

(a) 75% or more of the paying company’s profits are trading profits, or derived from trading profits arising in an EU State or treaty country (relevant territory),

(b) 75% or more of the assets of the receiving company, on a consolidated basis, consist of trading assets.

When does the 12.5% rate apply to foreign dividends?

(3) This rule applies to foreign dividends (taxed under Schedule D Case III) paid from another company’s trading profits.

Is a portfolio investor entitled to the 12.5% rate on foreign trading dividends?

(4) Where a company owns less than 5% of the paying company (i.e., is a portfolio investor), the 12.5% applies to the dividend income.

Foreign dividends received by a portfolio investor company (one having a holding of less than 5%) are exempt if the dividend forms part of the company’s trading income.

Does the higher rate apply to foreign dividends paid from trading profits?

(5) Dividends of a foreign trading company are not taxed at 25% to the extent that they are taxed at 12.5%.

Must the 12.5% rate on foreign dividends be claimed?

(6) To obtain the benefit of the 12.5% rate on dividends from foreign trading profits, you must claim the relief on your self-assessment corporate tax return.

Section 22 Reduced rate of corporation tax for certain income

This section has been repealed.

Section 22A Reduction of corporation tax liability in respect of certain trading income

This section has been repealed.

Section 23 Application of section 13 for purposes of corporation tax

Do the rules relating to offshore exploration activities apply to companies?

The rules relating to exploration activities on the Continental Shelf were introduced in 1973, prior to the passing of the Corporation Tax Act 1976. As introduced, the rules applies for income tax. This section ensures that the rules also apply to companies.

Section 23A Company residence

Where is a company tax resident?

(1) An Irish incorporated company is regarded as tax resident in State.

(2) However where, under the terms of a tax treaty, it is regarded as resident in another country it will not be regarded as resident in the State.

(3) A company which is not incorporated in the State will be tax resident in the state if it is centrally managed and controlled in the State.

Section 23B Residence of SE or SCE

When is an SE/SCE tax resident in Ireland?

(1) Council Regulation (EC) 2157/2001 of 8 October 2001 provides for the formation of a European public limited liability company known as a Societas Europaea (SE).

Council Regulation (EC) 1435/2003 provides for the formation of a European Cooperative Society (SCE).

An SE/SCE is treated as tax resident in the Republic of Ireland (ROI) if its registered office is located there.

When does an SE/SCE cease to be tax resident in Ireland?

(2) An SE/SCE does not cease to be resident in the ROI for tax purposes as a result of relocating its registered office elsewhere.

An SE/SCE ceases to be Irish tax-resident when it changes the its place of central management and control.

Section 24 Companies resident in the State: income tax on payments made or received

Must a company deduct income tax from annual payments?

(1) A company must deduct income tax from annual payments it makes, even if the recipient is not chargeable to income tax in respect of the payment.

Does a company get credit for income tax deducted from payments it receives?

(2) A company can take credit for the income tax deducted from payments received against its corporation tax liability for the accounting period in which the payment arises.

If the income tax exceeds the corporation tax, the excess is refundable. However, no repayment is made until the corporation tax assessment is finalised.

This accounting period in which the income “arises” (section 26(3)) is normally that in which it is received (See IRC v Whitworth Park Coal Co Ltd, (in liquidation), (1957) 38 TC 531. The set-off is made against the total corporation tax for the accounting period, and not only against the corporation tax attributable to the payment.

Inspector Manual 2.2.5.

Must a company pay tax on payments received in trust?

(3) A company is treated as receiving payments received by another person on its behalf.

A company is treated as not having received payments which it receives on behalf of another person.

Section 25 Companies not resident in the State

When is a foreign company liable to Irish tax?

(1) A foreign company is not chargeable to corporation tax unless it trades through a branch or agency in Ireland.

Where is a company resident?

A company is resident where it is centrally managed and controlled: Calcutta Jute Mills Co Ltd v Nicholson, (1876) 1 TC 83, Imperial Continental Gas Association v Nicholson, (1877) 1 TC 138 and not necessarily:

(a) where the head office is located or the shareholders’ general meetings are held: De Beers Consolidated Mines Ltd v Howe, (1906) 5 TC 198,

(b) where it is incorporated: Todd v Egyptian Delta Land and Investment Co Ltd, (1928) 14 TC 119.

A foreign registered company can be Irish resident if centrally managed and controlled in Ireland: New Zealand Shipping Co Ltd v Stephens, (1907) 5 TC 553; Bullock v The Unit Construction Co Ltd, (1959) 38 TC 712).

An Irish company which is centrally managed and controlled abroad is foreign resident: Cunard Steamship Co Ltd v Revenue Commissioners, 1 ITR 330. In that case, although the Cunard line boarded passengers from an Irish stop off point, the company was held to be non-resident as the arrangements and payments were made abroad. See also:Eccott v Aramayo Francke Mines Ltd, (1925) 9 TC 445; Egyptian Hotels Ltd v Mitchell, (1915) 6 TC 543; Noble (BW) Ltd v Mitchell, (1926) 11 TC 372; American Thread Co v Joyce, (1913) 6 TC 163.

A company may be resident in more than one country: Swedish Central Railway Co Ltd v Thompson, (1925) 9 TC 342;John Hood and Co Ltd v Magee, (1918) 7 TC 327; Union Corp Ltd v IRC, (1953) 34 TC 207.

What is included in the profits of a foreign company’s Irish branch?

(2) A foreign company is chargeable to corporation tax on income and chargeable gains of its Irish branch. It is not chargeable in respect of gains arising from disposal of assets that were not used by the Irish branch.

In Murphy v Dataproducts Ltd, (1988) 4 ITR 12, the Irish branch of a Dutch company was held not liable on earnings obtained from an investment fund held by the parent in Switzerland, as the branch had no control or access to the fund.

Can a foreign company claim a refund of income tax deducted at source?

(3) A foreign company can take credit for income tax deducted at source against its corporation tax charge. The company is not entitled to a refund until the corporation tax assessment for the accounting period has been finalised.

Section 26 General scheme of corporation tax

What profits are subject to corporation tax?

(1) An Irish resident company is chargeable to corporation tax on its worldwide profits (section 4(1)).

Are profits held in trust subject to corporation tax?

(2) A company is chargeable to corporation tax on:

(a) profits accruing for its benefit under a trust or partnership, and

(b) profits arising on its winding up.

It is not chargeable on profits received by as trustee.

What rate applies if an accounting period straddles two financial years?

(3) Corporation tax is charged for a financial year, which may not coincide with a company’s accounting period. Where an accounting period straddles two financial years, the profit is apportioned and charged at the appropriate rates.

This subsection has not applied since 2003, when the corporation tax rate reduced from 16% (2002) to 12.5% (2003).

Section 27 Basis of, and periods for, assessment

What is the basis period for corporation tax?

(1) A company is chargeable to corporation tax on the full amount of its profits arising in an its accounting period, whether or not such profits are received in Ireland. In calculating such profits, the company may deduct expenditure authorised by tax law.

When does an accounting period begin?

(2) A company’s first accounting period begins when it first comes within the charge to corporation tax or, if the company is not ROI resident, when it first acquires an ROI source of income.

Once within the charge to corporation tax, an accounting period begins when the previous accounting period ends.

When does an accounting period end?

(3) An accounting period ends when the first of the following occurs:

(a) 12 months have passed since the beginning of the accounting period,

(b) an accounting date occurs,

(c)(i) the company begins or ceases to trade,

(ii) the company begins or ceases to be chargeable to corporation tax in respect of a trade or, if it carries on more than one trade, begins or ceases to be so chargeable in respect of all of them,

(d) the company begins or ceases to be resident in the ROI,

(e) the company ceases to be chargeable to corporation tax.

See also Tax Briefing 5, January 1992.

When does a company come within the charge to tax?

(4) An ROI resident company comes within the charge to tax once it starts to carry on business.

Can Revenue choose the accounting date?

(5) If a company carries on several trades with different accounting dates, and does not make up a general set of accounts for all of its activities, Revenue may decide the accounting date.

What happens if a gain arises outside an accounting period?

(6) If a gain or loss arises outside an accounting period, a new accounting period is deemed to begin, and the gain or loss accrues in that period.

Does an accounting period end when a company is wound up?

(7) A company begins to be wound up when it passes a resolution for the winding up or a winding up petition has been presented and the company is ordered to be wound up on foot of that petition.

Once the company begins to be wound up, the previous accounting period ends, and a new accounting period begins. That new accounting period only ends when the company has completed being wound up or 12 months have expired, whichever is earlier.

Can Revenue choose the accounting period?

(8) If it is not possible to determine the accounting period (for example, because there are no accounts), the inspector may make an assessment for a 12 month period. That period is considered to be an accounting period unless the inspector revises it or the company reveals the true accounting period. The inspector’s assessment is then treated as an assessment for the true accounting period.

The inspector retains the right to make further assessments for periods other than the true accounting period.

Section 28 Taxation of capital gains and rate of charge

What is capital gains tax?

(1) Capital gains tax (CGT) is charged on capital gains, i.e., when a person makes a chargeable gain on a disposal of an asset.

For an Irish resident, assets means means worldwide assets: Turner v Follett, [1973] STC 148.

What is the basis period for CGT?

(2) CGT is assessed on chargeable gains accruing to a person in a tax year.

What is the CGT rate?

(3) The general rate of CGT is 33% (effective 6 December 2012).

A 40% rate applies to gains on disposal of foreign life assurance policies or foreign deferred annuity contracts (section 594(2)(f)).

Section 29 Persons chargeable

What are exploration rights?

(1) Exploration or exploitation rights are rights to assets generated from exploration or exploitation activities, i.e., activities relating to exploration or exploitation of the sea bed and its natural resources either within Irish territorial waters or in a designated area, i.e., a block on the Continental Shelf in which the Government has granted offshore exploration rights.

Shares includes any security, a term which itself includes a security that does not create a charge on assets. Interest paid on an unsecured loan of money is regarded as paid in respect of a security issued for the loan.

Are there special rules for certain assets?

(1A)(a) Land or minerals on which a foreign resident is liable (subsection 3) include shares that derive the greater part of their value form those assets or from exploration rights (subsection 6).

(b) If here is any arrangement with a person connected with the company whereby cash has been injected into the company before a disposal of such shares so that they will derive the greater part of their value from the cash that arrangement will be ignored if its purpose was to avoid tax.

Who is liable to CGT?

(2) An individual who is resident or ordinarily resident in the Republic of Ireland (ROI) in a tax year is chargeable to CGT on gains accruing to him in that year.

Company gains are chargeable to corporation tax except for development land gains (section 649) which are liable CGT.

Example

31.12.2008 You leave the ROI and take up residence in Switzerland. You are resident for 2008, as you spent more than 280 days in Ireland during 2007 and 2008 combined.

01.01.2012 You cease to be ordinarily resident (section 820). This is after you will have been non-resident for three years, i.e., when the years 2009, 2010 and 2011, in which you will have been non-resident, have expired.

20.04.2012 You sell shares for €25,000,000. The shares were acquired for €100,000 on 22.01.1993. They are unquoted shares that do not derive their value from land or minerals in ROI, or assets used for a branch trade in ROI.

The €24,900,000 gain escapes Irish CGT as you are no longer Irish resident or ordinarily resident.

However, if you were to return to ROI in say 2013, and be resident in that year, based on the 183/280 day test, you would be caught by section 29A which counteracts temporary non-residence arrangements entered into to avoid tax.

To ensure you do not fall foul of section 29A, you need to remain out (i.e., non-resident for five full tax years).

Is a foreign resident liable to CGT?

(3) An individual who is neither resident nor ordinarily resident in the ROI, is chargeable to CGT on the disposal of:

(a) land in the ROI,

(b) minerals in the State or mining exploration rights,

(c) assets in the ROI that were used for a trade carried on by that person through a branch or agency in the ROI.

(d) Foreign assets held for a foreign life company which were used or held for the trade of its Irish branch.

Example

A UK resident sells a property in Dublin for €750,000.

He acquired the property 10 years earlier for €200,000.

The gain is subject to Irish CGT.

As the proceeds exceed €500,000, in the absence of a tax clearance certificate, the purchaser must withhold 15% tax from the purchase consideration (section 980).

No CGT arises on disposal of properties acquired in 2012 and 2013, provided the property is held for seven years (section 604A).

Is a foreign domiciliary liable to Irish CGT?

(4) A foreign domiciliary is not chargeable to CGT on the disposal of assets situated outside the ROI, unless the proceeds are remitted the gains into the ROI. If remitted, the gains are treated as accruing when received in the ROI.

A foreign domiciliary cannot offet losses on foreign disposals against Irish chargeable gains.

Example

A French domiciled individual has lived and worked in Ireland for ten years.

She sells a property in France and realises a gain of €50,000.

The proceeds are not chargeable unless remitted to the ROI.

Does a foreign loan repayment count as a remittance?

(5) If a foreign domiciliary uses the proceeds of a foreign gain to repay a foreign loan in satisfaction of an Irish debt, the proceeds are treated as remitted into the ROI.

Are there any anti-avoidance measures?

(5A) If a non-domiciled resident transfers chargeable gains to a spouse or civil partner and, on or after 24 October 2013, any amounts derived from those gains are remitted to the State the remittance will be deemed to have been made by the transferor and will be taxable in the State.

Are offshore exploration rights Irish assets?

(6) Gains accruing on the disposal of Irish exploration rights are treated as accruing on the disposal of Irish assets.

How is a foreign resident taxed on the disposal of Irish assets?

(7) If a foreign resident disposes of:

(a) minerals in the ROI,

(b) mining or exploration rights, or

(c) exploration or exploitation rights in a designated area,

the gains are treated as arising from the disposal of assets used by an Irish branch.

Can decisions as to residence and domicile be appealed?

(8) A person aggrieved by a Revenue decision as to domicile or ordinary residence may appeal to the Appeal Commissioners within two months of the decision notice.

Section 29A Temporary non-residents

Can I avoid CGT through temporary non-residence?

(1) This anti-avoidance rule applies where a person temporarily leaves Ireland in order to avoid CGT on the disposal of certain shares (relevant assets), the market value of which:

(a) equal or exceed 5% of the company’s issued share capital, or

(b) exceed €500,000.

The rule works by deeming you to have disposed of, and immediately reacquired, the shares on the last day of the year of departure, i.e., the last tax year in which you were Irish tax resident before going abroad for a number of years (intervening years) and then coming back (in the year of return).

If you could be taxed on a gain from disposal of relevant assets you are treated as Irish resident in the year of disposal.

When does the temporary non-residence rule apply?

(2) The anti-avoidance rule applies if you have relevant assets (see (1)) and you:

(a) are Irish resident for a tax year (the year of return) but were not resident for one or more tax years (intervening years) immediately preceding the year of return,

(b) were Irish resident and domiciled for a tax year before the year of return, and

(c) spend not more than five tax years in tax exile, i.e., there are not more than five tax years between the year of departure and the year of return.

Example

The section was introduced to counteract this type of tax planning:

You are Irish domiciled and resident in 2001.

30.12.2001 You leave Ireland. You are resident in Portugal for 2002 to 2003 (2 years).

In 2002, you are resident in Portugal and non-resident in ROI. Although you are ordinarily resident in ROI (you have not yet completed three years of non-residence), you are protected by the terms of the Portugal-Ireland tax treaty, which taxed the gains solely in Portugal (where they are exempt).

In 2002, you sell shares for €100m while resident in Portugal. The disposal is exempt from Portuguese tax. You escape Irish CGT of €20m (20% x €100m).

01.01.2004 You return to Ireland.

The Portugal-Ireland tax treaty has now been amended to prevent similar avoidance.

Is a gain made while temporarily non-resident taxed?

(3) If you carry out a transaction like the one in (2), i.e., if you dispose of relevant assets while temporarily abroad you are deemed to have disposed of, and immediately reacquired, the relevant assets at their market value on the last day of the year of departure.

The gain you realise while temporarily abroad is crystallised and charged to you on the last day of the tax year in which you leave.

Is the actual value of the disposal relevant?

(3A) Yes. If the actual proceeds or market value at the date of disposal of the assets is greater or less than the market value on the last day of the year of departure that value will be substituted.

Can I claim double tax relief on gains made while temporarily non-resident?

(4) If you are caught for both Irish and foreign CGT in respect of gains made while temporarily non-resident, and there is a tax treaty (which covers CGT) between Ireland and the foreign country, you are entitled to a tax credit up to the amount of the Irish tax in respect of the foreign tax suffered.

Are gains made while temporarily non-resident disclosable on a tax return?

(5) Gains made while temporarily non-resident must be disclosed in the tax return.

Section 30 Partnerships

How are partnership gains taxed?

Each partner in a partnership is separately assessed to CGT on his share of any gain on disposal of partnership assets.

An unincorporated partnership “firm” is not a legal entity, and accordingly, any partnership dealings in assets are attributed to the partners and not the firm.

Section 31 Amount chargeable

Can losses be claimed against gains?

CGT is charged on total chargeable gains accruing to an individual in a tax year, less:

(a) allowable losses for that year, and

(b) unrelieved allowable losses from previous years.

Section 32 Interpretation (Chapter 1)

What definitions apply for Schedule C?

The relevant definitions for the purposes of Schedule C are:

Dividends includes interest, annuities and shares from annuities.

Public revenue means the public revenue of any Government or foreign public authority or institution.

Foreign public revenue dividends are dividends payable outside the State from foreign public revenue.

Coupons includes bills of exchange in payment of foreign public revenue dividends.

Section 33 Method of charge and payment

What is the basis of the Schedule C charge?

(1) A paying agent is charged to Schedule C tax on behalf of the persons entitled to public revenue dividends.

How is Schedule C applied in practice?

(2) The detailed rules for assessment, charge and payment of tax under Schedule C are contained in Schedule 2.

Section 34 Stock, dividends or interest belonging to the State

Are securities held in the name of the Minister for Finance exempt from Schedule C?

(1) Schedule C tax is not payable on securities in the name of the Minister for Finance in the books of the Bank of Ireland, nor on any public revenue dividends paid into accounts in those books in the name of the Minister.

Are State-owned securities exempt from Schedule C?

(2) Schedule C tax is not payable on State-owned securities in the books of the Bank of Ireland.

Section 35 Securities of foreign territories

Is a foreign resident liable to Schedule C tax?

(1) A foreign resident is entitled to be paid dividends on foreign securities gross, i.e., free of Schedule C tax.

A person absolutely entitled to foreign securities held on trust is deemed to be their owner.

Is a foreign resident entitled to a refund of Schedule C tax?

(2) A foreign resident can obtain relief from Schedule C tax by allowance or repayment.

Can a Revenue decision as to residence be appealed?

(3) A person aggrieved by a Revenue decision as to his residence status may appeal. The appeal must be made to the Appeal Commissioners in writing within two months of the decision notice.

Section 36 Government securities

Is interest on government securities subject to withholding tax?

(1) Interest on government securities is to be paid gross, i.e., without deduction of tax.

Deemed to be securities issued under this section:

(a) Securities issued by a body designated under section 4(1) of the Securitisation (Proceeds of Certain Mortgages) Act 1995: section 41;

(b) Securities issued by the International Bank for Reconstruction and Development: section 40(2);

(c) Securities issued by State-owned companies: section 37(3);

(d) Securities of European Bodies: section 39(2);

(e) State-guaranteed securities: section 38(2).

Is interest on government securities taxed?

(2) Interest on government securities is taxed under Schedule D Case III.

Where such securities are controlled by a court or public department, the person chargeable is the person in whose name the securities are held.

What information must a paying agent provide to Revenue?

(3) A paying agent, intermediary or nominee holder in relation to government securities must, if requested, provide Revenue with:

(a) the interest recipient’s name and address,

(b) the amount of the interest paid, and,

(c) the name of the person on whose behalf such security was bought.

Section 37 Securities of certain State-owned companies

Is interest on semi-State securities subject to withholding tax?

(1)-(2) Interest on listed sem-State securities may be paid gross, i.e., without deduction of tax.

Can a semi-State company deduct interest paid on securities?

(3) The security issuer may deduct interest paid in computing its corporation tax.

Securities issued by On or after
The Electricity Supply Board 13 July 1954
Córas Iompair Éireann 13 July 1954
Bord na Móna 18 July 1957
Dublin Airport Authority 2 July 1964
Radio Telefís Éireann 24 May 1989
Bord Gáis Éireann or its gas network company 28 May 1992
Irish Water 24 October 2013

Section 38 Certain State-guaranteed securities

Is interest on State-guaranteed securities subject to withholding tax?

(1)-(2) In general, interest on State-guaranteed securities may be paid gross, i.e., without deduction of tax, but this rule does not apply to:

(a) securities of any of the bodies mentioned in the Table to section 37) [presumably because they are covered by that section], or

(b) securities issued by the National Development Finance Agency.

Can an issuer of State-guaranteed securities deduct interest paid?

(3) An issuer of State-guaranteed securities may deduct the interest paid in computing its corporation tax.

Section 39 Securities of certain European bodies

Is interest on securities issued by EU bodies subject to withholding tax?

(1)-(2) Interest on securities issued by the European Community (now the European Union), the European Coal and Steel Community, the European Atomic Energy Community and the European Investment Bank may be paid gross, i.e., without deduction of tax.

Section 40 Securities of International Bank for Reconstruction and Development

Is interest on securities issued by the World Bank subject to withholding tax?

(1)-(2) Interest on securities issued by the World Bank may be paid gross, i.e., without deduction of tax.

Section 41 Securities of designated bodies under the Securitisation (Proceeds of Certain Mortgages) Act, 1995

Is interest on securitisation issues subject to withholding tax?

Interest on securities issued by a body designated under section 4(1) of the Securitisation (Proceeds of Certain Mortgages) Act 1995 may be paid gross, i.e., without deduction of tax.

Section 42 Exemption of interest on savings certificates

Is interest on savings certificates subject to tax?

(1)-(2) Interest on savings certificates issued by the Minister for Finance, and equivalent EU/EEA securities, is exempt provided the value of your certificates does not exceed the authorised limit.

Section 43 Certain securities issued by Minister for Finance

Is government security interest received by a non-resident taxable?

(1) The Minister for Finance may issue a security with the condition that the capital and the interest on the security is exempt from tax if the security owner is not resident in the Republic of Ireland.

Such securities are exempt from tax.

Is government security interest received by an Irish branch of a foreign bank taxable?

(2) Government security interest received by the Irish branch of a foreign (financial) company is taxable.

Section 44 Exemption from corporation tax of certain securities issued by Minister for Finance

Is government security interest received by an Irish company taxable?

(1)-(2) Generally, only a foreign resident can receive interest on government securities without deduction of tax.

However, interest gross may be paid gross to a qualifying company:

(a) a foreign company that carries on a relevant trade through an Irish branch, or

(b) an Irish company which carries on a relevant trade, which is owned as to 90% or more by by a foreign company.

A foreign company is a non-resident company which is controlled by a person resident in a country with which Ireland has a double tax treaty (a relevant territory).

A relevant trade is one which does not consist of banking, assurance business, retail selling or dealing in securities, and is mainly carried on in the State.

This section is an exception to the rule in section 43(2).

Any company or group funds may be invested and there is no upper limit or restriction on the amount. An investor may invest through a bank or financial institution or deal directly with the National Treasury Management Agency (NTMA).

Example

An Irish resident company is 90% owned by a US parent.

It provides telesales support (i.e., a relevant trade).

It may invest surplus cash in NTMA securities and obtain a tax-free return.

Section 45 Exemption of non-interest-bearing securities

When are government bond redemption gains taxable?

(1)-(3) Since 25 January 1984, a gain on the redemption of non-interest-bearing government securities issued at a discount, including Exchequer Bills, Exchequer Notes, and Agricultural Commodities Intervention Bills is taxable.

When are government bond redemption gains exempt?

(4) Government bond redemption gains are exempt in the hands of a foreign resident.

This rule does not apply to the Irish branch of a foreign company.

Section 46 Exemption of premiums on investment bonds

Is an investment bond redemption gain taxable?

A gain on the redemption of an investment bond is exempt but not in the hands of a bond dealer.

Section 47 Certain securities of ACC Bank plc

Is interest on ACC Bank securities taxable?

Interest on debentures and certificates of charge issued by ACC Bank plc is exempt when received by a person who is neither domiciled nor ordinarily resident in the Republic of Ireland.

Section 48 Exemption of premiums on certain securities

Are EU bond redemption gains exempt?

(1)-(3) A gain on the redemption of the following securities is exempt:

(a) Irish government securities,

(b) securities issued by an Irish semi-State body, and guaranteed by the Minister for Finance,

(c) securities issued by the European Community, the European Atomic Energy Authority and the European investment Bank,

(d) securities issued by the World Bank.

As regards securities issued after 25 January 1984, this exemption does not apply to securities within (4).

When are bond redemption gains taxable?

(4) As regards securities issued after 25 January 1984, redemption gains on the following securities are taxable:

(a) non-interest bearing Government securities issued by the Minister for Finance at a discount,

(b) Agricultural Commodities Intervention Bills,

(c) strips of Government securities.

When are bond redemption gains exempt?

(5) A gain on the redemption of bonds within (4) is exempt in the hands of a foreign resident.

This rule does not apply to the Irish branch of a foreign company.

Section 49 Exemption of certain securities

Can the Minister specify that a security is exempt if paid to a foreign resident?

(1)-(2) The Minister for Finance can specify that the following securities be issued subject to a condition that interest in the security is exempt in the hands of a non-resident:

(a) securities of semi-State bodies (section 37),

(b) certain State-guaranteed securities (section 38),

(c) securities of certain European bodies (section 39),

(d) securities of the World Bank (section 40),(e) securities of bodies designated under section 4(1) of the Securitisation (Proceeds of Certain Mortgages) Act 1995.

Is interest received by an Irish branch of a foreign bank taxable?

(3) Interest received by the Irish branch of a foreign (financial) company is taxable.

Section 50 Securities of Irish local authorities issued abroad

What is a local authority?

(1) A local authority includes any public body recognised as a local authority by the Minister for the Environment.

Is interest on local authority securities taxable?

(2) Interest on local authority securities is exempt in the hands of a foreign resident.

Local authority interest received by the Irish branch of a foreign (financial) company is taxable.

Section 51 Funding bonds issued in respect of interest on certain debts

What is the tax treatment of funding bonds?

(1)-(3) The issue of bonds, shares or debentures (funding bonds) to a creditor in respect of a liability to to repay interest on any Government, public, or corporate debt, is treated as the payment of interest equal to the value of the bonds, shares, or debentures at the time of their issue.

Consequently, the redemption of the bonds, shares, or debentures is not treated as a payment of interest.

This section overrules Cross v London and Provincial Trust Ltd, (1938) 21 TC 705. In that case, the court held that the issue of funding bonds was not otherwise a payment of interest.

Section 52 Persons chargeable

Who is taxed under Schedule D?

Schedule D applies to the person or the body of persons (section 2) receiving or entitled to the income.

In this regard, the trustees of a trust, including the trustee of a deceased person’s estate (his/her personal representative – sections 1047 and 1048) are a body of persons (section 1044).

Whether you are entitled to the income may depend on particular circumstances: Drummond v Collins, (1915) 6 TC 525; Aplin v White, (1973) 49 TC 93; Martin v IRC, (1938) 22 TC 330; IRC v Thompson, (1936) 20 TC 422 and Kelly vRogers, (1935) 19 TC 692.

Interest is “received” if it enures to your benefit: Dunmore v McGowan, [1978] STC 217. In that case, the taxpayer gave a guarantee to the bank, and agreed not to withdraw interest accrued to his account during the life of the guarantee. He was held liable on the interest income, as it enured to his benefit by reducing his liability under the guarantee. See alsoPeracha v Miley, [1990] STC 512, and Brown v IRC, (1964) 42 TC 42 where interest arising on a solicitor client account was held to be unearned income.

In Macpherson v Bond, [1985] STC 678, the taxpayer guaranteed a loan to a company by securing the debt against the money in his account. He was held not taxable on interest accrued on the company loan as it did not reduce his potential liability under his guarantee.

Section 53 Cattle and milk dealers

What is farm land?

Before 6 April 1974, farmers were largely exempt from income tax as their profits were based on the rateable valuation of the land, which had no relationship to the profits being generated by the farming activity. The Finance Act 1974established that farming was a trade.

Although farming was largely exempt, the profits of cattle and milk dealers were taxable. A cattle or milk dealer could not escape tax by saying he was a “farmer.”

Are profits of cattle dealers and milk dealers taxable?

(2) A cattle dealer or milk dealer who uses farm land, which is insufficient for the keeping of cattle brought onto the land, to graze your livestock is regarded as carrying on a trade. The profits of that trade (not the trade of farming) are taxed under under Schedule D Case I.

Section 54 Interest, etc paid without deduction of tax under Schedule C

How are interest and dividends received net of Schedule C tax assessed?

(1)-(2) Public revenue interest, dividends and annuities received net of Schedule C tax are taxed in the hands of the recipient under Schedule D.

Section 55 Taxation of strips of securities

What is a strip?

(1) These rules apply to strips of security (Irish government stock and other government and corporate bonds (section 815)).

A strip is created when the right to receive the interest payment on the security is separated (“stripped”) from the right to receive the capital.

Where a security is part of a security dealer’s trading stock, opening value means the price the security would fetch if sold in the open market (its market value).

Otherwise, it means the lesser of:

(a) the security’s nominal value (the value in terms of which the interest on the security is expressed), but if the security’s value is not so expressed, the price paid for the security when it was issued, and

(b) its market value when the strip was created.

An individual strip holder is liable to an annual income tax charge (see (5)) on 31 December each year.

For a company, the charge applies on the last day of the accounting period (the relevant day).

Example

A four year €1,000 bond bearing interest at 9% per annum could be divided into five strips:

strip 1 would entitle the holder to receive €90 interest at the end of year 1;

strip 2 would entitle the holder to receive €90 interest at the end of year 2;

strip 3 would entitle the holder to receive €90 interest at the end of year 3;

strip 4 would entitle the holder to receive €90 interest at the end of year 4;

strip 5 would entitle the holder to receive €1,000 capital at the end of year 4.

How is the disposal of a strip taxed?

(2) The creator of a strip is deemed to have:

(a) disposed of the original security at market value,

(b) reacquired each constituent strip of the original security at its appropriate proportion of the original security’sopening value.

Each constituent strip is deemed to be a non-interest bearing security.

Profits or gains on its disposal are chargeable under Schedule D Case III (unless your profits are part of a security dealing trade and taxed under Schedule D Case I).

What is the acquisition cost of a strip?

(3) A strip’s acquisition cost is the lesser of:

(a) the price paid, and

(b) the strip’s proportion of the security’s nominal value (i.e., the proportion which the strip’s value would have borne to the aggregate market value of all the strips if they were created on the day the security was issued).

What if strips are reconstituted into the original security?

(4) The reconstitution of a series of strips into the original security is treated as a disposal of each constituent strip at market value.

The reconstitution also deems the original security to have been acquired at a price equal to the combined market value of the constituent strips.

Is there an annual charge on holding a strip?

(5) The holder of a strip is deemed to have disposed of, and immediately reacquired, the strip at market value on 31 December each year (the relevant day). This is to ensure the holder is taxed on the annual appreciation.

What if the annual deemed disposal gives rise to a loss?

(6) A loss produced by the annual deemed disposal and reacquisition of a stript may be offset against other Schedule D Case III income.

Section 56 Tax on quarries, mines and other concerns chargeable under Case I(b) of Schedule D

How are profits of quarries, mines etc taxed?

(1) Schedule D Case I(b) charges to tax the profits of quarries, mines, canals, docks, rights of markets, tolls, railways, bridges and ferries (section 18(2)).

Example

You own a large holding of land which contains a canal, a dock, a mine, a quarry and you also operate a ferry to an island on a lake within your holding.

When you file your tax return, your accounts must give a breakdown showing each source of income. Your profits are taxed under Schedule D Case I (not Case V).

Who is assessable in relation to profits from quarries, mines etc?

(2) The person assessed under Schedule D Case I is:

(a) the person who operates the quarry, mine etc,

(b) the agent/officer responsible for directing or managing it, or

(c) the agent/officer who receives the profits of the concern.

How are mining adventurers taxed?

(3) Each member of a company of mining adventurers is separately assessed and charged to tax in respect of his share of the profits.

A person engaged in several ventures may, by agreement with the inspector, offset a loss incurred in one venture against the profits of another.

Each member is chargeable to tax in the tax district where his profits are greatest.

Section 57 Extension of charge to tax under Case III of Schedule D in certain circumstances

Is income from a foreign employment taxed?

(1) Income from a foreign employment (i.e., where the duties are exercised outside the Republic of Ireland) is taxed under Schedule D Case III as income from a foreign possession.

But see section 821, which allows foreign employment income of an individual who is ordinarily resident, but not resident, in Ireland to escape tax.

Is benefit in kind from a foreign employment taxed?

(2)-(3) Benefit in kind arising from a foreign employment is taxed as if the employment was Irish.

Section 58 Charge to tax of profits or gains from unknown or unlawful source

Are illegal earnings taxed?

(1) Profits from illegal activities, for example, dealing in drugs or prostitution, are chargeable to tax under Schedule D Case IV.

Before 8 June 1983, illegal earnings could not be assessed to tax: Hayes v Duggan, 1 ITR 195, Collins and others v Mulvey, 2 ITR 291.

The UK courts have held that profits from prostitution are chargeable to tax: IRC v Aken, [1990] STC 497. Profits from buying and selling “one arm bandits” (then illegal) were held chargeable in Mann v Nash, (1932) 16 TC 523. See alsoSouthern v A-B, (1933) 18 TC 59; Canadian Minister of Finance v Smith, (1926) 5 ATC 621; Lindsay Woodward and Hiscox v IRC, (1932) 18 TC 43.

Example

For many years you have carried on a trade of dealing in heroin, cocaine and marijuana. Your profits since commencing this trade are €900,000.

Your profits are chargeable under Schedule D Case IV.

How does the Criminal Assets Bureau assess tax?

(2) Where the Criminal Assets Bureau (CAB – the body) have identified suspected criminal assets and taken action to recover those assets, they may assess illegal earnings under Schedule D Case IV.

The assessment may be issued in the name of the CAB, and the Appeal Commissioners cannot discharge the assessment on the basis that the income arose from an unknown or illegal source.

The CAB may also demand payment of the assessed tax. If the tax is paid, it must issue a receipt, lodge the payment to the Revenue bank account, and provide the Collector-General with details of the assessment and any payment made.

Section 59 Charge to tax of income from which tax has been deducted

Must income received under deduction of tax be declared on a tax return?

Where income is received under deduction of tax (under sections 237 or 238, Schedule C, Schedule D), the gross income (the relevant income) must be declared in the tax return under Schedule D Case IV.

The recipient is entitled to a tax credit for the tax deducted at source.

Example

You are 65 years old and physically incapacitated.

During the tax year, you receive a covenant payment (section 792) of €2,400 from your son. Your son has deducted 20% tax from the gross payment of €3,000.

Your other income is a pension of €15,000. As your income is below the age exemption limit (section 188), you are not subject to tax and you can reclaim the €600 deducted from the covenant.

When filing your return, you include the covenant income (€3,000) as Schedule D Case IV.

Section 60 Interpretation (Chapter 2)

This Chapter applies to “foreign dividends”: i.e., dividends and interest payable from stocks, shares or securities of foreign companies and entities.

It does not apply to annual payments from which standard rate Irish tax has been deducted at source.

In practice, “foreign dividends” excludes dividends etc paid by UK companies.

Section 61 Dividends entrusted for payment in the State

How is a dividend paying agent assessed to tax?

An Irish paying agent who is entrusted with the payment of foreign dividends is assessable under Schedule D, and the Schedule C collection rules (Schedule 2) apply.

Section 62 Dividends paid outside the State and proceeds of sale of dividend coupons

Must a dividend paying agent deduct encashment tax?

(1) An Irish:

(a) banker who obtains payment of foreign dividends,

(b) banker who sells or realises coupons for foreign dividends,

(c) dealer in coupons who buys foreign dividend coupons,

must deduct “encashment tax” from the dividends, the realisation proceeds, or the purchase price, as the case may be.

This Schedule D tax is collected under the Schedule C collection rules (Schedule 2).

When is encashment tax not deductible?

(2) Encashment tax does not apply to the clearing of a cheque.

Section 63 Exemption of dividends of non-residents

Is a foreign resident subject to dividend encashment tax?

(1) A foreign resident is exempt from dividend encashment tax and is not entitled to any allowance or credit against such income.

A foreign resident who is the sole beneficiary of a trust with power to call on the trustees to transfer the foreign securities to him, is deemed to own such securities and is also exempt from encashment tax.

How does a foreign resident reclaim encashment tax?

(2) A foreign resident can reclaim encashment tax by making a claim to Revenue.

Can a Revenue decision as to residence be appealed?

(3) If aggrieved by a Revenue decision as to residence, you can appeal to the Appeal Commissioners within two months of Revenue decision notice.

Section 64 Interest on quoted Eurobonds

Must a paying agent deduct tax from Eurobond interest?

(1) Eurobonds are long-term, interest paying securities issued by companies and other institutions.

In the case of registered Eurobonds, the security owner is registered and identifiable.

In the case of bearer Eurobonds, the owner is the bearer of the security.

A paying agent, banker or coupon dealer (a relevant person) who pays interest on bearer Eurobonds that are quoted on a recognised stock exchange (quoted Eurobonds) must, unless authorised by Revenue to pay gross (section 246), deduct standard rate tax.

In general, Revenue would not give such authorisation for bearer securities as it would not be possible to determine who the holder was, or whether the bearer was resident in the Republic of Ireland.

This section allows interest on bearer Eurobonds to be paid gross.

What is a recognised clearing system?

(1A) Financial institutions participate in clearing systems in order to minimise the paperwork associated with transfer of ownership of the securities. A member of the system can electronically transfer ownership so that the latest participant owner’s name is always immediately available.

Revenue may by order designate one or more security-clearing system as a recognised clearing system and include any other security-clearing system which Revenue have designated as a recognised clearing system.

 When can a paying agent pay Eurobond interest gross?

(2) A paying agent may pay Eurobond interest gross, provided:

(a) the person by or through whom the payment is made is not resident in Republic of Ireland, or

(b) the Eurobonds are held in a recognised clearing system (for example Euroclear, Cedel), or the recipient completes a non-residence declaration.

Must a paying agent file a return?

(3) a paying agent of Eurobond interest must, within 12 months of paying the interest, send to the appropriate officera return of gross payments made into a recognised clearing system, and to non-residents.

 Must a trustee complete the non-residence declaration?

(4) A trustee in receipt of Eurobond interest must, if he wishes to be paid gross, complete a non-residence declaration.

 Must a paying agent deduct encashment tax from Eurobond interest?

(5) A paying agent who receives Eurobond interest on behalf of a foreign resident must deduct encashment tax from the payment unless the foreign resident has completed a non-residence declaration.

 What details must be provided on the non-residence declaration?

(6)-(7) The declaration to be completed by a foreign resident who wishes to receive Eurobond interest gross, must state the payee’s name, address, country of residence.

The payee must also undertake to notify the interest payer if he becomes Irish resident.

 How long should non-residence declarations be retained?

(8) Non-residence declarations should be kept for the longer of:

(a) six years,

(b) three years after the latest interest payment date.

A paying agent must also make such declarations available for inspection by Revenue.

The inspector may examine or make copies of the declarations.

Section 65 Cases I and II: basis of assessment

What is the strict basis of assessment for Case I/II income?

(1) A trader or professional person is liable to tax on the “full amount” of profits earned in the tax year. This strict or “actual” basis of assessment ensures that the basis period is the tax year.

 What is the usual basis of assessment for Case I/II income?

(2) Usually, the profits of a trader or professional person are based for tax purposes on:

(a) the profits of the accounts year ending in the tax year,

(b) if there several set of accounts with different end dates, the profits to the year ending on the latest of those dates.

If there are no accounts, the profits are taken to be the actual profits for the tax year (see (1)).

 What is the basis of assessment where an accounting date is changed?

(3) If, on a change of accounting date, the profits for the corresponding period in the previous tax year exceed the profits in the current year, the profits for the corresponding period are “revised to actual”, and the tax assessment for the previous year must be amended.

In other words, a change of accounting date triggers a revision (to actual) of the previous year’s assessment.

 Who pays tax owed by a deceased trader?

(4) Tax owed by a deceased person is assessed on his executors or administrators and is a debt due and payable from his estate.

Section 66 Special basis at commencement of trade or profession

What is the basis of assessment for Case I/II income in the first year of trading?

(1) These rules are referred to as the commencement rules.

The basis of assessment for the first tax year of trading is the actual profits for that year.

The commencement date depends on the particular facts and circumstances. In Birmingham and District Cattle By-Products Ltd v IRC, (1928) 12 TC 92, the company was held to have commenced trading when it began to process raw materials it had bought. In Todd v Jones Bros Ltd, (1930) 15 TC 396, the company was held to have commenced trading on the date of the contract transferring the business. In Angel v Hollingworth, (1956) 37 TC 714, the company was held to have commenced trading at the time the partnership business was transferred to it (i.e., not the contract date).

If you acquire a second shop you are continuing your existing trade (not commencing a new trade): Maidment v Kibby and another, [1993] STC 494.

Commencing a new activity usually means you have commenced a new trade. In O’ Loan v Noone and Co, 2 ITR 146, a company that changed its activity from fruit to coal merchants was regarded as having commenced a new trade. New trades were also found in Farrell v Sunderland Steamship Co Ltd, (1903) 4 TC 605; Fullwood Foundry Co Ltd v IRC, (1924) 9 TC 101; H and G Kinemas Ltd v Cook, (1933) 18 TC 116, Gordon and Blair Ltd v IRC, (1962) 40 TC 358, andSeaman v Tucketts Ltd, (1963) 41 TC 422.

Extensions to existing trades were found in Howden Boiler and Armaments Co Ltd v Stewart, (1924) 9 TC 205; Cannop Coal Co Ltd v IRC, (1918) 12 TC 31; IRC v Turnbull Scott and Co, (1924) 12 TC 749 and Cannon Industries Ltd v Edwards, (1965) 42 TC 625. In Seldon v Croom-Johnson, (1932) 16 TC 740, a barrister becoming Queen’s Counsel was held not to have commenced a new profession.

In Edmunds v Coleman, [1997] STC 1406, a freelance television producer who changed from part-time to full-time producer was held not to have commenced a new activity; he was merely intensifying his existing activities.

Becoming resident is not of itself the commencement of a trade: Fry v Burma Corporation Ltd, (1930) 15 TC 113.

Where two businesses merge, there is technically a new business: Humphries (George) and Co v Cook, (1934) 19 TC 121.

 What is the basis of assessment for Case I/II income in the second year?

(2) The basis of assessment for the second tax year of trading is:

(a) the profits of the only accounts year ending in that tax year,

(b) if there are several account end dates, the last 12 months of the latest accounts period ending in that year,

(c) If no accounts have been made up, the actual profits for that year.

 Can second year trading profits be reduced to actual?

(3) The basis of assessment for the third tax year of trading is the profits of the latest 12 month accounting period ending in that year (section 65(2)).

If the profits for the second tax year exceed the actual profits for that second year, the excess may be deducted from the profits for the third tax year.

This relief, which is treated as a trading loss (section 382), must be claimed when filing the return for the third tax year.

Section 67 Special basis on discontinuance of trade or profession

What is the basis of assessment for Case I/II income in the final year of trading?

(1) These rules are referred to as the cessation rules.

The basis of assessment for the final tax year of trading is the actual profits for that year.

If the actual profits for the penultimate tax year exceed the profits originally charged, an additional assessment is made to charge the excess.

Tax owed by a deceased trader is assessed on the executors or administrators, and is a debt due from his estate.

Whether a trade has ceased depends on the particular facts. In O’Kane and Co v IRC, (1922) 12 TC 303, the company was held to be still trading after it had allegedly sold off all stock in a “retirement from business” sale. See also Hillerns and Fowler v Murray, (1932) 17 TC 77; Southern v Cohen’s Executors, (1940) 23 TC 566; Parker v Batty, (1941) 23 TC 739; Sethia v John, (1947) 28 TC 153; IRC v Daniel Beattie and Co, (1955) 36 TC 379, and Aeraspray Associated Ltd v Woods, (1964) 42 TC 207.

A break in trading is not necessarily a cessation: Merchiston Steamship Co Ltd v Turner, (1910) 5 TC 520; Sutherland v IRC, (1918) 12 TC 63; Kirk and Randall Ltd v Dunn, (1924) 8 TC 663; Robroyston Brickworks Ltd v IRC, [1976] STC 329; Boland’s Ltd v Davis, 1 ITR 86.

A change of ownership of a business is not a permanent cessation: Cronin v Lunham Bros Ltd (In liquidation), 3 ITR 363.

The recovery of a bad debt by an executor is not regarded as a new trade, but a receipt of the old trade (as a debt due to the estate): CD v J M O’Sullivan, (1948) 2 ITR 140.

 Does a trade cease when the trader dies?

(2) A cessation of a trade includes a cessation by reason of the trader’s death.

Revenue do not enforce the cessation rules where an individual succeeds to a trade formerly carried on by the individual’s deceased spouse (Tax Briefing 9, January 1993).

Section 68 Short-lived businesses

What is a short-lived business?

(1) A short-lived business is one that permanently ceases in its third tax year.

In such a case, the interaction of the commencement (section 66) and cessation (section 67) rules may result in excess profits being assessed.

 What relief is available to a short-lived business?

(2) The owner of a short-lived business can write to the inspector on or before 31 October after the final tax year to have the assessment for the penultimate year revised to actual.

 Is short-lived business relief available on a death?

(3) Short-lived business relief also applies where the trade as ceased as a result of the trader’s death.

Section 69 Changes of proprietorship

Does a change of ownership give rise to a cessation and commencement?

(1)-(2) A successor to a trade or profession previously carried on by another person (the predecessor) is treated as having commenced a new trade and the predecessor is treated as having ceased the old trade.

In other words, a change of ownership results in a cessation and commencement for tax purposes.

 Who pays tax owed by a deceased trader?

(4) Tax owed by a deceased person is assessed on his executors or administrators and is a debt due and payable from his estate.

Section 70 Case III: basis of assessment

What is the Case III single source rule?

(1) Case III income (untaxed interest and income from foreign property) is deemed to issue from a single source.

This “single source rule” makes it unnecessary to apply commencement rules each time a new source is obtained (or cessation rules each time a source ceases).

 Can rental losses be offset against other income under the”single source” rule?

(1A) This subsection was inserted to clarify that foreign rental losses cannot be offset against other income taxable under Case III of Schedule D.

 What is the basis of assessment for Case III income?

(2) Case III income is based on the full amount of profits arising in the tax year. This is referred to as the arising basisor actual basis.

 What deductions are allowed in computing Case III income?

(3) In computing Case III income, the only deductions allowed are those mentioned in section 71.

 What is the basis of assessment for Case III income where the remittance basis applies?

(4) Where the remittance basis (section 71(3)) applies, the basis of assessment for Case III income is the full amount of income received in the Republic of Ireland in the tax year.

Whether remittance has in fact occurred: Scottish Provident Institution v Allan, (1903) 4 TC 591.

A remittance includes a constructive remittance: Back v Whitlock, (1932) 16 TC 723), for example, a loan enjoyed in the UK: Harmel v Wright, (1973) 49 TC 149. In Thomson v Moyse, (1960) 39 TC 291, a cheque drawn on a United States bank account was held to be a constructive remittance to the UK when sold to a UK bank.

But not a remittance of capital: Timbrell v Lord Aldenham’s Executor, (1947) 28 TC 293, Kneen v Martin, (1934) 19 TC 33, unless bought out of foreign income while the taxpayer was resident in the UK: Walsh v Randall, (1940) 23 TC 55.

A constructive remittance does not include minor purchases by the spouse of a non-domiciled individual which do not accrue to the benefit of the non-domiciled individual: Carter v Sharon, (1936) 20 TC 229.

Unremittable income (section 1004) or gains (section 1005) are not taxed: Fellowes-Gordon v IRC, (1935) 19 TC 683.

Remittances are taxed whether intended or not: Roxburghe’s (Duke of) Executors v IRC, (1936) 20 TC 711, O’Sullivan v O’Connor, (1947) 26 ATC 463.

Remittances after the source had ceased but within the same tax year are taxed: Joffe v Thain, (1955) 36 TC 199.

Section 71 Foreign securities and possessions

What is the basis of assessment for Case III foreign source income?

(1) Case III foreign source income is based on the full amount of profits arising in the tax year, subject to deductions for:

(a) the equivalent deductions that would haven been available in respect of equivalent Irish-source income.

(b) foreign tax paid on the foreign income, and

(c) any annual payment (other than annual interest) payable from the foreign source income to a foreign resident.

Example

Irish resident taxpayer with French dividend income paid to a French bank account.

An annuity is paid from that bank account to a French resident (under an agreement in which you receive sufficient consideration for the annuity).

Annuity is deductible from French dividend income chargeable under Case III.

 Does the arising basis apply to a foreign domiciled person?

(2) The arising basis does not apply to a foreign domiciled person.

 What is the basis of assessment for Case III income of a foreign domiciled person?

(3) Case III foreign source income of a foreign domiciled person is based on the actual sums received in the Republic of Ireland in the tax year. This is referred to as the remittance basis.

Domicile

Your domicile of origin is the domicile of your father at the time of your birth. While you are a minor child, your domicile follows any change in your father’s domicile.

You acquire a domicile of choice by intending to make your permanent home in a different country to the country of your domicile of origin, and actually living in the new country: IRC v Duchess of Portland, [1982] STC 149, Plummer v IRC, [1987] STC 698.

Domicile of choice is a matter of fact: Re Sillar, [1956] IR 350, and of intention: Earl of Iveagh v Revenue Commissioners, 1 ITC 316, [1930] IR 431. In that case, and in Captain Prior-Wandesforde v Revenue Commissioners, 1 ITC 248, an Irish-born taxpayer was held to have retained his Irish domicile of origin (and could not claim a UK domicile of choice).

It is difficult to abandon your domicile of origin: IRC v Cohen, (1937) 21 TC 301. Considered on its own, the length of time spent in the new country does not establish domicile there: In Winans v A-G, (1904) AC 287 and Bowie (or Ramsey) v Liverpool Royal Infirmary, (1930) AC 588, residence in another country for almost 40 years did not change a domicile of origin. In Revenue Commissioners v Shaw, HC, 20 April 1977, the deceased who had property in Ireland and Scotland and had made a will according to Scottish law was held to have died domiciled in Ireland. It is up to you to show that you are not domiciled in the Republic of Ireland: Proes (Claire) v Revenue Commissioners, unreported, HC, 5 June 1997.

If have obtained a foreign domicile of choice, a return to live in your country of origin restores your domicile of origin:Fielden v IRC, (1965) 42 TC 501, Re Rowan (deceased), [1988] ILRM 65.

A foreign domicile of origin is not generally changed by the mere fact of residence in Ireland: Buswell v IRC, [1974] STC 266 and IRC v Bullock, [1976] STC 409. But was held to have changed in Steiner v IRC, [1973] STC 547, ReLawton, (1958) 37 ATC 216, and Re Furse (dec’d) Furse v IRC, [1980] STC 596.

A married woman’s domicile of dependence did not automatically revert to her origin, even on her husband’s death: Re Wallach dec’d, Weinschenk v Treasury Solicitor, (1949) 28 ATC 486, IRC v Duchess of Portland, [1982] STC 149.

Tax planning with the remittance basis

If entitled to the remittance basis, you should make remittances out of capital. You should pay foreign income into a separate account with a different bank. A remittance of the original capital is not taxed.

If you make a foreign gain, you should pay the disposal proceeds into a separate bank account and not remit to Ireland unless necessary.

 Does Case III income include tax deducted from such income?

(3A) If a recipient of foreign income gets a payment from the foreign government in respect of tax paid by another person, Irish tax is payable on the “gross” payment, including the tax “credit”.

Example

T receives a dividend of €20,000 from a Maltese company.

T also receives a €6,200 tax refund in respect of the tax paid by the company.

T’s income for Irish tax purposes is €26,200.

Are there anti-avoidance measures?

(3B) If a non-domiciled resident transfers income or property to a spouse or civil partner and, after 13 February 2013, that income or property is remitted to the State the remittance will be deemed to have been made by the transferor.

What deductions are allowed in computing Case III rental income?

(4) The same deductions are available against foreign rental income as would have applied had the income been Irish rental income.

In other words, foreign rental income is computed as if it were Irish rental income.

Is income held in trust under a Debt Settlement Arrangement or a Personal Insolvency Arrangement to be included?

(4A) Yes.

Can a Revenue decision as to domicile be appealed?

(5) A Revenue decision in relation to domicile may be appealed, in writing, to the Appeal Commissioners within two months of the date of the decision.

Section 72 Charge to tax on sums applied outside the State in repaying certain loans

Are there anti-avoidance rules in relation to the remittance basis?

(1) This anti-avoidance section counteracts schemes whereby a person on the remittance basis (section 71) might avoid tax by substituting borrowed funds for a remittance. This is sometimes referred to as a constructive remittance.

It defines a lender to include not just a banker, but any person entitled to repayment of money lent.

It also ensures that the creation of a new debt or a series of debts (where one debt is incurred to satisfy another) in order to repay a different debt is caught. Money applied towards repaying the new debt is regarded as having been applied towards repaying the old debt.

In the following text, Ireland means the Republic of Ireland.

Does foreign satisfaction of an Irish debt count as a remittance?

(2) A person is treated as having remitted:

(a) foreign source income applied outside Ireland to pay off a debt incurred in Ireland,

(b) foreign source income applied outside Ireland to pay off a foreign loan, the proceeds of which have been brought into Ireland,

(c) any debt incurred in satisfying the debt in (a) or (b).

Example

You are domiciled in New York.

You are about to take up a new employment in Ireland.

You will be resident in Ireland for the next three years.

Your contract is for €250,000 per annum for three years.

You take out a foreign loan for €750,000, bring the €750,000 to Ireland (as clean borrowings, not income) and use your offshore contract earnings to repay the loan.

You are treated as having remitted the €750,000.

Does bringing foreign loan proceeds into Ireland count as a remittance?

(3) Another possible scheme might be to borrow abroad, “satisfy” the debt wholly or partly, and then bring the funds into Ireland.

In such a case, the loan proceeds are deemed to have been remitted into Ireland at the time the money was actually brought into Ireland.

Does “back to back” borrowing count as a remittance?

(4) Another possible scheme might be to borrow abroad, place a “back to back” security (for example a deposit or interest-paying securities) with the same bank as a guarantee for the loan, and then bring the borrowed funds into Ireland.

In such a case, the “back to back” security is treated as “satisfying” (see (3)) the borrowings and the borrowings are deemed to have been remitted at the time the money was actually brought into Ireland.

Do these anti-avoidance rules apply to foreign domiciled persons?

(5) Before 20 February 1997, these rules were confined to individuals not ordinarily resident in Ireland.

Since that date, they apply to persons who are resident or ordinarily resident.

This means they apply to foreign domiciled persons who happen to be resident in Ireland (See Example to (2)).

Section 73 Income from certain possessions in Great Britain or Northern Ireland

This section has been repealed.

Section 74 Case IV: basis of assessment

What is the basis of assessment for Case IV income?

(1) Case IV income is based on the full amount of profits arising in the tax year.

What must be disclosed in relation to Case IV income?

(2) The nature (source) of Case IV profits must be disclosed on the tax return.

 What must accompany a Case IV disclosure?

(3) The disclosure must contain a statement that it is made to the best of knowledge and belief of the taxpayer.

Section 75 Case V: basis of assessment

What is Case V income?

(1) Case V income is income from (Irish-source) rents and easements (rights of way).

It does not include income from quarries, mines, etc (section 104).

Foreign-source rental income is taxed under Case III (section 70).

What is the Case V single source rule?

(1) Case V income is deemed to issue from a single source.

This “single source rule” makes it unnecessary to apply commencement rules each time a new source is obtained (or cessation rules each time a source ceases).

What is the basis of assessment for Case V income?

(3) Case V income is based on the full amount of profits arising in the tax year.

The charge applies to rental profits “arising” in the tax year – whether payable in advance or arrears: Strick v Longsdon, (1953) 34 TC 528

See section 101 which provides relief where rent is paid in arrears.

Is rent received under a favoured letting taxable?

(4) A favoured letting arises where the rent under a lease is insufficient, taking one year with another, to cover normal letting costs and landlord’s obligations (for example, maintenance, repairs and insurance).

Rent received under a favoured letting is not taxed, the expenses are not deductible (section 97), any resulting loss is not allowable (section 384).

Does work done by the tenant count as rent?

(5) Rent includes any payment in the nature of rent (for example, work done by a tenant on the leased premises).

Section 76 Computation of income: application of income tax principles

Do IT principles apply for CT?

(1) Corporation tax (CT) is computed in accordance with income tax (IT) principles. See also Inspector Manual 4.5.3.

How does IT law apply for CT?

(2) Income tax law applies as if company accounting periods were tax years, the law applicable being the law for the tax year in which the accounting period ends.

What is a company’s total profits?

(3) A company’s total profits is the total of:

(a) Its total income under Schedules C, D (Cases I-V), and E. Distributions from Irish resident companies (Schedule F) are not counted in arriving at total income (section 129).

(b) Its chargeable gains.

Are company profits charged on a basis period?

(4) The profits of a sole trader are charged on the basis of an accounts year ending in the tax year. This is not the case with CT. Company profits are charged on the basis of the accounting period (section 27(1)).

Example

A company’s profits are made up as follows:

Trading income (Case I) 100,000
Royalty income (Case IV) 10,000
Rental income (Case V) 5,000
“Income” 115,000
Chargeable gains (section 78) 5,000
“Profits” (section 4(1)) 120,000
Less charges (section 243) 2,000
Profits chargeable to corporation tax 118,000

Are dividends deductible in a CT computation?

(5) The following are not deductible for CT purposes:

(a) dividends paid – these are a distribution out of profits, not an expense of earning profits, or

(b) annual payments (including patent royalties and rental type payments for quarries, mines, etc) – these are allowed against total income (section 243) rather than just against trading income – see also Inspector Manual 4.5.4.

Do IT exemptions apply for CT?

(6) In general, IT exemptions and charges apply for CT – whether or not the matter being charged is expressed as income.

Can companies claim the remittance basis?

(7) The remittance basis (section 71(3)) does not apply to companies.

Can a transaction have distinct IT and CT consequences?

(8) The operation of IT and CT is not affected by the fact that the same transaction has an IT consequence for an individual and a CT consequence for your company.

Example

X, an individual, charges €1,000 rent to a company.

X pays income tax on the rent (at his/her marginal rate – 41%).

The company gets a corporation tax deduction (against its profits taxed at 12.5%).

Section 76A Computation of profits or gains of a company – accounting standards

Must accounting standards be used in computing profits?

(1) A company’s trading and professional profits computed must be computed using generally accepted accounting principles (GAAP), before being adjusted in accordance with tax law and case law.

What are the tax consequences of switching from GAAP to IFRS?

(2) Schedule 17A sets out transitional arrangements to deal with situations where your company switches to International Financial Reporting Standards (IFRS), i.e., where the profits of the current period are computed using IFRS and the profits of the previous period were not.

Section 76B Treatment of unrealised gains and losses in certain cases

Should changes in the fair value of financial assets be recorded?

(1) Under IFRS, movements in the value of financial assets and financial liabilities must be put through the company’s profit and loss account because income/gains arising in a period are determined in relation to the fair valueof such assets at the balance sheet date.

Should changes in the fair value of assets be reflected in taxable profits?

(2) If unrealised gains and losses (see (1)) are included in a company’s accounts in accordance with IFRS, such gains and losses must be included when calculating its profits for tax purposes.

Section 76C Use of different accounting policies within a group of companies

Can use of different standards give rise to a tax advantage?

(1) This is an anti-avoidance section. Where a company is a member of a group of companies and one member prepares its accounts under IFRS, and another under GAAP, a tax advantage could conceivably apply to either. In this regard:

(a) A tax advantage means a reduction, avoidance or deferral of a charge, or potential charge, to tax. It also means a tax refund or increase in such refund, and any potential such refund.

(b) A series of transactions is not prevented from relating to two companies merely because:

(i) there is no transaction to which both companies are party,

(ii) the parties to any arrangement in the series do not include one or both companies, or

(iii) a transaction exists in the series to which neither company is party.

How is a tax advantage derived from different accounting standards nullified?

(2) This rule applies where:

(a) A company (being subject to tax on its trading or professional income) prepares accounts under IFRS.

(b) An associate company (fellow group member) prepares accounts under Irish GAAP.

(c) There is a transaction or a series of transactions (see (1)) between the two companies.

(d) A tax advantage (see (1)) would accrue to the first company as compared with its situation under Irish GAAP.

In such a case, the tax advantage is nullified by treating the company’s pre-tax profits as being its profits computed under Irish GAAP. In other words Irish GAAP is used as the starting point for both companies.

Section 76D Computation of income from finance leases

What is a finance lease?

(1) A finance lease is a lease that is treated as such under generally accepted accounting practice (GAAP).

How is income under a finance lease computed for tax purposes?

(2) Where a company carries on a leasing trade, its income from a finance lease is not the income as computed under GAAP.

Instead, the income is to be computed by treating lease payments receivable as trading receipts, and by treating expenses incurred in earning the lease payments as trading expenses.

Section 77 Miscellaneous special rules for computation of income

Do IT computation rules apply for CT?

(1) The IT computation rules apply for CT purposes, subject to the additional rules in (2)-(7).

Do IT cessation rules apply for CT?

(2) A company that begins (or ceases) to carry on a trade is treated as if it had commenced (or discontinued) the trade at that point.

The IT rules which allow the trade to be treated as continuing do not apply for CT purposes.

Example

A company takes over a retail hardware trade which was previously carried on by another company for many years.

The taking over the trade is treated as a commencement for the new company and a cessation for the old company.

Is yearly interest tax deductible?

(3) Yearly interest is tax deductible.

Are management expenses relating to let mineral rights tax deductible?

(4) A company that lets mineral rights in the Republic of Ireland (ROI), is entitled, in computing its income for corporation tax purposes, to deduct related management expenses (subject to the restrictions that apply to those deduction for income tax purposes).

How is income from a foreign trade computed for CT?

(5) Income from a foreign trade is computed as if the trade were carried on in the ROI.

Is foreign tax deductible against foreign income?

(6) The amount of foreign income to be brought into charge for corporation tax purposes is the income as reduced by foreign tax on such income.

Is foreign tax deductible in computing foreign interest income?

(6A) If a company’s trading income includes foreign interest (relevant interest) it may reduce such income by the relevant foreign tax attached to that income but not so as to create a loss.

Is foreign tax deductible in computing foreign royalty income?

(6B) If a company’s trading income includes foreign royalties (relevant royalties) it may reduce such income by the relevant foreign tax attached to that income but not so as to create a loss.

Are the profits of a foreign company’s Irish branch subject to tax?

(7) An Irish branch of a foreign company is liable to Irish CT on the foreign source income of that branch.

Section 78 Computation of companies’ chargeable gains

How are company gains calculated?

(1) A company’s chargeable gains are calculated as if tax years were accounting periods (see (2)). The notional capital gains tax (CGT) is grossed up to produce a figure, which, when taxed at the corporation tax (CT) rate, results in CT equal to the notional CGT (see (3)).

Can a company deduct allowable losses?

(2) A company is taxed on its net chargeable gains for an accounting period after deducting allowable losses for that period and any allowable losses carried forward.

How is the CGT grossed up?

(3) The notional CGT is grossed up to an amount which, when taxed at the CT rate, produces CT equal to the notional CGT.

If an accounting period straddles two financial years with different CT rates, the notional CGT is grossed up at an assumed CT rate determined by apportioning the rates for the two financial years by reference to the lengths of the respective parts of the accounting period falling in each financial year.

The period 1 January 1996 to 31 March 1997, and the period 1 April 1997 to 31 December 1997 are each treated as a financial year for that purpose.

Are company development land gains subject to CGT?

(4) Company development land gains remain chargeable to CGT (not CT).

A company’s relevant allowable losses are those occurring in the accounting period, together with those carried forward from earlier years (for which the company was within the charge to CT).

Do the CGT computation rules apply for CT?

(5) Company chargeable gains and allowable losses are computed in accordance with CGT principles, as if accounting periods were tax years.

How are CGT principles applied for CT

(6) In applying the CGT principles to CT, references to income tax are to be read as references to CT except in relation to CGT provisions that apply only to individuals (for example, principal private residence relief (section 604)).

Can a transaction have distinct corporation tax and CGT consequences?

(7) The operation of CGT and CT is not affected by the fact that the same transaction has a CGT consequence for an individual and a CT consequence for your company.

Does the vesting of company assets in a liquidator constitute a disposal?

(8) The vesting of a company’s assets in a liquidator is not regarded as a disposal. The liquidator’s acts are treated as acts of the company, and dealings in company assets between the liquidator and the company are to be ignored.

Section 79 Foreign currency: computation of income and chargeable gains

Are exchange gains part of trading income?

(1)-(2) In computing trading income for corporation tax purposes account must be taken of foreign exchange gains or losses on a relevant contract, or a relevant monetary item, that:

(a) result directly from a change in the rate of exchange,

(b) are trade-related (including capital gains and losses), and

(c) are properly accrued in the profit and loss account in accordance with standard accounting practice (SSAP 20 – Accounting for Foreign Currency Transactions).

In this regard:

(a) A relevant contract is a contract designed to reduce foreign exchange risk as a result of holding or owing money. It does not include money receivable. Such a contract would include hedging instruments such as swaps and forward rate agreements. It could also include a foreign currency deposit used to hedge a future trade-related debt in that foreign currency.

(b) A relevant monetary item means money held or owed by a company for the purposes of its trade.

(c) A rate of exchange is an arm’s length exchange rate for two different currencies.

(d) Profit and loss account means a profit and loss account of an Irish resident company or of the Irish branch of a foreign company. The profit and loss account must be audited (Companies Act 1963 section 160).

The fact that exchange gains/losses can be treated as trading income/losses does not mean that other related income (arising from the contract) can be treated as trading income. Any such related income is taxable under other tax rules.

Companies incorporated in a jurisdiction with no statutory audit requirement must file audited accounts of the Irish branch operation with the Companies Registration Office (European Communities (Branch Disclosures) Regulations 1993 (SI 395/1993)).

A company’s functional currency is the currency of the primary economic environment in which it operates. The functional currency of a foreign company is the currency of the primary economic environment in which it trades in the ROI. In both cases, if the accounts are prepared in euro, the functional currency is the euro (section 402).

A company whose functional currency is other than the euro may compute its exchange gains and losses in that functional currency.

Example

A company is due to pay €6,000 in six months’ time to a Japanese manufacturer in the yen equivalent of €6,000.

It sets aside an equivalent yen deposit in order to eliminate the possible exchange loss if the yen appreciates in the meantime.

The exchange gain or loss on the yen deposit is taken into account in computing trading income.

The deposit interest earned by the €6,000 is not trading income. If it were to be so treated, it might be possible to accelerate the offset of trading losses carried forward.

Are exchange gains chargeable gains?

(3) A trade-related exchange gain/loss must not be used in computing a chargeable gain/loss.

However, exchange gains accruing to a life company on an “investment minus earnings” (I-E) basis (section 707) may still be treated as chargeable gains.

Exchange gains or losses are not, in any event, to be included in the computation of chargeable gains or losses: sections 551, 554.

Are exchange gains on a hedging contract chargeable gains?

(4) A company with a functional currency other than the euro could enter into a hedging contract (a relevant tax contract) to reduce or eliminate the risk of an exchange rate fluctuation which could affect its CT liability.

An exchange gain on such a contract is not a chargeable gain to the extent that it does not exceed the exchange loss accruing on the tax liability.

An exchange loss is not an allowable loss to the extent that it does not exceed the exchange gain accruing on the tax liability.

Section 79A Matching of relevant foreign currency assets with foreign currency liabilities

Can a company match exchange gains and losses in the same currency?

(1) A company may have the following situation:

(a) It disposes of a shareholding (25% or more in a trading company or its holding company) held in a foreign currency (a relevant foreign currency asset) giving rise to a capital gain.

(b) It has a corresponding foreign currency liability.

This section allows it to match the two, and pay tax based on the net gain.

Once it has matched the asset with the liability, it is deemed to discharge the liability when it disposes of the asset.

How does a company opt to match exchange gains and losses?

(2) If a company wishes to to match a relevant foreign currency asset with a corresponding foreign currency liability, it must write to the inspector stating that it wishes to do so. It must give notice within three weeks of acquiring the foreign currency asset.

How is the gain on disposal of a matched relevant foreign currency asset calculated?

(3) If a company disposes of a “matched” relevant foreign currency asset, the chargeable gain (or allowable loss) is computed as follows:

(a) if there is an exchange loss, the consideration may be reduced by the amount of the loss, but the reduction may not exceed the gain on disposal of the asset,

(b) if there is an exchange gain, the consideration may be increased by the amount of the gain, but the increase may not exceed the loss on disposal of the asset.

Example

01.03.2012 You sold a 50% stake in Y Inc, a US company, resulting in a capital gain of $5m, and a foreign exchange gain of $1.5m.

01.01.2012 You sold a 30% stake in Z Inc a US company for $200m, resulting in a capital loss of $10m, and a foreign exchange loss of $1m.

In the absence of section 79A, you would have a chargeable gain of $1.5m even though your net foreign currency gains on capital transactions for the year are only $0.5m (i.e., $1.5m – $1m).

Section 79A allows you to reduce the exchange rate gain of $1.5m by the exchange rate loss of $1m, producing a net gain of $0.5m for the year.

You must make a written submission to the inspector on or before 22.11.2012 requesting the matching.

Section 79B Matching of foreign currency assets with certain foreign currency share capital

Can an exchange gain be matched with with a capital loss?

(1) A financial services company may have:

(a) An exchange gain on a non-euro loan ( foreign currency asset).

(b) A corresponding loss on redeemable share capital (a relevant foreign currency liability) issued to protect against from currency risk. The exchange gain on the loan is “matched” with a corresponding loss on the share capital.

In the absence of relief, the exchange gain is taxed (12.5%), and there is no allowance for the loss on the share capital.

A claim may be made to match the two and pay tax on the net gain.

Once the asset is matched with the liability, the liability is discharged on disposal of the asset.

How does a company opt to match an exchange gain with a capital loss?

(2) If a company wishes to to match a relevant foreign currency asset with a corresponding foreign currency liability, it must write to the inspector stating that it wishes to do so. It must give notice within three weeks of acquiring the foreign currency asset.

What happens once an exchange gain is matched with a capital loss?

(3) Once an exchange gain has been matched with a capital loss, only include the net gain or loss need be included when computing trading income for the period.

Section 79C Exclusion of foreign currency as asset of certain companies

How are exchange gains of a holding company treated?

(1) A net foreign exchange gain arises when the disposal of currency in a relevant bank deposit by a relevant holding company produces an excess of foreign exchange gains over losses. A net foreign exchange loss arises where there is an excess of foreign exchange losses over gains. Trading gains or losses do not count in this context.

A relevant bank deposit means a sum standing to the credit of a relevant holding company in a bank and which is not denominated in the currency of the State.

A relevant holding company means a company:

(a) with a least one wholly owned subsidiary which derives its income from trading, or

(b) which acquires or establishes such a subsidiary, within one year of a net foreign exchange gain being credited to its accounts.

A net foreign exchange gain and a net foreign exchange loss are subject to corporation tax and not capital gains tax.

Profit and loss account has the same meaning given to it by generally accepted accounting practices and includes an income and expenditure account prepared in accordance with international accounting standards.

Approved accounting standards means Irish generally accepted accounting practice (Irish GAAP) or International FinancialReporting Standards (IFRS).

Are holding company foreign currency deposits treated as assets?

(2) Currency held in a relevant bank deposit is not regarded as an asset for capital gains purposes.

What tax rate applies to holding company exchange gains?

(3) The amount of a holding company’s exchange gains chargeable under Schedule D Case IV is (C/B) x A where A is the net foreign exchange gain credited to relevant holding company’s profit and loss account as reduced by any loss under section 383 as is attributable to a net foreign exchange loss and which has not been deducted from any other income and B is the higher rate of Corporation Tax (25%) and C is the rate of Capital Gains Tax (33%).

This ensures the rate applicable to such gains is 33% .

Are holding company exchange gains subject to CT?

(4) Holding company exchange gains are not subject to CT unless the holding company accounts are prepared in accordance with approved accounting standards.

Can exchange losses br carried forward to the CT regime?

(5) A relevant holding company can carry forward an unused exchange loss (section 546) as if it were a CT loss (section 383).

Can double relief be claimed for exchange losses?

(6) A holding company can claim relief for exchange losses under section 383(5) or section 546(6) but not both.

Section 80 Taxation of certain foreign currencies

Are exchange gains on a “section 130” loan taxed?

(1)-(2) Exchange gains (or losses) on a foreign “section 130” loan (relevant liability), are taxed as trading profits (or losses).

A relevant liability means foreign currency relevant principal where the interest is treated as a distribution, and is computed on the basis of a rate which exceeds 80% of the specified rate, i.e., the three-month European Interbank Offered Rate the record for which is kept by the Central Bank.

Relevant principal means a “section 130” loan, i.e., a loan secured by shares in the borrowing company with the interest paid in respect of those shares.

Section 80A Taxation of certain short term leases plant and machinery

Can the capital allowance on leased assets be matched with the asset’s life?

(1) There are special rules for a leasing company with income from leasing assets with a predictable useful life which does not exceed eight years (relevant short-term assets) over a period less than eight years (relevant short-term lease). Under existing rules, the gross lease payments are treated as income and there is a capital allowance for the asset over eight years (12.5% each year). This results in a mismatch between the useful life of the asset (say three years) and the write-down period (eight years).

The alternative treatment to prevent the mismatch is described in (2).

How is income from short-term leasing an asset taxed?

(2) If an asset with a three year useful life is leased for a three year period, the asset may be written off for tax purposes over that period. On claiming such treatment:

(a) normal accounting rules apply,

(b) no capital allowance is given for the asset, and

(c) the net income from leasing the asset is taxed.

 Can a group company opt to be taxed on the accounting profit from a lease?

(2A) For accounting periods commencing on or after 1 January 2010, a group company may opt to be taxed on the accounting profit from a lease.

The relief is given in respect of specified assets, i.e. assets which give rise to a capital allowance, and which are leased under a relevant short-term lease (i.e. one that does not exceed eight years).

The income from such assets is treated as not arising from a trade of leasing.

For specified periods ending on or before 31 December 2014 the wear and tear allowance to be made (under accounting rules) is subject to a limit, calculated as

E  x  F
G

where

E is the group limit,

F is the cost of the specified assets at the end of the accounting period,

G is the cost of the specified assets owned by all group members at the end of the accounting period.

The group limit is calculated as

A + (B  x  C – D)
C

where

A is the threshold amount, i.e. the aggregate of all capital allowances granted to group members in respect of expenditure on specified assets in the threshold period, i.e. the one year accounting period ending on the day preceding the first day of the first specified period on or after 1 January 2010.

In practical terms, this means that the new treatment will only apply to operating leases of short-life assets in excess of a group threshold – it will only apply to increases in the portfolio of assets held by the group. The existing tax treatment continues to apply to amounts below the threshold.

For specified periods ending on or after 1 January 2015 wear and tear allowance claimed can equal (but not exceed) the depreciation or amortisation charged in the company’s Profit and Loss Account.

What is a group?

(2B) Two companies are members of a group if one is a 51% subsidiary of the other, or both are 51% subsidiaries of a third company. However, in this regard, shares held as trading stock (shares which, if sold, would give rise to a trading profit,) do not count.

In addition, the parent company must be entitled to 51% of the subsidiary’s distributable profits, and 51% of the subsidiary’s assets if it is being wound up.

A company and its 51% subsidiaries constitute a group.

A company may be treated as a member of a threshold group in order to determine the threshold amount for thespecified period of a relevant group.

In such a case, even if the threshold group and the relevant group are not identical (i.e. a company may be a member of one group but not the other or vice versa), the two groups can be treated as identical, provided one or more persons with a “reasonable commonality of identity” control both groups.

What is the deadline for claiming taxation on the basis of accounting profit?

(3) A claim to be taxed on the accounting profit arising from short-term leasing must be made on or before the self-assessment filing date. The claim applies to expenditure incurred on or after the first day in the accounting period covered by that return.

Section 81 General rule as to deductions

What expenditure is tax-deductible?

(1) This section lists types of expenditure that are not tax-deductible. See also section 840 which disallows expenditure on entertainment (and on assets used for entertainment), section 376 which restricts motor expenses, and section 1089 which disallows interest on unpaid taxes.

In computing trading profits, only deductions authorised by tax law are allowable.

Capital expenditure is not deductible. However you may be entitled to a capital allowance in respect of expenditure onplant and machinery and certain premises used for your business.

The distinction between capital and revenue expenditure has been the subject of hundreds of cases which can be illustrated by the analogy of the tree and its fruit. The source of income (i.e., the capital) is the tree; income is the fruit of the tree. A payment made for the fruit of the tree is revenue expenditure; a payment made for the tree itself is capital expenditure.

Capital expenditure is expenditure which has an “enduring benefit”: British Insulated and Helsby Cables Ltd v Atherton, (1925) 10 TC 155. The following have been held to be capital expenditure, and therefore not deductible:

(a) A premium on a lease: Strick v Regent Oil Co Ltd, (1965) 43 TC 1.

(b) Compensation payment made for loss of a construction contract: “Countess Warwick” Steamship Co Ltd v Ogg, (1924) 8 TC 652 and Devon Mutual Steamship Insurance Association v Ogg, (1927) 13 TC 184 and Watney Combe Reid and Co Ltd v Pike, Watneys London Ltd v Pike, [1982] STC 733.

(c) A payment for release from a loan agreement: Whitehead v Tubbs (Elastics) Ltd, [1984] STC 1. But seeVodafone Cellular Ltd and others v Shaw, [1997] STC 734.

(d) The cost of preserving a factory: Bradbury v The United Glass Bottle Manufacturers Ltd, (1959) 38 TC 369.

(e) Tied house monopoly payments: Kneeshaw v Albertolli, (1940) 23 TC 462 and Henriksen v Grafton Hotels Ltd, (1942) 24 TC 453.

(f) A payment for closure of competing works: United Steel Co Ltd v Cullington (No 1), (1939) 23 TC 71.

(g) A payment for a cut in production: Commissioner of Taxes v Nchanga Consolidated Copper Mines Ltd, (1964) 43 ATC 20

(h) The cost of a company share reorganisation: Davis v Hibernian Bank, 1 ITR 503.

(i) The cost of investments: Smith (John) and Son v Moore, (1921) 12 TC 266 and London Bank of Mexico v Apthorpe [1891] 2 QB 378, 3 TC 143.

(j) Relocation expenses: Granite Supply Association Ltd v Kitton, (1905) 5 TC 168, Arthur Young McClelland Moores and Co v MacKinlay, [1989] STC 898.

(k) The cost of purchasing and planting trees on bogland: Connolly v WW, (1975) 2 ITR 657.

Not all payments having an enduring benefit are capital payments: Anglo Persian Oil Company Ltd v Dale, (1931) 16 TC 253. In that case, a payment to end an agency agreement was held to be of a revenue nature, and therefore deductible. In Bolam v Regent Oil Co Ltd, (1956) 37 TC 56, advance payments on five-year agreements were held to be fully deductible. See also Alianza Co Ltd v Bell, (1905) 5 TC 60, 172; BP Australia Ltd v Australia Commissioner of Taxation, (1965) 44 ATC 312; Mobil Oil Australia Ltd v Australia Commissioner of Taxation, (1965) 44 ATC 323; RTZ Oil and Gas Ltd v Elliss, [1987] STC 512.

Expenditure on acquiring a fixed asset is capital expenditure and therefore not allowable: Tucker v Granada Motorway Services Ltd, (1979) 53 TC 92, [1979] STC 393; IRC v Sharp (William) and Son, (1959) 38 TC 341; Indian Radio and Cable Communications Co Ltd v IT Commissioners, [1937] 3 All ER 709. Even where made by instalments: IRC v Pattison and others, (1959) 38 TC 617; S Ltd v O’Sullivan, 2 ITR 602, but see Ogden v Medway Cinemas Ltd, (1934) 18 TC 691.

Hire of plant that amounts to purchase of the equipment is not deductible: IRC v Land Securities Investment Trust Ltd, (1969) 45 TC 495; Littlewoods Mail Order Stores Ltd v McGregor, (1969) 45 TC 519; Ainley v Edens, (1935) 19 TC 303; Dow v Merchiston Castle School Ltd, (1921) 8 TC 149; Ralli Estates Ltd v East Africa Income Tax Commissioner, (1961) 40 ATC 9; IRC v Adam, (1928) 14 TC 34; Boyce v Whitwick Colliery Co Ltd, (1934) 18 TC 655.

Revenue policy on finance leasing is explained in Revenue leaflet IT52, Taxation treatment of finance leases, April 1997; Tax Briefing 24, December 1996, and Tax Briefing 25, February 1997. In essence, a lessee can deduct the ordinary recurring lease payments, and any larger initial payment, when calculating profits for tax purposes. On the return the asset to the leasing company, or the purchase of theasset from the company, the lessee is taxed on the rebate of rentals received (generally equivalent to the asset’s market value at that time). The amount of a rebate of rentals represents a return of leasing charges already allowed for tax purposes. You may however claim capital allowances based on the asset’s market value at the date the lease ends.

Hire purchase instalments are to be apportioned between capital and revenue: Darngavil Coal Co Ltd v Francis, (1913) 7 TC 1.

In general, revenue expenditure is deductible. Recurrent expenditure on maintaining or protecting a capital asset is revenue expenditure and is therefore deductible: Vallambrosa Rubber Company Ltd v Farmer, (1910) 5 TC 529. In that case, the expenditure was on protecting a plantation of immature rubber trees. See also Duple Motor Bodies Ltd v Ostime, (1961) 39 TC 537. The following were held to be revenue expenditure:

(a) A payment to preserve goodwill: Cooke v Quick Shoe Repair Service, (1949) 30 TC 460 and Walker v Cater Securities, Ltd, [1974] STC 390. Even if made in one large cash payment: Lawson v Johnson Matthey plc, [1992] STC 466, Stone and Temple Ltd v Waters, [1995] STC 1.

(b) Expense of removing the top soil of a quarry: Milverton Quarries Ltd v Revenue Commissioners, 2 ITR 382.

(c) Compensation paid to tenants adjoining a new factory for loss of rights: Davis v X Ltd, 2 ITR 45.

(d) Lump sum payments made by a main distributor to petrol retailers in return for exclusive dealing in the company’s product: Dolan v AB Company Ltd, 2 ITR 515.

(e) A payment to cancel a know-how agreement: Vodafone Cellular Ltd and others v Shaw, [1997] STC 734.

Example

You trade as a builder. Your profit and loss account for the year shows a net profit of €60,000 after making the following deductions:

Travelling expenses (including €1,140 travel from base) 3,200
Hire of rotovator used partly on site and partly in own garden 800
Purchase of new item of plant 3,900
Provision for bad debts (not specific debts) 5,000
Loss on sale of lorry 1,300
Depreciation on fixed assets 11,600

All other expenses deducted were revenue expenses wholly and exclusively for the trade (and not any of the non-deductible items listed in section 81(2)).

Your taxable profit for the year is arrived at by “adding back” the following disallowable items:

Net profit shown in accounts 60,000
Add back:
Travelling from home to business 1,040
(other travelling wholly and exclusively for business)
Hire of rotovator – part of cost for own garden (1) 200
Provision for bad debts (not specific debts) (2) 5,000
Depreciation on plant and machinery (3) 11,600
New plant (capital expenditure) (4) 3,900
Loss on sale of lorry (capital loss) (5) 1,300 23,040
Taxable profits – Schedule D Case I 83,040

Note

1. Your records showed that the rotovator was used 75% for business so that only the private use proportion (25%) is added back.

2. If your provision for bad debts had been for specified debts considered bad, the provision would have been allowed.

3. Depreciation of fixed assets is a capital loss, but you can claim capital allowances under Part 9.

4. You can claim capital allowances under Part 9.

5. You can claim a balancing allowance for any tax loss on the sale of the lorry under section 288 (Part 9).

What expenditure is not tax-deductible?

(2) You do not get a deduction for for:

(a) Expenditure that is not wholly and exclusively for the purposes of your trade or profession.

(b) Private or domestic expenditure.

(c) Rent paid for a private house, unless part of it is used for the trade or profession. If such a part is used, a deduction (not to exceed two-thirds or the rent) may be agreed with the inspector.

(d) Repairs of premises or equipment over and above the amount actually spent on such repairs.

(e) Losses not connected with your trade or profession.

(f) Drawings or sums intended to be used as capital.

(g) Capital expenditure on improvements of premises used for the trade or profession.

(h) Interest. This is because interest payable is deductible as a “charge”.

(i) Debts other than bad debts that have been written off in your accounts as irrecoverable. A general provision (for example, a provision expressed as a percentage of sales) for bad debts is not deductible for tax purposes.

(j) Any loss over and above the amount actually lost.

(k) Any amount recoverable through insurance or indemnity.

(l) Any annual payment or charge (other than interest).

(m) Any patent royalty.

(n) Consideration given to a supplier or an employee of your company which consists of shares in that company (or a connected company), except to the extent that

(i) it consists of expenditure genuinely incurred by your company in acquiring the shares at an arm’s length market price,

(ii) in the case of shares in a connected company, the payment does not exceed the arm’s length price payable between independent parties, or

(iii) it consists of expenditure incurred or payments made to the connected company in (ii) for bona fide commercial reasons and not as part of a tax avoidance scheme.

(o) A sum paid to a connected person to obtain tax treaty benefits, or sum paid to a connected person in a non-treaty country for a similar benefit.

Only expenditure incurred wholly and exclusively for the purposes of the trade is tax-deductible. Expenses having adual private and business purpose are not deductible, for example:

(a) Hospital expenses (even though the taxpayer conducted his business from his hospital bed): Murgatroyd v Evans Jackson, (1966) 43 TC 581.

(b) The cost of an operation on a guitarist’s little finger: Prince v Mapp, (1969) 46 TC 169.

(c) Lunch expenses of a self-employed carpenter: Caillebotte v Quinn, [1975] STC 265.

(d) Expenditure incurred by an engineer on upkeep of overalls and boiler suit: Hillyer v Leeke, (1976) 51 TC 590.

(e) The cost of barrister’s dark clothing even though it was only worn for court appearances: Mallalieu v Drummond, [1983] STC 665. This decision means that expenditure on clothing is non-deductible and casts into doubt the validity of the extra-statutory concession granted to Schedule E employees for upkeep of uniforms and protective clothing (see notes to sections 113114).

Apportionment is allowed where the business part of the expenditure can be segregated: Bentleys Stokes and Lowless v Beeson, (1952) 33 TC 491.

The following expenses were allowed as having been incurred wholly and exclusively for the purposes of the business:

(a) Hire of plant which does not amount to purchase (see Capital Expenditure above), Racecourse Betting Control Board v Wild, (1938) 22 TC 182.

(b) Payments for technical assistance: British Sugar Manufacturers Ltd v Harris, (1937) 21 TC 528 and in Paterson Engineering Co Ltd v Duff, (1943) 25 TC 43.

(c) Campaign expenses incurred to prevent nationalisation of the taxpayer’s trade: Morgan v Tate and Lyle Ltd, (1954) 35 TC 367.

(d) Petition costs: Cooper v Rhymney Breweries Ltd, (1965) 42 TC 509.

The following expenses were disallowed as not incurred wholly and exclusively for the purposes of the business:

(a) Hospital subscriptions: Bourne and Hollingsworth Ltd v Ogden, (1929) 14 TC 349.

(b) A share of trust borrowings to make good a beneficiary’s deficiency of income: Bowen v IRC, (1937) 21 TC 93.

(c) Equipment hired, but not used for the purpose of the trade: Allied Newspapers Ltd v Hindsley, (1937) 21 TC 422.

(d) Political contributions: Boarland v Kramat Pulai Ltd, (1953) 35 TC 1.

(e) Expenses of a trustee in lunacy: IRC v McIntosh (Curator bonis to McMillan), (1955) 36 TC 334.

(f) Payments (runners’ allowances) not directly related to the trade: Young v Racecourse Betting Control Board, (1959) 38 TC 426.

(g) Excessive service company charges: Stephenson v Payne, Stone, Fraser and Co, (1967) 44 TC 507.

(h) Loans to an employees’ trust: Rutter v Charles Sharpe and Co Ltd, [1979] STC 711.

(i) Payments to secure closure of a competitor: Walker v Joint Credit Card Co Ltd, [1982] STC 427.

(j) Domestic relocation expenses of a partner: Arthur Young McClelland Moores and Co v MacKinlay, [1989] STC 898.

In IRC v Dowdall O’Mahony and Co Ltd, (1951) 33 TC 259, the UK branch of an Irish company was denied a deduction of the proportionate share of the Irish tax (as the Irish tax was not wholly and exclusively for the UK branch trade).

Expenses typically regarded as incurred wholly and exclusively for the purposes of the business are:

(a) The cost of stock (see notes to section 18, Accounting Rules).

A trader may offer a “free gift” to a customer who buys certain items, for example a trader may give a radio worth €20 to each purchaser of a washing machine (worth €400). In these circumstances, the contract between the customer and the trader involves both the washing machine and the radio. In effect, the radio is not a “free gift”, and the cost of the radio is allowable. The cost of the radio is not disallowable as entertainment expenditure (section 840) (Revenue Precedent IT94-3520, 18 January 1995).

(b) Customer guarantees and warranties, if directly related to the trade: Jennings v Barfield, (1962) 40 TC 365;Lunt v Wellesley, (1945) 27 TC 78; Bolton v Halpern and Woolf, [1981] STC 14. But not otherwise: Morley v Lawford and Co, (1928) 14 TC 229; Ascot Gas Water Heaters Ltd v Duff, (1942) 24 TC 171; Garforth v Tankard Carpets Ltd, [1980] STC 251; Redkite Ltd v Insp of Taxes SpC 93, [1996] SWTI 1807.

A reasonable estimate of future warranty liabilities was allowed in IRC v Mitsubishi Motors New Zealand Ltd, [1995] STC 989.

(c) Employee costs: salaries, wages, unless excessive: Stott and Ingham v Trehearne, (1924) 9 TC 69; Johnson Bros and Co v IRC, (1919) 12 TC 147; Copeman v Flood (Wm) and Sons Ltd, (1940) 24 TC 53; Dollar (trading as I J Dollar) v Lyon, [1981] STC 333; Earlspring Properties Ltd v Guest, [1995] STC 479. Including the cost of an employee on secondment to a subsidiary: Robinson v Scott Bader and Co Ltd, [1981] STC 436.

See also Eyres v Finnieston Engineering Co Ltd, (1916) 7 TC 74; Lowry v Consolidated African Selection Trust Ltd, (1940) 23 TC 259; Deverell Gibson Hoare Ltd v Rees, (1943) 25 TC 467; Faulconbridge v Thomas Pinkney and Sons Ltd, (1951) 33 TC 415; Howard (Alexander) and Co Ltd v Bentley, (1948) 30 TC 334; IRC v Bell, (1927) 12 TC 1181 and Owen and Gadson v Brock, (1951) 32 TC 206.

If the appropriate conditions are met, the premiums payable under a keyman policy may be allowed as a business expense for the accounting period in which they are payable. Conversely, any benefit paid under the policy should be treated as a trading receipt for the accounting period in which it is paid (Inspector Manual 4.6.1).

The Appeal Commissioners have held that PAYE/PRSI not deducted from employees wages, and comprised in a settlement (excluding interest and penalties reached with Revenue) was not allowed: 6 AC 2000.

(d) Employee costs: redundancy. A payment to get rid of an employee is deductible, even though it may have an enduring benefit: Mitchell v B W Noble Ltd, (1926) 11 TC 372; IRC v Patrick Thomson Ltd, (1956) 37 TC 145 andSmith v Incorporated Council of Law Reporting for England and Wales, (1914) 6 TC 477.

Such payments are disallowed if connected with the sale or cessation of the business: Royal Insurance Co v Watson(1896) 3 TC 500; Smith (George J) and Co Ltd v Furlong, (1968) 45 TC 384; IRC v Anglo-Brewing Co Ltd, (1925) 12 TC 803; Bassett Enterprise Ltd v Petty, (1938) 21 TC 730; Snook (James) and Co Ltd v Blasdale, (1952) 33 TC 244;Godden v A Wilson’s Stores (Holdings) Ltd, (1962) 40 TC 161; Peters (George) and Co Ltd v Smith, (1963) 41 TC 264 and could be treated as a distribution following the case Overy v Ashford Dunn and Co Ltd, (1933) 17 TC 497.

Pre-cessation payments to employees were allowed in O’Keeffe v Southport Printers Ltd, [1984] STC 443.

(e) Employee costs: pension costs. These are now allowed by section 774(6). The initial cost of setting up a pension fund was held to be capital in Atherton v British Insulated and Helsby Cables Ltd, (1925) 10 TC 155;Morgan Crucible Co Ltd v IRC, (1932) 17 TC 311; Hutchinson and Co (Publishers) Ltd v Turner, (1950) 31 TC 495;Rowntree and Co Ltd v Curtis, (1924) 8 TC 678. See also Hancock v General Reversionary and Investment Co Ltd, (1918) 7 TC 358; Green v Gravens Railway Carriage and Wagon Co Ltd, (1951) 32 TC 359; Lowe v Peter Walker (Warrington) and Robert Cain and Sons Ltd, (1935) 20 TC 25; Clark (JH) and Co Ltd v Musker, (1956) 37 TC 1.

(f) Legal costs are allowed in relation to:

(i) Defending title to a company’s land: Southern v Borax Consolidated Ltd, (1940) 23 TC 597.

(ii) Buying back shares of dissident shareholders and changing the company’s charter: IRC v Carron, 45 TC 18.

(iii) Defending an action for damages: Bihar and Orissa Income Tax Commissioners v Maharaja Sir Rameshwar Singh of Dharbanga, (1941) 20 ATC 337.

(iv) Avoiding expulsion from the Stock Exchange: McKnight v Sheppard, [1999] STC 669.

(v) Promoting a parliamentary bill that would benefit the taxpayer: McGarry v Limerick Gas Committee, 1 ITR 375.

Legal costs incurred in acquiring a capital asset are treated as capital expenditure. Once the asset has been acquired, expenditure incurred in protecting the title of that asset may be deductible revenue expenditure (Revenue Precedent IT94-3501, 19 April 1994). See Southern v Borax Consolidated Ltd, (1940) 23 TC 597, noted above.

Legal costs are not allowed in relation to:

(i) Capital expenditure: Texas Land and Mortgage Co v Holtham (1894) 3 TC 255; Thomson (Archibald) Black and Co Ltd v Batty, (1919) 7 TC 158; Southwell v Savill Bros Ltd, (1901) 4 TC 430; Morse v Stedeford, (1934) 18 TC 457; Pendleton v Mitchells and Butlers Ltd, (1968) 45 TC 341; Pyrah v Annis and Co Ltd, (1956) 37 TC 163;Moore (A and G) and Co v Hare, (1914) 6 TC 572; Small v Easson, (1920) 12 TC 351, Montreal Cake and Manufacturing Co v Minister of National Revenue, (1944) AER 743; Ceylon CIR v Appuhamy, (1962) 41 ATC 317, ECC Quarries Ltd v Watkis, [1975] STC 578. For an Irish case, see Casey v AB Ltd, 2 ITR 500.

(ii) Disputes between partners: C Connelly and Co v Wilbey, [1992] STC 783.

(iii) Forming a holding company: Kealy v O’Mara Ltd, 1 ITR 642.

(iv) Appealing against a tax assessment: Allen v Farquharson Bros and Co, (1932) 17 TC 59; Smith’s Potato Estates Ltd v Bolland, (1948) 30 TC 267; Rushden Heel Co Ltd v Keene, (1948) 30 TC 298; Worsley Brewery Co Ltd v IRC, (1932) 17 TC 349; Meredith v Roberts, (1968) 44 TC 559; Spofforth and Prince v Golder, (1945) 26 TC 310.

Professional fees incurred in connection with a tax appeal are not deductible. Normal recurring fees are allowable (Revenue Precedent IT95-2564, 10 October 1995).

Where a tax return is selected for audit, and the normal recurring professional fees in that case would be allowed as a deduction, any additional professional fees incurred by the taxpayers in consequence of the audit are allowable as a deductible expense provided that they are reasonable in the circumstances and do not relate to tax planning and/or avoidance matters.

Any part of professional fees incurred in connection with a back-duty settlement may be allowed as tax deductible to the extent that they relate to the preparation of accounts. However, any expenses applicable to the negotiation of a settlement are not allowable. Where necessary, fees should be apportioned so as to identify allowable and disallowable fees (Tax Briefing 11, July 1993).

(g) Trade membership subscriptions were allowed in Lochgelly Iron and Coal Co Ltd v Crawford, (1913) 6 TC 267; Adam Steamship Co Ltd v Matheson, (1920) 12 TC 399; Guest Keen and Nettlefolds Ltd v Fowler, (1910) 5 TC 511; Thomas v Richard Evans and Co Ltd, (1927) 11 TC 790, Clifford (Charles) and Son Ltd v Puttick, (1928) 14 TC 189; Thompson (Joseph L) and Sons Ltd v Chamberlain, (1962) 40 TC 657.

They were not allowed in Grahamston Iron Co v Crawford, (1915) 7 TC 25; Rhymney Iron Co Ltd v Fowler (1896) 3 TC 476; Thomas Merthyr Colliery Co Ltd v Davis, (1932) 17 TC 519; Collins v Joseph Adamson and Co, (1937) 21 TC 400.

Trade and professional association subscriptions are generally allowable (4.6.6; 5.2.9) as are payments by solicitors to the solicitors’ compensation fund (Inspector Manual 4.6.9).

Registration fees, and licence renewal fees, which a trader or professional person is required by law to pay are deductible, provided they are laid out wholly and exclusively for the purposes of the trade (Revenue Precedent IT89-1143, 2 June 1993).

A self-employed medical practitioner who must be registered with the Medical Council in order to practise is entitled, in computing his profits for tax purposes, to deduct the cost of the retention fee paid to the Council in order to remain on the register (Revenue Precedent IT95-3357, 24 August 1995).

Fees (insurance) paid by a self-employed medical practitioner to the Medical Protection Society are deductible for tax purposes. If due, a refund of such fees is paid by the Health Board, net of tax. Such a refund is taxable in the hands of the recipient. Tax relief is due on the net amount paid in each case, i.e., the gross payment made less the actual refund received (Revenue Precedent IT95-3548, 20 September 1995).

A compensation fund (which is also a trade protection association) is allowed a deduction against its income for insurance premiums and claims paid (Revenue Precedent IT97-2510, 25 August 1997).

(h) Exchange losses on currency transactions (but not in relation to capital transactions): Pattison v Marine Midland Ltd, (1983) 57 TC 219, [1984] STC 10; Overseas Containers (Finance) Ltd v Stoker, [1989] STC 364, Beauchamp v F W Woolworth plc, [1989] STC 510, Brosnan v Mutual Enterprise Ltd, [1995] 2 ILRM 304.

In Revenue Commissioners v L and Co, 2 ITR 281, a devaluation loss was not allowed against the profits of an Irish permanent establishment as although it had been credited, it had not been transferred to the foreign resident company.

Section 79 allows trade-related currency gains on hedging instruments to be treated as part of trading income. Corresponding payments are deductible revenue expenses.

A taxpayer incurred an exchange loss on a five year loan to buy plant. In Mutual Enterprises Ltd, the CCJ held, on the facts of the particular case that the borrowings were on revenue account. The High Court decision indicated that the judge would have attached significance to the fact that the money was borrowed to buy a capital asset. The Supreme Court held that the question of whether borrowings are a means of temporary and fluctuating accommodations is a question of fact rather than law. In other words, on the facts of the particular case, the exchange loss on a capital item was deductible (Revenue Precedent IT 97-2000, 15 January 1997).

Private or domestic expenditure is not deductible. This includes:

(a) The cost of private living accommodation: Mason v Tyson, [1980] STC 284).

(b) The cost of living accommodation above a public house: McLaren v Mumford, [1996] STC 1134.

(c) Food and accommodation expenses: Prior v Saunders, [1993] STC 562.

(d) Medical expenses: Norman v Golder, (1944) 26 TC 293. See also Prince v Mapp, (1969) 46 TC 169.

(e) Domestic running expenses: Thomas v Ingram, [1979] STC 1.

(f) The cost of travelling to a place of work: Newsom v Robertson, (1952) 33 TC 452; Sargent v Barnes, (1978) 52 TC 335. The cost of travelling between two or more places of work is deductible: Horton v Young, (1971) 47 TC 69. Overseas travel was allowed in Edwards v Warmsley Henshall and Co, (1967) 44 TC 431 but disallowed in Sargent v Eayrs, (1972) 48 TC 573.

Rent paid for a private house is not allowed. Nevertheless, this implies that rent of a business premises is fully deductible: IRC v Falkirk Iron Co Ltd, (1933) 17 TC 625, Hyett v Lennard, (1940) 23 TC 346, Union Cold Storage Co Ltd v Adamson, (1931) 16 TC 293, Heastie v Veitch and Co, (1933) 18 TC 305, Wildbore v Luker, (1951) 33 TC 46.

In Herbert Smith (a firm) v Honour, [1999] STC 173, it was held that a provision in the accounts for future rents was properly deductible in computing the profits and did not contradict the rule against anticipation of liabilities. It was an essential charge.

The Appeal Commissioners have held that the rent charged to partnership accounts in respect of a premises owned by the three partners, although not charged in the same ratio as the profit-sharing ratio, was deductible: 7 AC 2000.

Payments to cancel a lease are usually capital: Cowcher v Mills (Richard) and Co Ltd, (1927) 13 TC 216, Union Cold Storage Co Ltd v Ellerker, (1939) 22 TC 547, Dain v Auto Speedways Ltd, (1959) 38 TC 525, West African Drug Co Ltd v Lilley, (1947) 28 TC 140. Tucker v Granada Motorway Services Ltd, (1979) 53 TC 92, [1979] STC 393, Mallett v Staveley Coal and Iron Co Ltd, (1928) 13 TC 772.

Excessive repair costs on premises or equipment are not allowed. Nevertheless, this implies that repairs of a business premises are fully deductible. The following repairs have been allowed as revenue expenditure:

(a) Moorings: Re King’s Lynn Harbour Mooring Commissioners (1875) 1 TC 23.

(b) Railway line: Rhodesia Railways Ltd v Bechuanaland Protectorate IT Collector, [1933] AC 368.

(c) Wreck removal: Whelan v Dover Harbour Board, (1934) 18 TC 555.

(d) Dredging: Dumbarton Harbour Board v Cox, (1919) 7 TC 147.

(e) Alterations: Conn v Robins Bros Ltd, (1966) 43 TC 266.

(f) Tied house:Youngs Crawshay and Youngs Ltd v Brooke, (1912) 6 TC 393, Usher’s Wiltshire Brewery Ltd v Bruce, (1914) 6 TC 399.

(g) Replacement of plant (weighbridge) but which did not contain any element of improvement: Hodgins v Plunder and Pollack (Ireland) Ltd, 3 ITR 267.

Losses unconnected with the trade are not allowed. In Strong and Co of Romsey Ltd v Woodifield, (1906) 5 TC 215, it was held that a sum of damages paid to a hotel guest on whom a chimney fell was not deductible, as the expenditure did not arise out of the trade. In Bamford v ATA Advertising Ltd, (1972) 48 TC 359 it was held that the cost of misappropriations by a dishonest director was not deductible. See also Curtis v Oldfield (J and G) Ltd, (1925) 9 TC 319,Roebank Printing Co Ltd v IRC, (1928) 13 TC 864.

Non-trading losses were disallowed in IRC v Alexander von Glehn and Co Ltd, (1920) 12 TC 232.

Fines paid are not deductible: IRC v Warnes (EC) and Co Ltd, (1919) 12 TC 227; IRC v Alexander Von Glehn and Co Ltd, (1920) 12 TC 232; Fairrie v Hall, (1947) 28 TC 200; Knight v Parry, (1972) 48 TC 580; Hammond Engineering Co Ltd v IRC, [1975] STC 334. Unless closely related to the trade: Cattermole v Borax and Chemicals Ltd, (1949) 31 TC 202; Scammell (G) and Nephew Ltd v Rowles, (1939) 22 TC 479; Golder v Great Boulder Proprietary Gold Mines Ltd, (1952) 33 TC 75.

Protection money is not deductible (Revenue Precedent IT97-2501, 29 January 1997).

The superlevy penalty (i.e., a payment under the European Communities (Milk Levy) Regulations 1985, SI 416/1985) collected by Co-ops from a farmer for exceeding his milk quota is a deductible expense of a farming trade (Revenue Precedent IT90-3106,18 October 1990).

Drawings are not allowed. Drawings are an application of profits already earned. They are not a cost in earning those profits. Drawings were disallowed in City of Dublin Steam Packet Co v O’Brien, (1912) 6 TC 101; Pondicherry Railway Co Ltd v Madras Commissioner of Income Tax, (1931) 10 TC 365; Tata Hydro-Electric Agencies Ltd (Bombay) v Bombay and Aden Income Tax Commissioner, (1937) 16 ATC 54; Indian Radio and Cable Communications Co Ltd v IT Commissioners, [1937] 3 All ER 709, (1937) 16 ATC 333.

They were allowed in Moore v Stewarts and Lloyds Ltd, (1905) 6 TC 501.

Expenditure on improvement of premises is not allowed. You can claim repairs (these are a “revenue” expense – see (2)(d)). Capital expenditure is deductible against any future capital gain.

“Repair” and “renew” are not words expressive of a clear contrast. Repair always involves renewal; renewal of a part; of a subordinate part … Repair is restoration by renewal or replacement of subsidiary parts of a whole. Renewal, as distinguished from repair, is reconstruction of the entirety, meaning by the entirety not necessarily the whole but substantially the whole subject matter under discussion. (Lord Justice Buckley in Lurcott v Wakely and Wheeler, [1911] 1 KB 905, at pp 923-924).

In Law Shipping Company Ltd v IRC, (1924) 12 TC 621 expenditure on making a ship seaworthy was held to be capital. This may be contrasted with the decision in Odeon Associated Theatres Ltd v Jones, (1973) 48 TC 257. In that case, expenditure on upgrading a cinema were held to be deductible as repairs, as the cinema was in use as a cinema.

Repairs that amount to the replacement of the entire asset are regarded as capital expenditure: O’Grady v Bullcroft Main Collieries Ltd, (1932) 17 TC 93. In that case, it was held that the replacement of an entire chimney was capital expenditure. The decision may be contrasted with the decision in Samuel Jones and Co (Devondale) Ltd v IRC, (1951) 32 TC 513. In that case, expenditure on the replacement of a factory chimney was held to be deductible as the chimney was only part of a greater entirety (the factory). In Brown v Burnley Football and Athletic Co Ltd, (1980) 53 TC 357 it was held that the replacement of a football stand was not deductible as it was the replacement of a separate entity.

The following repairs have been held to be capital:

(a) Railway line: Mann Crossman and Paulin Ltd v Compton, (1947) 28 TC 410.

(b) Dredging: Ounsworth v Vickers Ltd, (1915) 6 TC 671.

(c) Ship: IRC v Granite City Steamship Co Ltd, (1927) 13 TC 1.

(d) Repairs specified as a condition of lease: Jackson v Laskers Home Furnishers Ltd, (1956) 37 TC 69.

(e) Hotel: Bidwell v Gardiner, (1960) 39 TC 31.

(f) Pub: Highland Railway Co v Balderston, (1889) 2 TC 485.

(g) Plant conversion: Lothian Chemical Co Ltd v Rogers, (1926) 11 TC 508.

(h) New roof: William P Lawrie v IRC, (1952) 34 TC 20 Thomas Wilson (Keighley) Ltd v Emmerson, (1960) 39 TC 360.

(i) Shop fittings: Eastmans Ltd v Shaw, (1928) 14 TC 218; Hyam v IRC, (1929) 14 TC 479; cost of fitting out temporary premises pending re-building of original premises destroyed by fire: Fitzgerald v CIR, 1 ITR 91.

(j) Rebuilding: Curtin v M Ltd, 2 ITR 360.

(k) Cattle market: Wynne-Jones v Bedale Auction Ltd, [1977] STC 50.

(l) Breakwater: Avon Beach and Cafe Ltd v Stewart, (1950) 31 TC 487.

(m) Embankment: Phillips v Whieldon Sanitary Potteries Ltd, (1952) 33 TC 213.

(n) New access road: Pitt v Castle Hill Warehousing Co Ltd, [1974] STC 420.

(o) Installation of sanitary facilities as directed by the public health authority: Vale v Martin Mahony and Co Ltd, 2 ITR 32.

(p) Repair which amounts to upgrading of gas system: Auckland Gas Company V CIR, [2000] STC 527.

Interest which is treated as a trading expense is allowed provided it is not treated as a charge: Wilcock v Frigate Investments Ltd, [1982] STC 198.

Interest which qualifies for a trading deduction is allowable, even if it has been capitalised in the accounts (Revenue Precedent CTF203A, 12 October 1995).

In practice, interest on capital is allowed. It was disallowed in Anglo-Continental Guano Works v Bell (1894) 3 TC 239;European Investment Trust Co Ltd v Jackson, (1932) 18 TC 1; Ward v Anglo American Oil Co Ltd, (1934) 19 TC 94. See also Scottish North American Trust Ltd v Farmer, (1911) 5 TC 693. In Wharf Properties Ltd v IRC, [1997] STC 351, (a Hong Kong case), interest paid on loans to acquire and redevelop property was held to be capital (and disallowed).

For an Irish case, see Inspector of Taxes v Ringmahon Company, unreported, SC, 29 May 2001. In that case, the Supreme Court found unanimously that interest paid on a loan taken out to redeem preference shares was laid out wholly and exclusively for the purposes of the company’s trade.

A premium (see section 18, Case III notes) on repayment was disallowed in Arizona Copper Co v Smiles (1891) 3 TC 149 and Bridgwater (E J and W H) v King, (1943) 25 TC 385.

Interest which amounts to an application of profits (i.e., a distribution, see section 130) is not deductible: Walker (AW) and Co v IRC, (1920) 12 TC 297.

Debentures issued in lieu of interest were allowed (as to 75%) in Scottish and Canadian General Investment Co Ltd v Easson, (1922) 8 TC 265.

In Major v Brodie and Anor, [1998] STC 491, it was held that interest on a loan to a partnership was deductible, where the money was lent on by the partnership to a second partnership. Under Scottish law, a partnership is a separate legal entity.

In computing the allocation of charges, interest paid on behalf of subsidiaries is not deductible by the parent:Commercial Union Assurance Co plc v Shaw, [1999] STC 109.

Interest on borrowings to fund drawings is deductible. If the drawings are excessive (i.e., if the capital account is in debit due to an excess of drawings over profits to fund those drawings), the interest relating to the excess is not allowable (Revenue Precedent IT96-2501, 1 February 1996).

Interest on tax paid late is not deductible: section 1089. Also not deductible is interest on a loan to finance the payment of income tax, as it is not wholly and exclusively laid out for the purposes of the trade (Revenue Precedent IT95-2561, 4 October 1995).

The prepayment of interest in order to get a cash flow advantage, where the avoidance of tax is the main purpose, is counteracted by section 817A.

As regards interest paid under the Prompt Payments of Account Act 1997, see Tax Briefing 31, April 1998.

Specific provision for bad debts are allowed: Anderton and Halstead Ltd v Birrell, (1931) 16 TC 200; Calders Ltd v IRC, (1944) 26 TC 213; Dinshaw v Bombay Commissioner of Taxes, (1934) 13 ATC 284; Reid’s Brewery Co Ltd v Male(1891) 3 TC 279.

Bad debts recovered are taxed when recovered: Bristow v Dickinson (William) and Co Ltd, (1946) 27 TC 157, Lock v Jones, (1941) 23 TC 749, Absalom v Talbot, (1944) 26 TC 166. See also Reynolds and Gibson v Crompton, (1952) 33 TC 288.

Non-trading bad debts of an individual are not allowable: English Crown Spelter Co Ltd v Baker, (1908) 5 TC 327;Marsden (Charles) and Sons Ltd v IRC, (1919) 12 TC 217; Baker v Mabie Todd and Co Ltd, (1927) 13 TC 235;Odhams Press Ltd v Cook, (1940) 23 TC 233; Homelands (Handforth) Ltd v Margerison, (1943) 25 TC 414; Marshall Richards Machine Co Ltd v Jewitt, (1956) 36 TC 511; Milnes v J Beam Group Ltd, [1975] STC 487; IRC v Hogart and Burn-Murdoch, (1929) 14 TC 433; Rutherford (W A and F) v IRC, (1939) 23 TC 8; Bury and Walkers v Phillips, (1951) 32 TC 198; Henderson v Meade-King Robinson and Co Ltd, (1938) 22 TC 97.

Bad debt relief for a loan by an architect to a building company was denied in Taylor v Clatworthy SpC 103, [1996] SWTI 1808. Relief for a loan by a parent to a subsidiary was allowed in Sycamore plc and Maple Ltd v Fir SpC 104, [1996] SWTI 2069.

Notional costs are not allowed: IRC v Marx, (1925) 5 ATC 25; Rolfe v Wimpey Waste Management Ltd, [1988] STC 329.

To be deductible a provision must be ascertained: Naval Colliery Co Ltd v IRC, (1928) 12 TC 1017; Ford (H) and Co Ltd v IRC, (1926) 12 TC 997; Spencer (James) and Co v IRC, (1950) 32 TC 111; IRC v Niddrie and Benhar Coal Co Ltd, (1951) 32 TC 244; Albion Rovers Football Club Ltd v IRC, (1952) 33 TC 331; J H Young and Co v IRC, (1925) 12 TC 817; IRC v Hugh T Barrie Ltd, (1928) 12 TC 1223; Clayton v Newcastle-under-Lyme Corporation (1888) 2 TC 416;Collins (Edward) and Sons Ltd v IRC, (1924) 12 TC 773; Whimster and Co v IRC, (1925) 12 TC 813; Merchant (Peter), Ltd v Stedeford, (1948) 30 TC 496; Owen v Southern Railway of Peru Ltd, (1956) 36 TC 602; Titaghur Jute Factory Ltd v IRC, [1978] STC 166; Monthly Salaries Loan Co Ltd v Furlong, (1962) 40 TC 313.

A provision is allowed if deductible from specific receipts: London Cemetery Co v Barnes, (1917) 7 TC 92. Levies payable to a compensation fund were allowed in Smith v Lion Brewery Co Ltd, (1910) 5 TC 568.

There is no rule against charging a provision for a liability that has not materialised at the accounts date, for example a provision for a loss on a court case. However, the amount of the provision must be estimated with reasonable accuracy and it must result in the accounts providing a true and fair view of the profits of the period (Revenue Precedent IT97-2004A, 22 May 1997).

A professional person may have unbilled disbursements on behalf of clients, i.e., disbursements which he/she has not charged and therefore has not collected from the appropriate clients. If the disbursement cannot be billed to the client, or the client refuses to pay it, it can be written off at that stage (Revenue Precedent IT97-2004B, 22 May 1997).

Is capitalised interest on R & D expenditure deductible?

(3) Under IFRS, interest relating to R & D expenditure may be capitalised, i.e, included in the accounts as part of the cost of the asset. Such interest is deductible for tax purposes, provided:

(a) It has not been deducted in a previous accounting period.

(b) No tax relief has been given in respect of the expense for a previous accounting period.

Section 81A Restriction of deductions for employee benefit contributions

Is a contribution to an EBS deductible?

(1) A contribution to an employee benefit scheme (EBS) is not deductible unless the contributions result in:

(a) a benefit in kind (BIK) on the (qualifying benefits) arising to the employee, or

(b) scheme expenses (qualifying expenses) that are tax deductible to the employer.

An employee benefit contribution includes the holding of, or use of, assets under an EBS, or the increase in total value of such assets.

An accident benefit scheme is an employee benefit scheme which can only provide benefits by reason of your employee’s death or disablement caused by an accident at work.

When is an EBS contribution disallowed?

(2) The restrictions apply to EBS contributions made on or after 3 February 2005.

The restrictions do not apply to certain deductions (see (7)).

When is an EBS contribution allowed?

(3) A contribution to an EBS is tax deductible only if, within the same chargeable period or nine months after it has ended, it results in qualifying benefits or qualifying expenses.

Qualifying benefits and expenses are regarded as provided/paid from the net cumulative contributions to the scheme, i.e., net of previous provisions/payouts.

No other receipts or payments are to be taken into account in determining the net cumulative contribution status of the scheme.

Example

Mr and Mrs X own X Ltd, which employs 15 staff.

X Ltd creates an employee benefit scheme.

The trustees of the scheme hire a villa in Spain for holiday use by the staff on a rota basis, to help them relax and be more productive workers.

Coincidentally, the villa happens to be owned by Mr and Mrs X.

This type of scheme would have worked before 3 February 2005.

Now, in order for the contributions to the scheme to be deductible, the staff benefits must be taxed as BIK.

Can disallowed EBS contributions be carried forward?

(4) A contribution disallowed under (3) may be carried forward to a later period.

The contribution is then subjected to the same cumulative rule (see (3)) in the later chargeable period, so that the employer gets no deduction for contributions unless matching benefits are taxed in the hands of the employees.

Is a transfer of land to an EBS taxed?

(5) Where the qualifying benefit consists of the transfer of an asset, the value is taken as:

(a) the total cost of the asset to the scheme manager, or if the asset consists of shares or share options provided by the manager, their market value, and

(b) where the employer transferred the asset to the scheme manager, the deduction that the employer would otherwise have obtained (see (2)).

If the employer deduction is greater than the BIK charge on the employees, the deduction is reduced to the employee charge.

Can an EBS contribution be made after the accounting period?

(6) If a contribution is made in the nine months following the end of the accounting period, the nine month period is regarded as ending on the date of the contribution.

Adjustments can be made at the end of the nine month period to take account of benefits, expenses and contributions between that date and the end of the nine month period.

What EBS costs are not restricted?

(7) The restrictions do not apply to:

(a) trading or professional costs,

(b) contributions to an accident benefits scheme,

(c) contributions to approved employee share schemes,

(d) contributions to approved employee pension schemes.

The employer gets a deduction for such expenses even though the employee has not been subjected to a BIK charge in the same period.

Section 81B Equalisation reserves for credit insurance and reinsurance business of companies

Are equalisation account transfers deductible to a reinsurance company?

(1)-(2) A credit reinsurance company may take transfers to and from its equalisation reserve into account when calculating profits for tax purposes.

What is the tax treatment of equalisation transfers?

(3) Transfers from the equalisation reserve are taxed, and transfers to the reserve are deductible.

What happens to the equalisation reserve on cessation?

(4) On ceasing to trade, any balance in the equalisation reserve is deemed to have been transferred out immediately before the cessation.

The transfer is deemed to be for business purposes for the accounting period in which your business ceased and to have been required by Reinsurance Regulations or the Principal Regulations.

When is a transfer to the equalisation reserve not tax-deductible?

(5) A transfer into the equalisation reserve made wholly for tax purposes:

(a) is not tax deductible, and

(b) is disregarded in determining whether there is a requirement to transfer to or from the reserve in accordance with the Reinsurance Regulations or the Principal Regulations.

 When is a transfer made wholly or mainly for tax purposes?

(6) A transfer to the equalisation reserve is treated as made wholly or mainly for tax purposes if tax reduction is:

(a) the sole or main purpose, or

(b) the expected sole or main benefit.

 Can a transfer to the equalisation reserve be made over several accounting periods?

(7) Where a transfer is made to the equalisation reserve over an equalisation period which spans several accounting periods, the transfer is apportioned, among the respective accounting periods, in proportion to the number of days in each such period.

Section 81C Emissions allowances

What is an emission allowance?

(1) Directive 2003/87/EC established the EU Emissions Trading Scheme (ETS), to limit greenhouse gases. The ETS places an overall limit on EU greenhouse gas emissions, allocates emission allowances to businesses operating within the scheme, and requires these businesses to surrender sufficient allowances each year to cover their emissions. Businesses can buy and sell emission allowances within the scheme.

An emissions allowance means an emissions allowance, reduction unit or certified emission reduction unit within the meaning of Article 3 of the Directive – allowing the holder to emit one tonne of CO2 or the equivalent amount of another greenhouse gas.

An emissions allowances also includes certified emission reductions (CERs) and emission reduction units (ERUs) under the Kyoto Protocol. A company can exchange such credits for EU allowances in order to meet its obligations under the ETS.

Is the cost of an emissions allowance tax-deductible?

(2) Under existing tax law the purchase of emissions allowance, being the purchase of an asset, represents capital expenditure and accordingly is not tax-deductible (section 81). This section confirms that irrespective of the fact that an emissions allowance is an asset, the cost of such an allowance, if charged to the company’s profit and loss account, is a tax-deductible trading expense.

Is the disposal of an emissions allowance taxable?

(3) The disposal of a purchased emissions allowance give rise to a trading receipt.

Section 82 Pre-trading expenditure

Is pre-trading expenditure tax deductible?

(1)-(2) Expenditure incurred in the three-year period prior to commencing to trade is tax deductible.

Expenditure disallowable under section 81 (for example, capital expenditure) or under any other provision in the Acts (for example, entertainment disallowed under section 840) remains disallowable.

Pre-trading expenditure is treated as incurred on the first day of trading.

Example

You incurred the following pre-trading expenditure:

Advertising for CEO (more than 3 years before commencement)  0
Salaries of chief executive and staff recruited before trade began 3,500
Entertaining suppliers and customers (disallowed section 840(2)) 155,000
Advertising opening of trading 1,280
6,400

The following pre-trading expenses is deductible on the commencement date:

Salaries in 3 years preceding commencement of trade 155,000
Advertising opening of trading 6,400

After deducting these expenses and its other allowable expenses in the first year of trading, you have a taxable profit of €11,000. This is your final taxable profit.

Can loss relief be claimed on pre-trading expenditure?

(3) Pre-trading expenditure cannot also be claimed as an: income tax trading loss (section 381), corporation tax trading loss (section 396(2)), group relief (section 420).

Example

Same facts as in preceding Example except that the effect of deducting the allowable pre-trading expenses is as follows:

Taxable profits before allowable pre-trading expenditure 86,400
Deduct: Allowable pre-trading expenditure 161,400
Tax loss 75,000

This tax loss, being fully created by the pre-trading deduction, cannot be set off against any other income (section 396(2)), but you may carry it forward for set off against taxable profits of the trade for a later accounting period. The taxable profits for the first year are reduced to nil as follows:

Taxable profits before allowable pre-trading expenditure 86,400
Less: Deduction for pre-trading expenditure limited to 86,400
Taxable profit/tax loss Nil

Is pre-trading expenditure deductible under any other heading?

(4) Pre-trading expenditure cannot be claimed under any other heading for tax purposes. See also Inspector Manual 4.6.8 (examples).

Section 83 Expenses of management of investment companies

What is an investment company?

(1) An investment company is a comapny whose income derives mainly from the making of investments. A savings bank is an investment company.

An investment company includes:

(a) An industrial and provident society which provided housing at a reduced profit: Cook v Medway Housing Society Ltd, [1997] STC 90.

(b) A group holding company being wound down: Westmoreland Investments Ltd v McNiven, [1998] STC 1131. See also FPH Finance Trust Ltd (in liquidation), v IRC (No 1), (1944), 26 TC 131, Bank Line Ltd v IRC, (1974) 49 TC 307.

The term does not include:

(a) An estate company (in receipt of rental income): Howth Estate Co v Davis, 1 ITR 447; Casey v Monteagle Estate Co, 2 ITR 429. See Obscure Cases Revisited (5), Suzanne Kelly, Irish Tax Review, May 1998.

(b) A property dealing company: Jones v Mason Investments (Luton) Ltd, (1966) 43 TC 570, as such a company is chargeable under Case I, but see Halefield Securities Ltd v Thorpe, (1967) 44 TC 154.

Investments do not have to be turned over: IRC v Tyre Investment Trust Ltd, (1924) 12 TC 646.

See also Inspector Manual 4.8.4 (rental income); 8.2.1 (charges)

What expenses are deductible to an investment company?

(2) An investment company may deduct management expenses when calculating its taxable profits. It may not “double deduct” management expenses that are already deductible against rental income (Case V).

Management expenses may not be reduced by any income not subject to Irish corporation tax (other than distributions from resident companies).

The UK Special Commissioners have held that management expenses include accountants’ and solicitors’ fees in connection with a 50% subsidiary trading company: Holdings Ltd v IRC SpC 117, [1997] SWTI 386.

Management expenses do not include:

(a) Commission to guarantee loan stock: Hoechst Finance Ltd v Gumbrell, [1983] STC 150.

(b) Exchange losses: Bennet v Underground Electric Railways Co of London Ltd, (1923) 8 TC 475.

(c) Costs of a debenture issue: London County Freehold and Leasehold Properties Ltd v Sweet, (1942) 24 TC 412.

(d) Brokerage and stamp duty: Capital and National Trust Ltd v Golder, (1949) 31 TC 265.

(e) Excessive service charges: Fragmap Developments Ltd v Cooper, (1967) 44 TC 366.

(f) Excessive directors’ remuneration: Berry (LG) Investments Ltd v Attwooll, (1964) 41 TC 547.

(g) Discount on premiums: North British and Mercantile Insurance Co v Easson, (1919) 7 TC 463.

(h) Expenses of managing properties held as investments: London and Northern Estates Co Ltd v Harris, (1937) 21 TC 197 and Southern v Aldwych Property Trust Ltd, (1940) 23 TC 707.

(i) Research related to evaluation of potential investments: Hibernian Insurance Co Ltd v MacUimis, SC, 20 January 2000 (Tax Briefing 40, June 2000). This is discussed in Irish Tax Review, July 2000.

Double taxation relief: see Jones v Shell Petroleum Ltd, (1970) 47 TC 194.

Inspector Manual 4.6.11 (case law)

Example

Your profit and loss account shows:

Investment income:
Distributions from Irish companies 50,000
Dividends from foreign companies 68,000
Interest income 86,000
Case V rental income (before expenses) 73,000
277,000
Management and other expenses:
Salaries 40,000
Contributions to approved pension scheme 4,600
Other general administration expenses 25,000
69,600
Repairs etc to rented properties 8,300
Depreciation on office equipment 2,300 80,200
Net accounting profit before tax 196,800

You agree with the inspector that 25% of the salaries, pension contributions and the general administration expenses are attributable to managing the Case V income. The annual capital allowances on the office equipment (used for the business) for the accounting period are assumed to be €1,770.

Tax computation:

Case V rental income (before expenses) 73,000
Less:
Repairs etc to rented properties 8,300
General management expenses: 25% x €69,600 17,400 25,700
Net Case V income 47,300
Dividends from foreign companies 68,000
Interest income 86,000
Irish company distributions excluded
Total income before management expenses 201,300
Deduct:
Management expenses (balance) 75% x €69,600 52,200
Capital allowances on office equipment 1,770 53,970
Chargeable to corporation tax 147,330

Section 83A Expenditure involving crime

Are bribes tax deductible?

(1) Criminal payments (bribes) are not deductible for tax purposes.

Are bribes tax deductible to an investment company?

(2) Criminal payments are not deductible as management expenses.

Section 84 Expenses in relation to establishment or alteration of superannuation schemes

Is the cost of establishing a pension scheme tax deductible?

Expenses and fees associated with the establishment of a Revenue approved pension scheme are tax deductible.

Example

Your firm sets up a pension scheme for your employees. Your accounts year ends on 30.09. You make the following payments to professional advisers in setting up the scheme:

01.09.2012 Paid fees paid for actuarial advice 1,200
01.11.2012 Paid legal fees 2,500
01.11.2012 Costs of printing scheme documentation 550

12.01.2013 Revenue approve the scheme as an exempt approved pension scheme. You are now entitled to deduct the above expenses as trading expenses by reference to the dates the above expenses were paid, as follows:

Year to 30.09.2012
Deduct actuarial fees paid in year 1,200
Year to 30.09.2013
Deduct legal fees and printing costs paid in year 3,050

Section 85 Deduction for certain industrial premises

What is a premises?

(1) Premises means an industrial building or structure, the construction expenditure for which was incurred before 30 September 1956.

Industrial building allowances were first introduced by Finance (Miscellaneous Provisions) Act 1956 section 16 for capital expenditure incurred on or after 30 September 1956 on the construction of an industrial building or structure.

What deduction can be claimed for an industrial building?

(2) A trader who occupies an industrial premises built before 30 September 1956 can claim a deduction equal to 5/12ths of the rateable valuation of the premises.

What deduction can be claimed for quarries, mines etc?

(3) A person in receipt of income from quarries, mines, etc can claim a deduction equal to 5/12ths of the rateable valuation of a premises which is both owned and occupied for the business.

Must part-qualifying expenditure be apportioned?

(4) If part of a premises (which forms a single unit for valuation purposes) qualifies and part does not, only the proportion of the rateable valuation relating to the qualifying part gets the 5/12ths deduction.

The apportionment is to be made by the inspector or the Appeal Commissioners. A certificate from the Commissioner of Valuation, stating the amount of the rateable valuation attributable to any part of the property, may be given in evidence at the appeal.

Section 86 Cost of registration of trade marks

Is the cost of a trade mark tax deductible?

In computing taxable profits, the cost of registering, or renewing the registration of, a trade mark is tax deductible.

Section 87 Debts set off against profits and subsequently released

How is the release of a bad debt treated?

(1) The release of a written-off bad debt is treated as a business receipt for tax purposes.

Example

01.01.2012 You sell a computer system for €5,000 on credit to X.

01.03.2012 X pays €2,000 and defaults on the balance.

31.12.2012 You write off the €3,000 balance owing and gets a deduction for tax purposes.

28.02.2013 X performs work on your private dwelling. You release the debt of €3,000 to X. The release is treated as a trading receipt.

How is the release of a debt after the trade has ceased treated?

(2) The release of a debt after the trade has ceased is taxed as a post-cessation receipt (section 91).

Section 87A Deductions for gifts to Foundation for Investing in Communities

This section has been repealed.

Section 87B Release of debts in certain trades

To what debts and trades does this section apply?

(1) The section applies to a specified debt which is a debt incurred by an individual for the purchase or development of land which is held as trading stock of a specified trade. A specified trade is a trade of dealing in or developing land.

How is the release of a specified debt treated?

(2) when a debt is released in whole or in part in a tax year the amount released is treated a receipt of the trade for that year.

How is a release treated if the trade has ceased?

(3) If a specified debt is released after the permanent cessation of the trade the amount is taxed as a receipt taxable under Case IV of Schedule D.

When is a debt treated as released?

(4) The release is treated as happening on the earliest of the dates set out in this subsection.

Section 88 Deduction for gifts to Enterprise Trust Ltd

This section has been repealed.

Section 88A Double deduction in respect of certain emoluments

Is relief available for employing a long-term unemployed person?

(1)-(2) “Job assist” relief is available to an employer who employs someone who is long-term employed i.e., on the provision of a qualifying employment to a qualifying individual.

Long-term unemployed means continuously out of work for not less than 312 days, while also in receipt of unemployment benefit or assistance (unemployment payment), or one parent family allowance. The period of long-term unemployment includes periods of participation in FÁS courses. Payments received for such participation count as unemployment payment.

The relief works as follows: in computing profits for a chargeable period, the employer gets a double deduction in respect of:

(a) the wages or salary (emoluments), payable to the employee, and

(b) the employers’ PRSI payable in respect of the employment.

The double deduction applies for the first 36 months of the employment (i.e., the qualifying period). It does not apply:

(a) for any part of the chargeable period falling outside the qualifying period,

(b) if the employer or employee has benefited under an employment scheme that has been funded by the State or a statutory body (with the exception of certain FÁS schemes and Department of Social Welfare activities).

A qualifying employment must take up at least 30 hours per week, and be capable of lasting one year. It does not count if:

(a) it replaces a person who was unfairly dismissed,

(b) the employer has made an employee redundant in the six months preceding the employment,

(c) more than 75% of the pay is in the form of commission.

Revenue job assist, Tax Briefing 31, April 1998.

When will this relief end?

(3) The scheme will not apply to employments commencing after a date to be appointed by the Minister. The Minister has signed regulations ending the scheme from 30 June 2013.

Section 89 Valuation of trading stock at discontinuance of trade

What is trading stock?

(1) Trading stock means stock of property normally sold by a business. The term also includes stock of work in progress that would be sold if finished and stock of raw materials used to manufacture the property sold.

The meaning of trading stock has been considered in Hughes v British Burmah Petroleum Co Ltd, (1932) 17 TC 286;Abbott v Albion Greyhounds (Salford) Ltd, (1945) 26 TC 390; New Zealand Commissioner of Inland Revenue v Europa Oil (NZ) Ltd, (1970) 49 ATC 282; Europa Oil (NZ) Ltd v New Zealand Commissioner of Inland Revenue, [1976] STC 37;Mohanlal Hargovind of Jubbulpore v Central Provinces and Behar Income Tax Commissioner, (1949) 28 ATC 287; IRC v Broomhouse Brick Co Ltd, (1952) 34 TC 1, Stow Bardolph Gravel Co Ltd v Poole, (1954) 35 TC 459; Lions Ltd v Gosford Furnishing Co Ltd and IRC, (1961) 40 TC 256; IRC v Smith’s Executors, (1951) 33 TC 5; Hood Barr v IRC (No 2), (1957) 37 TC 188; Hopwood v C N Spencer Ltd, (1964) 42 TC 169, Coates v Holker Estates Co, (1961) 40 TC 75,Murray v IRC, (1951) 32 TC 238; McLellan, Rawson and Co Ltd v Newall, (1955) 36 TC 117; Golden Horse Shoe (New) Ltd v Thurgood, (1933) 18 TC 280.

The issue of whether secured debts are trading stock was discussed in Torbell Investments Ltd v Williams, [1986] STC 397.

Land or buildings can constitute trading stock (for example, if you are a property developer).

In the case of a profession, “trading stock” includes work in progress.

This section applies to trades in which the value of trading stock would usually be expected to appreciate over time, for example, a trade of dealing in land, investments, or precious stones.

Before it became law, tax could be avoided by ceasing to trade and disposing of trading stock that had significantly appreciated in value. The stock at the date of cessation would have been valued at the lower of cost or market value, which would usually be at cost. The profit on the subsequent disposal of the appreciated stock would not be taxed.

As to accounting rules relating to stock, see notes to section 18.

How is trading stock valued on discontinuance?

(2) If a trade is discontinued and trading stock is sold or transferred for valuable consideration:

(a) To another trader who can deduct the cost of the stock as a business expense, stock at the cessation date must be valued using the rules in (3) and (4). In general, this means that figure for closing stock of the discontinued business is the same as the figure for opening stock in the accounts of the purchaser.

(b) In any other case, trading stock must be valued at open market value on the cessation date.

Stock transferred to a connected person was to be included in the books of transferor and transferee at cost in Bendit (Julius) Ltd v IRC, (1945) 27 TC 44; Craddock v Zero Finance Co Ltd, (1946) 27 TC 267 and Jacgilden (Weston Hall) Ltd v Castle, (1969) 45 TC 685.

Stock transferred to a connected person was to be included in the books of transferor and transferee at market valuein Sharkey v Wernher, (1955) 36 TC 275; Petrotim Securities Ltd v Ayres, (1963) 41 TC 389; Ridge Securities Ltd v IRC, (1963) 44 TC 373; Skinner v Berry Head Lands Ltd, (1970) 46 TC 377 and Watson Bros v Hornby, (1942) 24 TC 506.

For tax planning using this legislation, see Forest Side Properties (Chingford) Ltd v Pearce, (1961) 39 TC 665; Moore v R J Mackenzie and Sons Ltd, (1971) 48 TC 196; Bradshaw v Blunden (No 2), (1960) 39 TC 73; IRC v Barr (No 2), (1955) 36 TC 455 and Kirkcaldy Linoleum Market Ltd v Duncan and IRC, (1965) 44 ATC 66.

“Natural love and affection” does not constitute “valuable consideration” for the purposes of this section (Revenue Precedent IT95-3557, 20 November 1995).

A transfer of stock at a grossly inflated price does not come within (2). For a transfer to come within (2), the purchaser must be entitled to deduct the cost of the stock in computing his/her trading profits. If the transfer value indicates that the transaction is not bona fide, the purchaser would not be entitled to a deduction for such cost (Revenue PrecedentIT95-3552, 6 November 1995).

How is trading stock transferred to another trader valued?

(3) Trading stock transferred to a trader:

(a) Unconnected with the transferor, is to be valued on the basis of the price actually received for it.

(b) Connected with the transferor, is to be valued on the basis of the price that would have been received in an arm’s length transaction between unconnected persons.

How is trading stock transferred to a non-trader valued?

(4) Trading stock transferred to a non-trader must be valued as the greater of its acquisition value (see (5)) and the price actually received for it (see (3)), or either if they are equal. This applies where:

(a) The value of the stock exceeds its acquisition value and also exceeds the price actually received for it.

(b) The transferee includes in his/her self-assessment return an election signed by transferor and transferee that this rule should apply.

What is the acquisition value of trading stock?

(5) The acquisition value of trading stock is the amount which would have been the tax-deductible purchase price if:

(a) the stock was sold immediately before ceasing to trade for an arm’s length price, and

(b) the sale arose in a chargeable period that began immediately before the trade ceased.

How should stock acquired from a discontinued trade be valued?

(6) The value put on trading stock in a ceased trade (in line with the rules in (3) and (4)), is also to be taken as the cost of the stock for the purchaser.

Section 90 Valuation of work in progress at discontinuance of profession

How is WIP valued on discontinuance?

(1) Work in progress (WIP) at discontinuance is valued as follows:

(a) If sold to another professional person who can deduct the cost as a business expense, it is valued on the basis of the amount paid by the purchaser.

(b) In any other case, its value is the open market value.

Can the excess of WIP over cost be treated as as a post-cessation receipt?

(2) A professional person may opt, in writing, within 24 months of cessation, to have the excess of the sale price of WIP over its cost taxed as a post-cessation receipt (section 91). Such excess is not taxed at the date of discontinuance.

How is WIP valued on death?

(3) In valuing a sole professional’s WIP, death is not regarded as a discontinuance. WIP at death is valued in the same way as at previous year ends.

What is WIP?

(4) Work in progress at cessation includes partially completed professional services which

would be charged to the client on completion of the service.

Section 91 Receipts accruing after discontinuance of trade or profession

What are post-cessation receipts?

(1) Post-cessation receipts are business debts:

(a) received after a business has ceased, and

(b) which were not brought into account during the life of the business.

What are not post-cessation receipts?

(2) The following do not count as post-cessation receipts:

(a) income arising outside the Republic of Ireland to a non-resident,

(b) if you have died, a lump sum paid to your personal representatives for the assignment of literary or artistic copyrights,

(c) sale proceeds from the transfer of trading stock or work in progress at the cessation date (these are taxed under sections 89, 90),

(d) “artistic” income that would have been exempt (section 195) had you not ceased.

Are post-cessation receipts taxed?

(3) Post-cessation receipts are taxed under Schedule D Case IV.

Can post-cessation expenses be offset against post-cessation receipts?

(4) You may also have post-cessation expenses, unrelieved losses or unused capital allowances of the ceased business. You may offset these against your post-cessation receipts to arrive at your net tax liability.

What is the earnings basis?

(5) The earnings basis of accounting is the normal “historic cost” or accruals basis of accounting. In accounting for stock and work in progress at cessation, and in dealing with post-cessation receipts, there is an underlying assumption that accounts are prepared on the accruals basis.

Any basis of accounting which does not fully accrue for all earnings and expenses, is referred to as the conventional basis.

If, after ceasing to trade, you recover a written off bad debt, for which you obtained a tax deduction, the recovery doesnot count as a post-cessation receipt to the extent that you got a tax deduction for that write off.

Section 92 Receipts and losses accruing after change treated as discontinuance

What are the tax consequences when a business changes ownership?

(1) The rules in this section apply where one person (the successor) replaces another (the predecessor) in carrying on a trade or profession. The predecessor is treated as ceasing, and the successor is treated as commencing a new trade or profession.

Is a seller of a business liable on post-sale receipts?

(2) If you are the predecessor, you are taxed on any post-cessation receipts, unless you have transferred the right to such receipts to your successor – in which case he/she is taxed.

If your successor recovers bad debts which you wrote off for tax purposes, he/she is taxed on the receipt.

Can a successor to a business claim for the predecessor’s bad debts?

(3) As successor you may write off, and take a tax deduction for, any irrecoverable bad debts you have taken over. But if your predecessor also wrote off the same debt, you may only off any irrecoverable amount over and above the deduction given to your predecessor.

Example

You retire from business and sell your business to X.

X agrees to take over the debts valued at €5,000.

In your final profit and loss account, you wrote off a €1,000 debt owed to you by Y, and got a tax deduction for the write-off.

X is not allowed any write off for the debt owed by Y, as it has already been written off in your accounts, but X would be allowed (provided it was irrevocable) any balance due to you at the date of transfer.

Section 93 Cash basis, etc: relief for certain individuals

Who can claim relief on post-cessation receipts?

(1) If you were aged 51 or more on 6 April 1970, and you were accounting on a conventional basis (section 91(5)), you are entitled to relief on certain post-cessation receipts (the net amount).

How is relief on post-cessation receipts calculated?

(2) In relation to post-cessation receipts (section 91), the relevant date means the date the business permanently ceased. In relation to post-change-of-basis receipts (section 94) it means the date of change of basis.

If you were born before 6 April 1919, and were in business on 4 August 1970 and were accounting on the conventional basis, you are entitled to relief on receipts after the relevant date. The chargeable amount is calculated by multiplying the net post-cessation receipts by a fraction (see (4)).

How is the chargeable amount of post-cessation receipts reduced?

(4) The fraction is:

(a) 19/20ths for an individual who was 51 on 6 April 1970,

(b) 18/20ths for an individual who was 52 on 6 April 1970,

(c) 17/20ths for an individual who was 53 on 6 April 1970,

(d) 16/20ths for an individual who was 54 on 6 April 1970,

(e) 15/20ths for an individual who was 55 on 6 April 1970,

(f) 14/20ths for an individual who was 56 on 6 April 1970,

(g) 13/20ths for an individual who was 57 on 6 April 1970,

(h) 12/20ths for an individual who was 58 on 6 April 1970,

(i) 11/20ths for an individual who was 59 on 6 April 1970,

(j) 10/20ths for an individual who was 60 on 6 April 1970,

(k) 9/20ths for an individual who was 61 on 6 April 1970,

(l) 8/20ths for an individual who was 62 on 6 April 1970,

(m) 7/20ths for an individual who was 63 on 6 April 1970,

(n) 6/20ths for an individual who was 64 on 6 April 1970,

(o) 5/20ths for an individual who was 65 or more on 6 April 1970.

Example

You were born on 1 April 1917, you were trading on 4 August 1970, (you were 53 on 6 April 1970) and you ceased to trade on 15 May 1997.

You prepared accounts on the cash basis and you had post-cessation receipts of £15,000 in June to September 1997. Your amount chargeable under Schedule D Case IV is:

£15,000 x 17/20ths = £12,750

Section 94 Conventional basis: general charge on receipts after change of basis

What is the conventional basis?

(1) The earnings basis (accruals basis) is standard accounting practice (SSAP 2). It provides for the matching of expenses against income by treating unpaid debts due to the business at the end of the accounting period as assets. Similarly, unpaid debts owed by the business are accrued and treated as liabilities at the end of the accounting period. Under this basis a sale is recognised when the sale is made even though the cash has not been received.

The earnings basis takes into account debtors, creditors, and work in progress. All companies and traders (individuals and partnerships) must prepare accounts on the earnings basis.

A basis other than the strict earnings basis is known as a conventional basis. The meaning of conventional basis was discussed in Walker v O’Connor, UK SpC, [1996] STI 16. The most common conventional basis is the cash basis, under which a sale is only recognised when the cash has been received. Barristers, who cannot in law sue for unpaid fees, use the cash basis. See Wetton Page and Co v Attwooll, (1962) 40 TC 619; Rankine (D and G R) v IRC, (1952) 32 TC 520; McCash and Hunter v IRC, (1955) 36 TC 170.

If you are a professional person, Revenue will accept conventional basis accounts provided you meet the following conditions:

(a) Where you have always prepared accounts on a conventional basis:

(i) your profits computed on the conventional basis do not, taking one year with another, differ materially from what your profits would be on a full earnings basis,

(ii) you issue bills for services rendered or work donebat regular and frequent intervals,

(iii) you include precise details of the basis used as a note to the accounts.

(b) The basis includes debtors and creditors. You need only include work in progress if excluding it would materially affect your annual taxable profits.

(c) If you are commencing business, you must prepare the accounts for the first three years on an earnings basis. After that, you may change to a conventional basis which meets the conditions listed in (a). You must then apply the conventional basis, even with regard to income previously taken into account on the earnings basis.

The onus is on you to prove these conditions have been met: Statement of practice SP IT/2/92, Inspector Manual 4.7.1

Can a person change from the earnings to the conventional basis?

(2) If you change from the earnings basis to the conventional basis it can be expensive, as the same earnings may be doubly taxed.

On the other hand, if you change from the conventional to the earnings basis, some of your receipts may drop out of assessment. To prevent tax avoidance, such pre-change earnings are taxed under Schedule D case IV.

Treatment of debtors creditors and work-in-progress in professional accounts (4.6.3)

Can a person change from the conventional to the earnings basis?

(3) If you change from the conventional to the earnings basis, your work in progress is taxed in the year in which the change occurs.

What is work in progress?

(4) Your work in progress at the change of basis date includes partially completed services which would be chargeable to your client on completion of the service.

When is a person treated as having changed from the conventional to the earnings basis?

(5) You are treated as having changed from the conventional to the earnings basis if your profits for one period are computed on the conventional basis and your profits for the next period are computed on the earnings basis.

If you change from one conventional basis to a different conventional basis, the change is deemed to have occurred at the end of the earlier period.

Section 95 Supplementary provisions as to tax under section 91 or 94

Can the right to post-cessation receipts be sold?

(1) You are taxed if you sell the right to receive post-cessation receipts. If the sale is not at arm’s length, you are taxed on an arm’s length valuation of the right.

A barrister who on appointment as judge transferred his interest in uncollected fees to a company was held to be personally chargeable on such receipts: O’Coindealbháin v Gannon, 3 ITR 484.

Can post-cessation receipts count as relevant earnings for pension purposes?

(2) If you have post-cessation receipts which, pre-cessation would have been treated as earned income (section 3(3)), you may treat such receipts as pre-cessation earned income.

This allows you to count post-cessation receipts as part of your relevant earnings for retirement annuity relief (section 784).

Can tax on post-cessation receipts be paid in the final year of business?

(3) Yes. You may elect to be taxed on:

(a) post-cessation receipts (section 91) in your final year of business, and

(b) post-change-of-basis receipts (section 94) in the year in which you change basis,

instead of the year in which you obtain those receipts.

You may only make this election if you obtain the receipts not more than 10 years after the year of cessation or change of basis. You must make the election within two years of the end of the tax year in which you obtain the post-cessation receipts.

This allows you to use carried forward losses and capital allowances against the post-cessation receipts in the final year (or the change of basis year) instead of the year of receipt. You may not double-claim such losses and allowances.

Is a sum received for WIP a post-cessation receipt?

(4) You must include in post-cessation receipts any sum you receive for work in progress at the cessation date.

Work in progress at the cessation date is normally dealt with by section 90. This charge only applies if you prepared accounts on the cash basis and did not take such work in progress into account.

Can pre-cessation losses be offset against post-cessation receipts?

(5) Under section 91(4) you may offset unrelieved losses or unused capital allowances of the ceased business against post-cessation receipts. You are not entitled to such an offset if you have already got a deduction under any other rule in the tax code.

Can pre-cessation losses be claimed twice?

(6) You may not double deduct, against post-cessation receipts, unrelieved losses or unused capital allowances. You are given the relief against earlier years before later years. You may not offset an unrelieved loss against profits of a earlier period.

Section 95A Change of basis of computation of profits or gains of a trade or profession

This section is now spent.

Section 96 Interpretation (Chapter 8)

What is rent?

(1) A lease includes any tenancy and any lease-type agreement (but not a mortgage) whereby a landlord (lessor) receives rent from a tenant (lessee) in respect of leased land or buildings (premises) in the Republic of Ireland. Rentincludes any payment in the nature of rent (for example, work done by a tenant on the leased premises).

A premium includes any similar sum, including a sum payable to the immediate or superior lessor or to a person connected with the immediate or superior lessor.

A residential premises is a building, or part of a building, suitable for use as a dwelling together with any adjacent garden or outbuildings. A rented residential premises is one which has a landlord i.e., a person entitled to rent from the premises.

The person chargeable includes trustees for Debt Settlement or Personal Insolvency Arrangements.

Example

You lease a building to X for 51 years in return for a premium of €50,000 and a rent of €5,000 per annum for the first 10 years.

The lease provides that after 10 years, X must demolish the building and replace it with a new building. If he does not do so, the long lease is forfeited.

The lease from you to X is therefore treated as a short lease (10 years).

You are taxed on the premium received: €50,000 – [€50,000 x (10 – 1) x 2%] = €41,000.

Assume that you have instead leased the building for a premium of €500,000 and a rent of €500 per annum for the first 10 years. Assume also that X could renew the lease after the first 10 years (for a further 41 years) at a rent of €5,000 per annum.

The lease from you to X is therefore treated as a long lease (51 years) so that you are not taxed on the premium as income.

How is the length of a lease determined?

(2) The following are taken into account in deciding the length of a lease:

(a) The size of the initial premium. If the premium is greater than it should be for a lease of that term, the lease would be regarded as a long lease.

(b) The presence of terms that allow the lease to be extended at the request of the lessee, and the likelihood of such extension.

(c) The entitlement of the lessee (or a person connected with him/her) to a further lease on the same premises. In such circumstances, the first lease is regarded as continuing until the end of the second lease.

In summary, a lease is normally regarded as lasting for the lease term granted. However, where a lease contains break clauses or an unusually large or small premium, or is unlikely to continue beyond a certain date before the end of the lease term, the lease is treated as ending on the realistic end date.

Any relevant facts at the time of the granting of the lease are to be taken into account in deciding whether the lease terms are realistic. The parties to the lease are assumed to be dealing at arm”s length.

A long lease is a lease for a term longer than 50 years. A short lease is a lease for 50 years or less. A lease which lasts longer than 50 years, but the length of which can be varied by either party within that 50 year period, is a short lease. The option to vary the lease in this manner is known as a break clause.

The legislation was originally drafted to prevent short leases being disguised as long leases in order to minimise the tax payable by the recipient of a premium (see section 98).

The legislation was then revised to prevent long leases being disguised as short leases in order to give the payer of a premium an immediate tax deduction for such a payment. If it appears that the lease is not a long lease (in other words that it is unlikely that the lease will continue beyond the expiration of the term of the lease) the lease is regarded as a short lease.

Statement of practice SP CT/1/91 allows rental-related currency gains on hedging instruments to be treated as part of rental income. Corresponding payments are deductible revenue expenses.

Example

You lease a building to X for one year in return for a premium of €1,000,000 and a rent of €1,000 per annum.

The lease provides that X can extend the lease for a further 51 years for the same annual rent and no additional premium.

In such circumstances, X would be likely to extend the lease; therefore, it is treated as a long lease.

Who pays tax on rent from a repossessed property?

(3) If you repossess a property as a mortgagee or receiver, you are chargeable on the rental income as if you were the lessor. Your tax is calculated as if the mortgagor had possession of the property. This means that you pay tax on the net rent receivable after allowable interest, and not on the gross rent.

Can Revenue make inquiries regarding the duration of a lease?

(4) Yes. An inspector may write to you if he/she believes that you have information regarding the duration of a lease requesting you to supply such information.

Section 97 Computational rules and allowable deductions

How is rental income calculated?

(1) Irish rental income is taxed under Case V as follows:

(a) You calculate the surplus or deficiency on each property by subtracting any allowable deductions from the gross rent receivable.

(b) You aggregate the resulting surpluses and deficiencies for each property to arrive at a net figure for all your properties.

If you have more than one property, you do not total the rents and then deduct the total expenses.

A balancing charge made in charging your Case V income is a “surplus” (Revenue Precedent IT91-3011, 15 March 1991).

What deductions can be claimed against rental income?

(2) You may deduct the following expenses:

(a) any rent payable by you in respect of the property,

(b) rates,

(c) expenses which you are obliged to incur under the letting agreement,

(d) non-capital maintenance, repairs, insurance and management expenses,

(e) interest on money borrowed to acquire, improve or repair the property. Since 7 April 2009, you are only entitled to claim 75% of the interest on a loan to purchase, repair or improve a rented residential property.

Expenditure on construction, conversion or refurbishment of a property in a renewal incentive area (section 372AN) is treated as a deduction authorised by section 97(2).

You are entitled to deduct accountancy fees incurred in preparing a rent account (Tax Briefing 25, February 1997), i.e., a set of accounts relating to a rental property or properties. Accountancy fees include the actual cost of keeping records, maintaining primary documents and preparing financial statements. You may also deduct fees in respect of company audits which are required by law.

You are not allowed a deduction for management expenses equal to a percentage of gross rental income. You are allowed your actual cost in managing the premises. You are allowed a letting agent’s percentage commission for collecting rent, as this is part of the actual cost of managing the premises (Inspector Manual 4.8.3).

A property rental company is allowed deduct directors’ remuneration if it is reasonable having regard to the duties performed. Revenue do not object where the remuneration does not exceed 10% of the gross rents. Where the directors devote a lot of their time to managing your company’s properties and there is not a separate management charge, Revenue will not question remuneration of up to 15% of the gross rents.

In the case of an investment company with rental income to which the 15% limit would apply, this percentage limit applies to the rental income only and the 10% limit applies to the non-rental income.

You are not automatically disallowed amounts in excess of the 10% and 15% limits, although they may be queried by the Inspector (Tax Briefing 31, April 1998).

The percentage limits of 10% or 15%, apply only in determining the level of directors’ remuneration regarded as admissible. Those limits do not include other management expenses and do not apply to other management expenses.

The UK courts have disallowed the following deductions:

(a) Compensation and associated legal expenses paid to a tenant for disturbance: IRC v Wilson’s Executors, (1934) 18 TC 465.

(b) Road charges: Davidson v Deeks, (1956) 37 TC 32.

(c) Rents misappropriated by an agent: Pyne v Stallard-Penoyre, (1964) 42 TC 183.

(d) Collection charges payable under a will (being annual payments): Clapham’s Trustees v Belton, (1956) 37 TC 26.

In determining whether interest is allowable, the inspector will take into account all the circumstances of the case, including whether the transaction was a genuine commercial transaction (Revenue Precedent IT96-2509, 26 September 1996).

(e) Replacement borrowing

Strictly, you are not entitled to a deduction in respect of interest paid on a replacement loan. Revenue recognise that you may wish to take out a replacement loan to avail of a better interest rate or repayment method.

You are allowed deduct interest on a replacement loan if:

(a) the replacement loan does no more than replace the outstanding balance on the existing loan, and

(b) the term of the replacement loan is no longer than the balance of the term of the existing loan.

You may also change the type of loan from annuity to endowment or vice versa.

Therefore, if refinancing, you should take out separate loans, rather than amalgamated loans.

When did the “Bacon” restrictions cease?

(2G) From 1 January 2002, the “Bacon” interest restrictions in (2A) – (2F) are lifted, i.e., since that date, you can get a deduction for interest on a loan to buy, improve or repair a residential premises.

However, from 6 February 2003, you can still be caught by the restrictions, and denied an interest deduction, in respect of a property bought from your spouse/civil partner.

Is rental interest allowable on a dwelling bought from a spouse?

(2H) The reapplication of the interest restriction in (2G) to cases where a premises is bought from your spouse, doesnot apply if:

(a) you and your spouse are separated by court order or by deed of separation, or

(b) you and your spouse have been divorced and your divorce is recognised under Irish law or the equivalent law of a foreign jurisdiction.

Is rental interest allowable on a property that not registered with the PRTB?

(2I)-(2J) No. Since 1 January 2006, you do not get an interest deduction against rental income unless your property is registered with the Private Residential Tenancies Board (PRTB).

From 7 April 2009, relief for interest on money borrowed to purchase, improve or repair a rented residential property is given at 75% of the full interest. Money borrowed to finance the construction of a residential property, and the land on which it is built, is treated as money borrowed to “purchase” a residential property.

If the property in question is part-residential, then the restriction applies only to the residential part.

When is 100% interest relief given for residential property borrowings?

(2K) The restricted amount of 25% will be allowed in respect of certain leases.

 (a) lease means a lease or tenancy registered with the Private Residential Tenancies Board (PRTB);

 A qualifying tenant is a household whose rent is paid by a housing authority or an individual in receipt of rent supplement;

Relevant borrowings are the amount of borrowings that relate to a property or part of a property let to a qualifying tenant;

Relevant interest is the 25% disallowed under subsection 2J;

Specified period is a continuous period of 3 years commencing on or after 1 January 2016 but not extending beyond 31 December 2019.

 (b) A person seeking relief must submit an undertaking to the PRTB that it will let a residential premises to a qualifying tenant for a period of 3 years from 1 January 2016 if the lease commenced before that date or from the date the lease commences if later. The undertaking must be submitted at the same time as the landlord is required to register the tenancy with the PRTB or, if the lease is already in existence at 1 January 2016, by 31 March 2016.

(c) A lease granted before 1 January 2016 which meets the conditions is deemed to be a qualifying lease from that date.

(d) There is provision for allowing a second 3 year period of relief. If a tenant leaves before the end of the 3 year period and there is an interval before a new qualifying tenant is obtained the new lease and the old one are treated as a single qualifying lease provided that the property was not occupied by a non-qualifying tenant, the owner or a person connected with the owner during the interval.

 (e) If a tenant ceases to be a qualifying tenant (e.g. due to an improvement in circumstances) the lease continues to be a qualifying lease as long as that tenant occupies the property.

 (f) To avail of the relief the property must be let under a qualifying lease for one or more 3 year periods and the relevant undertaking referred to in (b) above must be given in respect of each period.

(g) The relief is given on the first day after the end of the 3 year specified period, i.e. the disallowed 25% for each of the 3 years is allowed in aggregate for the tax year in which the specified period ends or the following year if the specified period ends on 31 December.

 (h) A claim for relief must contain a statement that the conditions in (f) have been met and must be made electronically.

(i) If the borrowings are on property that is let under both qualifying and non-qualifying leases the interest must be apportioned.

(j) Documents and records relating to a qualifying lease must be held for 6 years from the end of the specified period to which the claim relates.

Is expenditure outside the letting period deductible?

(3) You do not get a deduction for expenditure incurred outside the letting period (for example, if you advertise to recruit a suitable tenant). Nevertheless, once your property has been let for the first time, you are allowed a deduction for expenditure incurred in an interval between letting periods (for example, minor repairs or redecoration). However, letting fees and solicitor’s costs in negotiating a lease (incurred before letting) were held to be deductible in Stephen Court Ltd v Browne, HC 7 June 1983, TL 120.

Once a lease is in place, you only get a deduction for expenditure that would be deductible under Schedule D Case I rules if the letting were a trade. That does not mean you can, by extension of the rules which allow pre-trading expenditure (section 82), get a deduction for pre-letting expenditure. The only allowable Case V deductions are those in (2). Revenue Precedent IT97-2519, 18 December 1997, Tax Briefing 31, April 1998.

How should common expenditure in a multiple unit property be apportioned?

(4) If, as landlord, you pay charges for a block of apartments, the inspector must apportion the figure between the various apartments according to your best knowledge and judgment. The apportionment must also be made in respect of charges relating to the common areas.

Is rental expenditure deductible against other sources of income?

(5) No – you are not allowed a deduction against rental income if the expense is allowed as a deduction in computing the income of any person for tax purposes.

Section 98 Treatment of premiums, etc as rent

How is a premium taxed?

(1) Where a premium is received under a short lease, i.e., a lease not longer than 50 years, part of the premium is treated as rent.

The “rent part” is the premium, reduced by 2% for each year other than the first comprised in the term of the lease, i.e.:

P – (P x (N – 1) x 2%)

where P is the premium and N is the number of years in the lease term.

Example

A property is to be let for four years at a rent of €5,000 per year.

The same money could be obtained by taking a premium of €19,996 and a rent of €1 per year for four years.

The first year rent is:

P – (P x (N – 1) x 2%) = €19,996 – (€19,996 x (4 – 1) x 2%) = €18,796.

Is a tenant’s work on the premises treated as rent?

(2) Where a lease obliges the tenant to carry out work on the premises, the landlord is deemed to have received an amount equal to the value of the tenant’s work.

The initial premium is increased by the value of any work the tenant promises to undertake. However, the value of the work need not be added to the initial premium if the cost of such work is tax deductible.

How is a lump sum in lieu of rent taxed?

(3) A lease may contain an option allowing a tenant to:

(a) pay a lump sum instead of rent,

(b) surrender the lease on payment of a lump sum.

Such a lump sum is treated as a premium, with the lease duration taken to be the period for which the payment is made.

How is a lump sum for varying the terms of a lease taxed?

(4) A tenant may pay a landlord a lump sum for varying the lease terms.

Such a lump sum is treated as a premium, with the lease duration taken to be the period for which the payment is made.

In Banning v Wright, (1972) 48 TC 421, a payment to a landlord as part of a settlement for breaching the terms of a lease was treated as a payment for the variation of the lease.

How is a premium paid to a connected person taxed?

(5) Where a premium is paid not to a person connected (section 10) with the landlord, that person is taxed under Case IV.

How is a sum, other than rent, for the granting of a lease taxed?

(6) Any sum other than rent paid in connection with the granting of the lease is deemed to be a premium unless it can be shown that it was paid for some other reason.

Does a tenant’s entitlement to extend a lease decide its length?

(7) If a tenant has a right to extend a lease, the term of the first lease is treated as continuing until the end of the term of the second lease.

A premium payable in such circumstances may be regarded as payable under either lease.

Can tax on a premium be paid by instalments?

(8) If a premium is payable by instalments, a recipient who would be faced with undue financial hardship, may request Revenue for permission to spread the tax payable over eight years. The period over which the tax may be spread must end no later than the date on which the last instalment is due.

Payment by instalment does not prevent the lessee getting a full deduction for the premium, even in the case of a sale and leaseback between a lessor and lessee which is its 100% subsidiary: Hammond Lane Metal Co Ltd v O’Culacháin, 4 ITR 197.

Can a non-cash payment be treated as a premium?

(9) A non-cash payment can be regarded as a premium or equivalent amount.

Section 98A Taxation of reverse premiums

What is a reverse premium?

(1) A reverse premium is a payment or other benefit received by a lessee, in return for entering into a lease agreement.

A person is connected with:

(a) his or her spouse,

(b) his relative,

(c) the spouse of a relative,

(d) a relative of his spouse, or

(e) the spouse of a his spouse’s relative.

A chargeable period means a tax year or company accounting period.

The first relevant chargeable period means:

(a) the chargeable period in which the relevant transaction takes place,

(b) in a case where the relevant transaction is entered into for the purposes of the trade or profession which the recipient of the reverse premium is about to commence, the chargeable period in which he/she commences the trade or profession.

A sale or leaseback arrangement takes place where there is a disposal of a full estate or interest in land to another person who agrees to lease it back.

How is a reverse premium taxed?

(2) A reverse premium is treated as income and not as a capital receipt.

Is a reverse premium treated as rent?

(3) Apart from circumstances mentioned in (4) and (6), a reverse premium is taxed as rental income in the hands of the recipient.

Example

You accept €20,000 in return for entering into a lease agreement with X.

The €20,000 receipt is a revenue receipt, and is taxed as rental income in your hands.

When is a reverse premium taxed as trading income?

(4) A reverse premium is taxed as trading or professional income, as appropriate, where a relevant transaction takes place, i.e., when an estate or interest in land is granted to a person for the purposes of his trade or profession.

When is a reverse premium taxed?

(5) The reverse premium is taxed as arising in the first relevant chargeable period (see (1)) where the recipient (and any person with whom he is connected):

(a) enters into a relevant arrangement, i.e., a relevant transaction together with any associated arrangements made before or after the transaction, and

(b) those arrangements are not made at arm’s length.

How is a reverse premium received by an assurance company taxed?

(6) A reverse premium received by an assurance company whose life business profits are not taxed under Case I b deducting it from management expenses.

What payments are not taxed as a reverse premium?

(7) The following payments or benefits are not subject to the reverse premium rules of this section:

(a) A payment or benefit received where the relevant transaction relates the grant of an estate or interest in the recipient’s sole or main residence.

(b) A payment or benefit made as part of a bona fide sale or leaseback arrangement.

(c) A payment or benefit which is already subject to tax as a trading ar professional income of the recipient.

Section 99 Charge on assignment of lease granted at undervalue

How is an assignment of a lease at undervalue taxed?

(1) IA profit received for for assigning a lease at undervalue is treated as a “deemed premium” for the grant of the lease and is taxed under Case IV.

Example

You grant a 21-year lease to X Ltd for a premium of €4,000 so that you are taxed on part of this premium, namely:

P – (P x (N – 1) x 2%) = €4,000 – (€4,000 x (21 – 1) x 2%) = €2,400

You could have charged a premium of €8,500 so that the “amount foregone” is €4,500 (i.e., €8,500 – €4,000).

X Ltd assigns its 21-year lease to Y for consideration of €6,500. (For section 99 to apply, this consideration must exceed €4,000.)

X Ltd has a “profit” of €2,500 (€6,500 consideration received – €4,000 premium paid to you) and, as this is less than the amount of €4,500 foregone, all of this €2,500 is subject to tax.

However, only a portion of this €2,500 profit is actually taxable. This is the same proportion as the proportion of a premium on a 21-year lease which would be taxable under section 98(1). Therefore, the amount taxable is:

€2,500 – (€2,500 x (21 – 1) x 2%) = €1,500

Is a land dealer taxed on profits from assigning a lease at undervalue?

(2) A dealer in land, in computing his profits under Schedule D Case I (section 640), must exclude receipts taxed under this section.

A “gain” caught for income tax under this section is not also caught for capital gains tax (section 551).

Section 100 Charge on sale of land with right to reconveyance

How is a sale of property subject to a right to repurchase taxed?

(1) Where a property is sold subject to a condition that it be repurchased by the seller, the excess of the sale price over the (future) resale price is charged under Case IV. If the date of reconveyance is two or more years after the sale, the gain is taxed as a deemed premium.

How is the resale price calculated where the resale date is undetermined?

(2) Where the resale price varies with an as yet unfixed resale date, the resale price is taken as the lowest possible price under the sale terms. If this results in an overcharge, the overpayment may, within the four year tax reclaim period, be repaid on the basis of the facts as they occurred.

Example

01.07.2008 You sell a property to X for €200,000 under an agreement which gives you an option to buy the property back for €160,000 after two years, or €170,000 after three years, or €180,000 after four years.

For the tax year 2008, you are taxable under Schedule D Case IV on:

Sale price 200,000
Less lowest resale price 160,000
Anticipated excess 40,000
Less reduction (earliest resale date 2 years)
P x (N – 1) x 2% = €40,000 x (2 – 1) x 2% 800
Taxable amount 2008 [P – 800] 39,200

01.09.2012 Assume you exercise your option to buy back the property (after 4 years). You can claim to have your 2008 assessment revised to:

Sale price 200,000
Less actual resale price 180,000
Actual excess 20,000
Less reduction (earliest resale date 2 years) €20,000 x (2 – 1) x 2% 400
Revised taxable amount 2008 19,600

How is a sale of a property subject to a right of lease back to the seller taxed?

(3) This rule applies where a property is sold subject to a condition that it be leased back to the seller or a person connected with the seller.

In such a case, the anticipated gain, i.e., the excess of the sale price over the reversion value of the lease (the capitalised value of the rents receivable under the lease together with the discounted future value of the right to re-enter the property at the end of the lease) is taxed under Case IV. A lease back that takes effect within one month of the sale is ignored.

The gain is taxed as if it were a premium (or additional premium). In other words, it is written down at 2% for each year (other than the first year) of the period between the date of completion of the sale and the earliest lease back date.

Should a land dealer include profits from a sale subject to right of repurchase?

(4) A land dealer, in computing his profits under Schedule D Case I (section 640), must exclude receipts taxed under this section.

A “gain” caught for income tax under this section is not also caught for capital gains tax (section 551).

Section 100A Appeals against determinations under sections 98 to 100

Must Revenue advise other affected parties of a determination under these sections?

(1) When other parties may be affected by a determination that an Inspector is about to make in relation to a person the Inspector must notify the other parties in writing of  the proposed determination and allow them 30 days to raise an objection and provide reasons for the objection.

Can the Inspector seek information about others who may be affected by a determination?

(2) The Inspector may require any person to provide, within 21 days of being notified in writing, information that would assist in deciding whether to issue notices under subsection (1).

When objections from other persons are received what must the Inspector do?

(3) He or she must consider the objections and then make whatever determination he or she deems appropriate. The determination must be sent to other persons likely to be affected by it.

If can affected person who did not receive a copy of a determination do?

(4) The person can request a copy of the determination from the Inspector.

Can a determination be appealed?

(5) Any person aggrieved by a determination can appeal it to the Appeal Commissioners within 30 days.

Can a person who has not received the determination join an appeal?

(6) An affected person who did not receive the determination can apply to the Appeal Commissioners to be joined as a party to an appeal.

Does a decision of the Appeal Commissioners apply to  all the persons affected?

(7) Yes. All persons to whom a notice was sent by the Inspector and all parties to the appeal are bound by the decision as also are their successors in title.

Can the Inspector divulge the grounds for a determination?

(8) Notwithstanding obligations as to confidentiality the Inspector can state the grounds for the determination in any notice under subsection (1).

Section 101 Relief for amount not received

Is unreceived rent taxable?

A property owner is taxed on profits from each rental property, whether the rent has been received or not.

A landlord is not charged on:

(a) irrecoverable rent unless, having been written off, it is subsequently recovered,

(b) rent waived to avoid hardship unless it is subsequently received.

Section 102 Deduction by reference to premium, etc paid in computation of profits for purposes of Schedule D, Cases I and II

Is a premium paid by a trader tax deductible?

(1) A trader who is a tenant is entitled to deduct a premium paid for his business premises. for tax purposes. The deduction is spread over the relevant period.

In the case of a straightforward premium (section 98), this is the term of the lease.

In the case of a deemed premium on the assignment of a lease at undervalue (section 99), this is the remaining length of the lease at the assignment date.

In the case of a deemed premium on property sold subject to reconveyance (section 100), this is the period from the date of sale until the agreed reconveyance date (or if that date is not fixed, the earliest date at which a reconveyance could take place).

How much of a premium is tax deductible?

(2) A trader gets a deduction for a premium is matched with the amount which the grantor of the premium is taxed under Case V. The deductible part of the premium is spread over the the relevant period.

Is the capital part of a premium deductible?

(3) A trader does not get a deduction for any element of capital expenditure (contained in the premium).

How much of a deemed premium is deductible?

(4) If the reconveyance (section 100) occurs at a price different than anticipated, resulting in tax overpaid, the spreading of the deduction over the relevant period is calculated by reference to the revised price.

Section 103 Deduction by reference to premiums, etc paid in computation of profits for purposes of this Chapter

Is a premium paid by a landlord tax deductible?

(1) A tenant who sublets is entitled to a deduction for the premium he has paid. The deduction is spread over the relevant period.

In the case of a straightforward premium (section 98), this is the term of the lease.

In the case of a deemed premium on the assignment of a lease at undervalue (section 99), this is the remaining length of the lease at the assignment date.

In the case of a deemed premium on property sold subject to reconveyance (section 100), this is the period from the date of sale until the agreed reconveyance date (or if that date is not fixed, the earliest date at which a reconveyance could take place).

How much of a premium is deductible?

(2) The deduction is matched with the amount on which the grantor of the premium is taxed under Case V. The deduction is spread over the relevant period.

Is a premium tax deductible to an intermediate landlord?

(3) An intermediate landlord who is chargeable on a premium (section 98) or deemed premium (section 99, section 100) may deduct the appropriate fraction of the amount chargeable on the superior landlord (the prior chargeable amount).

Where only part of the premises in the superior lease is sublet, the amounts are apportioned accordingly.

How much of a premium is tax deductible to an intermediate landlord?

(4) Only the unrelieved part of the prior chargeable amount qualifies for relief.

What is the appropriate fraction?

(5) The appropriate fraction of the prior chargeable amount is the fraction arrived at by dividing the length of the superior lease by the length of the sublease.

Is the capital part of a premium tax deductible?

(6) A tenant who sublets does not get a deduction for any element of capital expenditure contained in the premium.

Is a deemed premium tax deductible?

(7) If the reconveyance (section 100) occurs at a price different than anticipated, resulting in tax overpaid, the spreading of the deduction over the relevant period is calculated by reference to the revised price.

Section 104 Taxation of certain rents and other payments

How are rents from a quarry, mine, canal, dock, right of market or railway taxed?

(1)-(2) Rent (including tolls, duties, and royalties in the nature of rent) from a quarry, mine, canal, dock, right of market, or railway, it is taxed under Case IV as a “pure income” royalty-type payment.

The payer must deduct income tax from the payment. It also means the payment is not deductible as a trading cost or rental expense. Instead, it is allowed as a “charge”.

Note: See also section 111, which allows the owner of let mineral rights a deduction for management expenses.

Section 105 Taxation of rents: restriction in respect of certain rent and interest

Is pre-letting interest tax deductible?

(1)-(2) A landlord is not entitled to deduct rent or interest relating to a period before the premises is first occupied by the tenant (section 97).

Section 106 Tax treatment of receipts and outgoings on sale of premises

Is a seller taxed on post-sale rent?

(1) In general, rent in respect of a let property is payable, for example, quarterly in advance. This can create complications regarding receipts or expenditure when the property changes hands.

There will usually be a need to apportion receipts incurred before and after the completion date for the sale of the property. Pre-sale rents receivable will normally be apportioned to the vendor and post-sale rents receivable will normally be apportioned to the purchaser. Similarly, pre-sale expenditure will normally be apportioned to the vendor and post-sale expenditure will normally be apportioned to the purchaser.

This section clarifies who is taxable in respect of pre-sale (or post-sale) rents receivable. If a property is sold, and the vendor receives an advance payment of rents which are properly payable to the purchaser, the vendor might be technically chargeable to tax on that income. Similarly, where the vendor made a late payment of expenditure on the property, he might technically not be entitled to a deduction for the expenditure.

Normally, it may take several weeks before the sale is completed. During this period a trustee relationship exists between the vendor and the purchaser until the sale is complete. Any rent received in advance (as trustee) is attributable to the purchaser.

Example

01.01.2008 You agree to sell a property to X.

01.06.2008 Completion will take place.

You have already let the property to Y at a rent of €20,000 per annum, payable quarterly in advance on 1 January, 1 April, 1 July and 1 October. It is agreed that Y will remain in the property after the sale is finalised.

01.01.2008 You receive the €5,000 rent for the quarter 01.01.2008 – 31.03.2008, and are taxed on that amount.

31.03.2008 You receive the €5,000 rent for the quarter 01.04.2008 – 30.06.2008. You are taxed on the part of the €5,000 to which you are entitled, i.e., €3,333.

Although you have received a further €1,667, you are not entitled to that money as it belongs to X in respect of rent payable from 01.06.2008. You are regarded as holding the money in trust for X.

01.06.2008 X becomes entitled to the rent of €1,667 and is taxed on that amount.

Is a seller taxed on rents assigned to the purchaser?

(2) The seller is not taxed on rent attributable to the purchaser. You must make similar adjustments (see (1)) in respect of such receipts or outgoings.

Is a purchaser taxed on pre-purchase rent?

(3) The purchaser is regarded as not receiving any rent (or incurring any expenditure) that has been apportioned to the vendor.

Example

01.01.2008 You agree to sell a property to X.

01.06.2008 Completion will take place.

You have already let the property to Y at a rent of €20,000 per annum payable quarterly in arrears on 1 January, 1 April, 1 July and 1 October. It is agreed that Y will remain in the property after the sale is finalised.

01.04.2008 You receive the €5,000 rent for the quarter 01.01.2008- 31.03.2008 and are taxed on that amount.

01.07.2008 X receives the €5,000 rent for the quarter 01.04.2008 – 30.06.2008. You are taxed on the part of the €5,000 to which you are entitled, i.e., €1,667.

Although X has received a further €3,333, he is not entitled to that money as it belongs to you in respect of rent payable for 01.04.2008 – 31.05.2008. X is regarded as holding the money in trust for you.

01.06.2008 You become entitled to the rent of €1,667 and you are taxed on that amount.

Can a seller assign post-sale rent to another person?

(4) This is allowed and would usually happen where the executors or administrators of an estate assume contractual rights and obligations.

Section 106A Transfer of rent

Is the sale of a right to receive rent taxed?

(1) This is an anti-avoidance section.

It operates by taxing a relevant transaction, i.e., a scheme, arrangement or understanding under which the right to receive rent from a property is transferred, directly or indirectly, from one person to another person in return for a capital sum. In this regard, rent includes rent from a foreign property. A relevant transaction also includes the sale of the right to rent under a lease for a capital sum.

How is a sale of a right to receive rent taxed?

(2) A capital sum receivable under a relevant transaction (see (1)), is taxed under Case IV. The tax is payable in the tax year in which the entitlement arose, or if earlier, the tax year in which it is received.

This rule does not apply if the capital sum was received by a securitisation company as a result of a bona fide securitisation transaction (section 110).

Is the purchaser of a right to receive rent taxed on the rent?

(3) Except in the case of certain securitisation transactions (section 110), the purchaser of a stream of rental income is charged under Case V on the rental income as it is received.

Section 107 Apportionment of profits

Is it lawful to apportion profits to accounts periods?

(1) It is lawful to apportion profits to accounts periods.

How should profits be apportioned to accounts periods?

(2) On a time basis, i.e., in proportion to the number of months (or fractions of months) in the accounts period (seesection 66).

Section 108 Statement of profits

What must be declared on a statement of profits?

All income sources must be declared on a statement of profits.

Section 109 Payments in respect of redundancy

Is a redundancy payment tax deductible?

(1)-(2) Non-statutory lump sum redundancy payments are fully deductible and statutory redundancy payments are also deductible, but any rebate of such payments receivable from the Redundancy Fund is taxable.

Lump sum and rebate take their meanings from the Redundancy Payments Act 1967.

A redundancy payment made after trading has ceased is treated as paid on the date of cessation.

Is a redundancy payment tax deductible to an investment company?

(3) An investment company is also entitled to a deduction for redundancy payments as part of its management expenses.

Is a redundancy payment tax deductible to a landlord?

(4) A property landlord (section 97) is also entitled to a deduction for redundancy payments.

Can a redundancy payment be claimed twice?

(5) If there is are two activities, there is no double deduction for the same redundancy payment. In such case, the redundancy payment is apportioned between the various trades or activities.

Is statutory redundancy tax deductible?

(6) Where an employer fails to make a redundancy payment, the payment may be made by the Department of Enterprise and Employment (Redundancy Payments Act 1967 section 32).

Such a payment is not deductible unless it is reimbursed to the Department of Enterprise and Employment.

Section 110 [Securitisation]

What is securitisation?

Securitisation is the process whereby a special purposes company (a securitisation company) buys a block of loans (a loan book) from a lending institution. The securitisation company receives the capital and interest repayments on the loans and is responsible for collection of outstanding repayments, informing borrowers of increases/decreases in interest rates and court action where necessary. The securitisation company may appoint the bank (from whom the loan book has been purchased) to carry out these activities and pay appropriate fees for such services.

The securitisation company’s income will consist of the difference between the interest it receives from the loans and the interest it pays on its own borrowings. In the absence of legislation, the company would be taxable on the interest received but would not be entitled to a deduction for the interest payable, as the company would not be regarded as carrying on a trade.

What is a securitisation company?

(1) This section provides special tax treatment for securitisation transactions, i.e., financial transactions carried on by a securitisation company (qualifying company), i.e., one that meets the following conditions:

(a) It is resident in the State.

(b) It acquires qualifying assets, is contracted to manage qualifying assets, or has entered a legally binding contract which is itself a qualifying asset.

(c) It carries on a business of holding, managing, or holding and managing, qualifying assets.

(d) It carries on no other activities apart from activities ancillary to the management of qualifying assets.

(e) The market value of assets under its management is not less than €10m.

(f) It has notified the Revenue authorised officer on the appropriate form, on or before the due date for the company’s self-assessment return for the first accounting period in which it is a qualifying company, that it meets the conditions in (a)-(e).

A company does not qualify if it enters into any non-arm’s length transactions, unless such a transaction is allowed by (4) and is not disallowed by (5).

A qualifying asset is an asset which consists of, or of an interest in, a financial asset:

(a) shares, bonds etc,

(b) futures, options, swaps and similar instruments,

(c) invoices and receivable,

(d) debt instruments,

(e) leases and loan and lease portfolios,

(f) hire purchase contracts,

(g) acceptance credits and documents of title relating to movement of goods,

(h) bills of exchange, commercial paper, promissory notes,

(i) greenhouse gas emissions allowance, and

(j) contracts for insurance and contracts for reinsurance,

(k) carbon offsets,

(l) contracts for insurance and reinsurance.

How are securitisation profits taxed?

(2) In general, securitisation profits are chargeable under Case III, but are computed using Case I rules.

A securitisation company is entitled to deduct irrecoverable bad debts.

Recovered bad debts are treated as income.

Are securitisation losses deductible?

(3) A securitisation company cannot surrender a loss for corporation tax purposes.

It can carry forward unused losses for set-off against against future profits.

The set-off claim is made when the self-assessment return for the subsequent period is being filed.

A loss is computed on the same basis as profits are computed.

Is “section 130” interest deductible to a securitisation company?

(4) This rule applies to interest paid by a securitisation company in respect of a “section 130” loan, i.e., interest on securities that:

(a) depend on the results of the company’s business (in which case all of the interest is a distribution), and

(b) are at more than a reasonable commercial rate (in which case only the excess of the interest over a reasonable commercial return is a distribution).

In general, such interest is not deductible because it is treated as a distribution of profits.

However, such interest will not be treated as a distribution, i.e. it is tax-deductible, except in the circumstances mentioned in (5).

Is interest payable to a non-resident deductible to a securitisation company?

(4A) Subs (4) gives a securitisation company a tax deduction for “section 130” interest. This qualifies subs (4) in the case of a person other than:

(i) an Irish resident person (or non-Irish resident person who is chargeable to tax on the distribution), or

(ii) a pension fund, government body or other person resident in a treaty country who is exempt from tax under the laws of that country.

In such cases, subs (4) will only apply to the extent that the recipient is subject to tax in its country or residence, or subject to Irish withholding tax on the interest.

However, interest is not deductible if the recipient is a specified person, i.e., a connected company or a person who provided the qualifying assets with agreements or loans in place representing 75% or more of the securitisation company’s qualifying assets.

Is interest dependent on the results of the payer deductible?

(4B) Interest dependent on the results of the payer is not deductible.

When is “section 130” interest not deductible to a securitisation company?

(5) The disapplication of the treatment of interest as a distribution (see (4)) is itself disapplied, in other words the interest is treated as a distribution if it is paid, as part of a tax avoidance scheme.

Can a securitisation company base its taxable income on IFRS profits?

(6) A securitisation company can opt for IFRS treatment. This means that its profits continue to be treated on a tax neutral basis unless it opts for IFRS.

Section 111 Allowance to owner of let mineral rights for expenses of management of minerals

Are management expenses deductible to an owner or lessor of mineral rights?

(1) An owner or lessor of mineral rights gets a deduction by repayment of the income tax suffered on rent or royalties received from the letting.

To obtain the repayment the owner must prove tax has been paid on the rent or royalties. He is not entitled to a deduction under this section for any part of the management expenses which is deductible from income under any other section.

The equivalent corporation tax provision is section 77(4).

See also section 104 which taxes income from mineral rights under Case IV.

How does an owner or lessor of mineral rights deduct management expenses?

(2) An owner of mineral rights must make a claim within 24 months after the end of the tax year to which the claim relates.

Can a refusal of a claim by the Inspector be appealed?

(3) If the inspector refuses the claim, there is a right of appeal to the Appeal Commissioners. The appeal must be made within 30 days of the notice of the decision.

Section 112 Basis of assessment, persons chargeable and extent of charge

What is employment income?

(1) An employee or office-holder is charged to tax under Schedule E (section 19) on the full amount of emoluments(i.e., salaries, fees, wages and perquisites, etc.) earned in the tax year.

Emoluments include:

(a) Bonuses: Denny v Reed, (1933) 18 TC 254; Heasman v Jordan, (1954) 33 TC 518; Radcliffe v Holt, (1927) 11 TC 621; Weston v Hearn, (1943) 25 TC 425.

(b) Commission: Parker v Chapman, (1927) 13 TC 677; Mudd v Collins, (1925) 9 TC 297; Shipway v Skidmore, (1932) 16 TC 748.

(c) Compensation awarded by the Employment Appeals Tribunal to a reinstated employee for lost earnings while absent (Revenue Precedent IT97-1521, 8 May 1997).

(d) Perquisites (“perks”). A perquisite is a benefit that is capable of being converted to money: Tennant v Smith, (1892) 3 TC 158. In that case, a bank manager was not assessable on the value of accommodation provided, as he was required to live on the premises and was not free to let it to anyone else (i.e., to convert the value he had received to money).

The employee is taxed on the market value of the benefit received: Wilkins v Rogerson, (1961) 39 TC 344. In that case, the employee received a £15 voucher to buy clothes. The tailor then invoiced the employer directly. The employee was assessed, not on the cost of the suit to the employer, but on the amount he could obtain by selling the suit second-hand.

If you are given free shares, or shares on preferential terms, you are taxed on the benefit received i.e., the difference between the shares’ market value and the amount you paid for them: Weight v Salmon, (1935) 19 TC 174; Ede v Wilson and Ede v Cornwall, (1945) 26 TC 381; Patrick v Burrows, (1954) 35 TC 138; Tyrer v Smart, [1979] STC 34.

The shares must arise directly from your employment: Bridges v Bearsley, (1957) 37 TC 289. In that case it was held that a transfer of shares by a shareholder was a gift based on the personal regard of the donor and not part of the employee’s emoluments.

The Appeal Commissioners have held that shares given to an employee under an approved profit sharing scheme (section 510) must be treated as emoluments in the SCSB calculation (Schedule 3): 9 AC 2000.

(e) Domestic expenses (gas, rates, electricity) paid by a company on your behalf. See Nicoll v Austin, (1935) 19 TC 51. Such expense payments are now taxed under sections 117118.

(f) Presents (from your employer): Wright v Boyce, (1958) 38 TC 160.

(g) Proceeds of a sportsman’s “benefit” (testimonial) match: Moorhouse v Dooland, (1954) 36 TC 1; Davis vHarrison, (1927) 11 TC 707; Corbett v Duff, (1941) 23 TC 763, but see Reed v Seymour, (1927) 11 TC 625. See “Emoluments therefrom” below.

(h) Interest paid to an Irish-domiciled employee from deposit in Jersey: O’Leary v McKinlay, [1991] STC 42.

(i) Market value of payment in gold sovereigns: Jenkins v Horn, [1979] STC 446.

(j) Return of premium for articles: Miles v Morrow, (1940) 23 TC 465.

(k) Earnings assigned by a teaching nun to her order: Dolan v K, 1 ITR 656. See also Parkins v Warwick, (1943) 25 TC 419.

(l) Earnings of an undischarged bankrupt: Hibbert v Fysh, (1962) 40 TC 305.

(m) Sick pay (Inspector Manual 5.5.1).

(n) Long service awards. An award consisting of a tangible article of reasonable cost (e.g., a watch) is not taxed provided: the cost to the employer does not exceed €50 for each year of service, the award is in respect of a period of service of not less than 20 years, and no similar award has been made to you within the previous five years. This concession also applies to if you are a director but does not apply to awards made in cash or in the form of vouchers, bonds etc. (Inspector Manual 5.1.4; Tax Briefing 48, March 2002).

(o) An asset transferred to the employee at less than market value. (Inspector Manual 5.1.10).

(p) Luncheon vouchers. (Inspector Manual 5.1.11).

Emoluments do not include:

(a) Prizes unconnected with your employment: Moore v Griffiths, (1972) 48 TC 338, Ball v Johnson, (1971) 47 TC 155.

(b) Gifts: O’Reilly v Casey, (1942) 1 ITR 601. In that case, the taxpayer was held not assessable on a 10% annuity payable from his grandfather’s estate on condition that he manage the estate properties.

(c) Gambling profits: Down v Compston, (1937) 21 TC 60.

(d) A gross pension partly commuted: Cook v Burton, (1957) 37 TC 478.

(e) “Ex gratia” payment made by a company (in liquidation) other than the employing company: McGarry v EF, 2 ITR 261.

(f) Sponsorship payments: Walters v Tickner, [1993] STC 624.

(g) Payments for loss of rights under share option scheme: Wilcock v Eve, [1995] STC 18.

(h) Pensions paid for the benefit of a child of a deceased Garda. These are regarded as the beneficial property of the child and not the widow: O’Coindealbháin v O’Carroll, (1988) 4 ITR 221. But see Ó’Síocháin v Neenan, SC, May 1998, where the court held that contributory children’s pensions payable in conjunction with other entitlements of a Garda widow are taxable.

(i) Pension commutation payment (in the form of a marriage gratuity): O’Síocháin v Morrissey, (1992) 4 ITR 407.

(j) Staff suggestion scheme awards. This is provided the amount of the award is reasonable in relation to the value of the suggestion made, and it is not part of your ordinary duties to make such suggestions. (Tax Briefing 32, June 1998).

(k) Examination awards. (Tax Briefing 39, March 2000).

To be taxable, the benefit must derive from your status as an employee. It must be “in the nature of a reward for services, past, present, or future”: Hochstrasser v Mayes, (1960) 38 TC 673. In that case, ICI, the employer, operated a scheme for employees who were transferred. If the employee sold his house at a loss, the employer would cover the loss. Therefore, not all employees obtained the benefit. It was held that the payment was not caused by the employment. It was caused by the employee selling his house. To be taxable, the employment must be the primary (direct) cause of the payment.

In Laidler v Perry, (1966) 42 TC 351, it was held that a £10 voucher given to each employee at Christmas, in lieu of the turkey the employee had received in previous years, was taxable, as it arose directly from the employment. See alsoBrumby v Milner, [1976] STC 534.

Emoluments “therefrom” include:

(a) Compensation for the cancellation of your employment contract: see Termination Payments below.

(b) Compensation for giving up future salary: Prendergast v Cameron, (1940) 23 TC 122; Leeland v Boarland, (1945) 27 TC 71; Wilson v Nicholson Sons and Daniels Ltd; Wilson v Daniels, (1943) 25 TC 473; Edwards v Roberts, (1935) 19 TC 618.

(c) Compensation for giving up future pension rights: Wales v Tilley, (1943) 25 TC 136.

(d) Compensation for the surrender of contractual rights: Bolam v Muller, (1947) 28 TC 471; Holland v Geoghegan, (1972) 48 TC 482. See also Hamblett v Godfrey, [1987] STC 60, 59 TC 694. In that case, it was held that a £1,000 payment to an employee at the UK Government Communications Headquarters (GCHQ), in return for giving up the right to join a trade union, was taxable. The taxpayer argued that the payment could not derive from the employment, as she had never joined the trade union. It was a once off bounty payment for giving up a civil right. The court held that the payment was taxable as the right would not have existed if the employment did not exist.

(e) Payment in lieu of six months’ notice required under the employment contract: EMI Group Electronics Ltd v Coldicott, [1999] STC 803.

(f) A recruitment award payable to an employee in return for introducing a potential employee (Revenue PrecedentIT97-1537, 3 July 1997).

In Shilton v Wilmhurst, [1991] STC 88, Peter Shilton, who was transferred from Nottingham Forest to Southampton, received £75,000 from his old club (Nottingham Forest) after he had ceased to be employed by the club. The House of Lords held that the payment was taxable as it derived from his new employment with Southampton, although it had been paid by his former club. The payment was an reward for future services, i.e., an inducement payment from Southampton.

In Mairs v Haughey, [1993] STC 569, it was held that an ex-gratia payment made in return for giving up the right to a non-statutory redundancy payment did not derive “from” the employment and was not taxable.

Inducement payments

Although a payment for future services is taxable as emoluments, a payment to you from your prospective employer to give up an existing right (i.e., an inducement payment) is not: Jarrold v Boustead, (1964) 41 TC 701. In that case, a “signing on fee” paid to an amateur rugby player in return for permanently giving up his amateur status was held not to be an emolument. See also Riley v Coglan, (1967) 44 TC 481.

In Pritchard v Arundale, (1971) 47 TC 680, a chartered accountant received 4,000 shares in a company from another shareholder to encourage him to become managing director of the company. In return, the accountant gave up his private practice as an accountant. The receipt of the shares was held not to be an emolument. This was because the shares were not received from his prospective employer, but from another shareholder. In addition, as his prospective remuneration was reasonable there was no suggestion that the shares were a form of disguised remuneration. See also Vaughan Neil v IRC, [1979] STC 644.

In Glantre Engineering Ltd v Goodhand, [1983] STC 1, a chartered accountant received an inducement payment in return for moving from one Schedule E employment to another. The payment was held to be taxable, as he was not permanently giving up anything for which compensation was payable.

If during the course of your employment, you give up a right attaching to your employment status, any payment received for giving up the right is taxable. In McGregor v Randall, [1984] STC 223, an employee received compensation for giving up the right to receive commission. The payment was held to be taxable, as an advance payment for future services. (Contrast Hamblett v Godfrey above).

If the payment compensates you for giving up a right after your employment ceases (for example a lump sum for commuting a right to a pension), the payment is not taxable: Hunter v Dewhurst, (1932) 16 TC 605.

Revenue view on inducement payments (Tax Briefing 32, June 1998)

Following the decision in Hochstrasser v Mayes, (1960) 38 TC 673, arguments have been made, that inducement payments are not payments arising from an office or employment. There may be a perception that payments made to individuals as an inducement to take up employment may be exempt from income tax. It is Revenue’s view that any payment made to an individual as an inducement to take up employment is liable to income tax and PAYE must be deducted at the time of payment, i.e., generally when the offer is made and accepted.

In support of this view Revenue cite the decisions in:

(a) Hamblett v Godfrey, [1987] STC 60, (see above) where Neil L J stated “…the source of the payment was the employment. It was paid because of the employment and because of the changes in the conditions of the employment and for no other reason. It was referable to the employment and to nothing else. Accordingly, in my judgement, the £1,000 was a taxable emolument.”

(b) Glantre Engineering Ltd v Goodhand, [1983] STC 1, (see above) where Warner J stated “the payment … was … an added inducement to him to change his job and enter the full time employment of the company … an emolument from that employment within the meaning of Schedule E.”

(c) Shilton v Wilmshurst, [1991] STC 88, (see above) where Lord Templeman stated “The taxpayer accepted the emolument of £75,000 in return for agreeing to act as or become an employee of Southampton just as he accepted £80,000 from Southampton for the same reason.” Emoluments “from employment” meant “from being or becoming an employee”.

This Revenue view was confirmed in O’Connell v Keleghan, SC 16 May 2001, and the decision in Shilton v Wilmhurst was approved

Termination payments

Emoluments include compensation payments for the early cancellation of an employment contract: Du Cros v Ryall, (1935) 19 TC 444; Henry v Foster, (1932) 16 TC 605; Hofman v Wadman, (1946) 27 TC 192; Henley v Murray, (1950) 31 TC 35; Dale v de Soissons, (1950) 32 TC 126; Williams v Simmonds, [1981] STC 715; Horner v Hasted, [1995] STC 766. Termination payments are now taxed under section 123, but part of the payment may be exempt (section 201).

Emoluments also include:

(a) Payments in lieu of notice: in Delaney v Staples, [1992] 1 All ER 944.

(b) “Redundancy” payments to continuing employees: Allan v IRC, [1994] STC 943, Cullen v IRC, [1994] STC 943.

Payments from third parties (gifts and voluntary payments)

To be taxable, it is not necessary that the emolument be paid by your employer: Calvert v Wainwright, (1947) 27 TC 475. In that case, taxi tips received by a taxi driver from customers were held to be taxable. Although they were not paid by the employer they derived from the employment. The court stated that a special gratuity paid, for example at Christmas to the driver in his personal capacity, might be regarded as being in the nature of a gift.

This decision may be contrasted with the decision in Blakiston v Cooper, (1908) 5 TC 307. In that case, a vicar’s parishioners made a special collection for him at Easter. The vicar was held chargeable on the “Easter offerings” as they were paid to him in his capacity as vicar (not in his personal capacity).

For cases on clergymen’s income, see Re Strong (1878) 1 TC 207; Slaney v Starkey, (1931) 16 TC 45; Turner v Cuxson (1888) 2 TC 422; Herbert (Rev G N) v McQuade, (1902) 4 TC 489; Poynting v Faulkner, (1905) 5 TC 145;Turton v Cooper, (1905) 5 TC 138; Daly v IRC, (1934) 18 TC 641; Reed v Cattermole, (1937) 21 TC 35; IRC v Leckie, (1940) 23 TC 471; Reade v Brearley, (1933) 17 TC 687.

What are emoluments?

(2) In the absence of legislation, it might be possible to argue that emoluments arising before an employment began (or after an employment ceased) are not taxable because they are earned in a tax year in which the employment was not held. In other words, there is no “source” (i.e., the employment itself) of Schedule E income.

Where such emoluments (“joining fees”, etc.) arise before the employment begins, they are taxed in the first tax year in which the employment is held.

Where such emoluments arise after the employment ends (“golden handshakes”), they are taxed in the last tax year in which the employment was held.

This subsection reverses the effect of decision in Bray v Best, [1989] STC 159.

Tax on emoluments is computed on earnings and not on a receipts basis: MacKeown v Roe, 1927 1 ITR 214, [1928] IR 195; see also Bedford v Hannon, 2 ITR 588; Griffin v Standish, [1995] STC 825.

Section 112A Taxation of certain perquisites

What is an authorised insurer?

(1) A taxpayer is entitled to a tax credit equivalent to the appropriate percentage of an insurance premium paid to anauthorised insurer under a health insurance contract (relevant contract) in the tax year.

If the contract provides for reimbursement of amounts referred to under the contract, the relievable amount means the full amount paid. Otherwise the relievable amount means the part of the payment referable to such reimbursement.

A qualifying insurer is one authorised to carry on life assurance business in Ireland, the EU or the European Economic Area (EEA).

A qualifying long-term care policy is a Revenue-approved policy that provides the reimbursement of an individual’s long-term health care costs.

Is health insurance paid by an employer taxed?

(2) A premium paid to an authorised insurer (section 470) is tax-relieved at source. The insurance company reduces the premium by the standard rate.

If the employer pays the premium, the payment is not treated as tax-relieved at source.

The employer is treated as having paid the gross premium, and the employee is subject to BIK on the gross premium.

Example

An employer pays €960 health insurance on behalf of an employee. This has been tax-relieved at source. Had it not been so relieved, the amount payable would be €1,200. This is because €1,200 less 20% standard rate income tax gives €960.

The employee BIK is €1,200.

Is a premium that qualifies for age-related credit treated differently?

(2A) If an employer pays a premium that qualifies for the age-related credit, the perquisite to the employee is increased by the amount of the credit.

How is health insurance paid by an employer taxed?

(3) An employee is subject to BIK on the gross amount of a premium paid by the employer.

The employer pays standard rate tax on the amount deductible from the payment, and the amount so withheld is deductible when calculating the employee’s tax liability.

Example

Continuing with the Example to (2):

The employer has paid only €960 to the insurance company.

The employer is liable to pay €240 in tax on or before its preliminary tax due date.

The employer has therefore paid out €1,200 in total.

The employer is entitled to a tax deduction for the €1,200 (comprised of €960 paid to the insurance company and €240 paid to Revenue).

Does an employee get credit for tax deducted at source?

(4) The rules relating to annual payments (payment of tax, assessments etc) apply to the amount withheld by the employer in respect of the premium paid on your behalf.

Section 112B Granting of vouchers Commentary

What vouchers are exempt from tax?

(1)-(2) Vouchers given by employers to employees are exempt from tax provided they are not part of a salary sacrifice arrangement, can only be used to purchase goods and services and cannot be redeemed in full or part for cash and do not exceed €500 in value. Only one tax exempt voucher can be given in a tax year.

Section 113 Making of deductions

Are deductions allowed against emoluments?

(1)-(2) An employee may be entitled to certain deductions from emoluments. Any such deductions are given in respect of expenses paid or borne for the tax year in which the emoluments arise.

Flat rate Schedule E expense deductions: Tax Briefing Supplement, July 2005.

In Mallalieu v Drummond, [1983] STC 665, the UK House of Lords decided that expenditure on special work clothing is non-deductible as it is not incurred wholly and exclusively for the purposes of the business, because the clothing also provides warmth and decency. This decision casts into doubt the validity of the extra-statutory concession granted to Schedule E employees for upkeep of uniforms and protective clothing.

Section 114 General rule as to deductions

What deductions can be claimed against employment income?

An employee is entitled to deduct any expenses incurred wholly, exclusively, and necessarily in the performance of the duties of the employment.

This rule is stricter than the rule which applies to self-employed expenses. In such cases, the expenditure need only be incurred “wholly and exclusively” for the purposes of the trade or profession (section 81(2)(a)).

The addition of the words “necessarily” and “in the performance of” exclude much expenditure that at first glance might appear to be deductible.

Necessarily

In Ricketts v Colquhoun, (1925) 10 TC 118, a barrister who practised in London was appointed to a part-time post in Portsmouth. The income from the part-time office of recorder was chargeable under Schedule E. The barrister was refused a deduction for travelling expenses between London and Portsmouth, on the basis that the office itself (the post of part-time recorder) did not require its holder to travel between London and Portsmouth. The travelling expenses were not necessarily incurred as they were personal to the barrister. “The test is not whether the employer imposes the expense, but … whether the duties do”. For travelling expenses to be deductible, travelling must be an inherent part of the job.

In Pook v Owen, (1967) 45 TC 571, a hospital consultant claimed the cost of travelling between his home and the hospital. He was frequently called at night and required to travel immediately to the hospital. The Court of Appeal ruled against the taxpayer on the basis that the travelling expenses were self-imposed, arising from the taxpayers’ decision to reside some distance from the hospital.

The House of Lords held that he was allowed to deduct the cost of travelling, as it was the duties and not his personal situation which imposed the travelling cost. His duties began as soon as he received the phone call because he would then give initial instructions to the hospital staff on what to do until he arrived. Therefore his travelling costs were incurred in the performance of his duties. It is arguable that an employee who is required by his employment contract to obey an emergency summons to work may deduct the cost of travelling to work in response to such a summons.

As regards travelling expenses, see also Cook v Knott (1887) 2 TC 246; Revell v Directors of Elworthy Bros and Co Ltd(1890) 3 TC 12; Burton v Rednall, (1954) 35 TC 435; Phillips v Keane, 1 ITR 64, [1925] 2 IR 48; McLeish v IRC, (1958) 38 TC 1; Phillips v Emery, (1945) 27 TC 90; Bhadra v Ellam, [1988] STC 239; Parikh v Sleeman, [1990] STC 233;Miners v Atkinson [1997] STC 58. See note to section 115 for official mileage rates.

In Taylor v Provan, (1974) 49 TC 574, a Canadian expert at merging brewery companies was made a director of a UK brewery company to carry out a special merging assignment. The company did not pay him a salary but reimbursed his travelling expenses to attend meetings etc. The UK Revenue asserted that the expenses were taxable as emoluments of his office and that the expenses were not necessarily incurred in performing the duties of director. The House of Lords agreed that the expenses were taxable as emoluments of the office, but they were deductible. The expenses were a necessary feature of the specially created post. Only the taxpayer could fill that post. As the post was unique, any income arising should have been chargeable under Schedule D Case II: see Edwards v Clinch, [1981] STC 617. In that case, it was held that a civil engineer who occasionally acted as an inspector in Department of the Environment local public enquiries was not an “officer” as there was no “office” which existed independently of its holder. He was self-employed. The mere fact that he was a director brought the expenses within the Schedule E charge.

In Brown v Bullock, (1961) 40 TC 1 a bank manager was required by his employer to join a London club with a view to attracting customers. His claim for a deduction for the cost of joining the club was denied on the basis that it was not necessarily incurred. Every bank manager is not obliged to join a club to attract customers.

In the performance

In Elderkin v Hindmarsh, (1988) 60 TC 651, a taxpayer who was required to travel throughout the UK inspecting pipes was denied a deduction for overnight hotel expenses, on the basis that the expenditure was not incurred “in the performance” of his duties. He was not inspecting pipes while sleeping in his hotel bedroom.

In Smith v Abbott and others, [1994] STC 237, several journalists claimed they were entitled to deduct the cost of other newspapers. Relief was refused on the grounds that the journalists did not read the newspapers while performing their duties (i.e., writing); they read them while preparing to do their duties.

Section 115 Fixed deduction for certain classes of persons

Are travelling and subsistence expenses tax deductible?

Public-sector employees are given tax-free expense allowances in respect of expenses (travel, subsistence) incurred on behalf of the employer.

The expense allowances are agreed with trade unions each year. The allowances apply, for example, where a private car is used for official duties.

Private sector employees are entitled to claim equivalent allowances.

Section 116 Interpretation (Chapter 3)

What definitions apply in relation to benefit in kind (BIK)?

(1) A director means any person who manages the affairs of a body corporate and includes any person who, while not formally appointed, effectively runs the body.

An employment means an employment, the emoluments of which are assessable under Schedule E.

An employee includes any person who takes part in the management of the affairs of a body corporate and who is not a director and includes the holder of an office.

A person controls a body corporate if either through holding shares or through special voting powers he can ensure that the body’s affairs are conducted in accordance with his wishes.

A body corporate’s business premises includes all of its trade premises as well as any part of a premises owned by the company which is used as living accommodation by a director or employee of the body.

Can BIK be avoided by providing the benefit to a relative?

(2) A BIK provided to a director or employee includes a BIK provided to the employee’s spouse/civil partner, family, dependants, servants or guests.

Who is liable to BIK?

(3) An employee earning €1,905 or more per annum is subject to tax on any BIK (or expenses payment (section 117)) received.

The corollary is that a person with employment income below €1,905 should not be subject to BIK on benefits.

Example

Mr Q is employed on a salary of €1,000 p.a.

He has the use of a company jet.

The benefit of use of the jet is not subject to BIK.

He has the use of a company house.

The benefit of use of the house is not subject to BIK.

Are employees of a subsidiary deemed to be employees of the parent?

(4) For BIK purposes, an employee of a subsidiary is treated as an employee of the parent.

Section 117 Expenses allowances

Are expense allowances taxable?

(1) To prevent remuneration being disguised as expenses, all expenses are taxed as emoluments. Expenses incurred wholly, exclusively, and necessarily (section 114) in the performance of the duties can be deducted.

Allowable expenses include:

(a) Reasonable subsistence: Nolder v Walters, (1930) 15 TC 380.

(b) Club subscriptions in lieu of hotels: Elwood v Utitz, (1965) 42 TC 482) but not otherwise: Brown v Bullock, (1961) 40 TC 1.

(c) Use of a room at home: Newlin v Woods, (1966) 42 TC 649. But see Hamerton v Overy, (1954) 35 TC 73 andRoskams v Bennett, (1950) 32 TC 129.

(d) The business proportion of car running expenses: Perrons v Spackman, [1981] STC 731. See section 115.

(e) Expense of membership of the European Parliament: Rt Hon Lord Bruce of Donnington v Aspden, [1981] STC 761.

Expenses not allowable include:

(a) Cost of meals: Sanderson v Durbidge, (1955) 36 TC 239.

(b) Non-working clothes: Woodcock v IRC, [1977] STC 405, Ward v Dunn, [1979] STC 178.

(c) Board and lodgings: Cordy v Gordon, (1925) 9 TC 304, Machon v McLoughlin, (1926) 11 TC 83.

(d) Costs of running a motor cycle: Andrews v Astley, (1924) 8 TC 589.

(e) Car expenses in excess of allowance: Marsden v IRC, (1965) 42 TC 326.

(f) Cost of bringing spouse on a business trip: Maclean v Trembath, (1956) 36 TC 653.

(g) Benefit in kind tax on salesman’s car: Clark v Bye, [1997] STC 311.

(h) Cost of a voluntary overseas trip: Thomson v White, (1966) 43 TC 256; Owen v Burden, (1971) 47 TC 476.

(i) Increase in the cost of living: Bolam v Barlow, (1949) 31 TC 136; Collis v Hore (No 1), (1949) 31 TC 173.

(i) Mess expenses: Lomax v Newton, (1953) 34 TC 558; Griffiths v Mockler, (1953) 35 TC 135). See also Kelly v H, 2 ITR 460.

(k) Use of home telephone: Lucas v Cattell, (1972) 48 TC 353.

(l) Housekeeper while wife working: Bowers v Harding (1891) 3 TC 22.

(m) Childminder: Halstead v Condon, (1970) 46 TC 289.

(n) Evening classes: Blackwell v Mills, (1945) 26 TC 468.

(o) Lecture fees: Humbles v Brooks, (1962) 40 TC 500.

(p) Examination fees: Lupton v Potts, (1969) 45 TC 643.

(q) Legal costs: Eagles v Levy, (1934) 19 TC 23.

(r) Agency fees: Shortt v McIlgorm, (1945) 26 TC 262.

(s) Unevidenced travel expenses: Smith v Fox, [1989] STC 378; MacDaibhéid v Carroll, (1978) 3 ITR 1.

(t) Interest on money borrowed to buy an office: Baird v Williams, [1999] STC 635.

(u) Expenses payments by local government engineers which were not incurred during the course of the employments: O’Broin v MacGiolla Meidhre and Pigott, 2 ITR 366.

See also Rendell v Went, (1964) 41 TC 641.

Employee removal/relocation expenses (Statement of Practice SP IT/1/91; 5.2.2).

Are expense accounts taxable?

(2) A sum put at the disposal of an employee and “paid away” by the employee is treated as a perquisite.

Section 118 Benefits in kind: general charging provision

What is a benefit in kind (BIK)?

(1) Emoluments (section 112) includes cash-convertible benefits, fees, commissions, perquisites (“perks”), expenses payments, for example, vouchers, holidays, payment of life insurance, medical insurance, bonus bonds, prizes etc.

A benefit in kind (BIK) (sections 116122A) is a non-cash benefit, i.e., a benefit paid “in kind” (other than in cash) for example, a car, van or accommodation.

Such benefits are subject to tax if not:

(a) already taxed as a perquisite, and

(b) repaid by the employee.

Benefits taxed include:

(a) The value of rent free accommodation: Stones v Hall, [1989] STC 138. Cases on earlier legislation regarding employees’ accommodation: Bent v Roberts (1877) 1 TC 199; Tennant v Smith (1892) 3 TC 158; Gray v Holmes, (1949) 30 TC 647; Nicoll v Austin, (1935) 19 TC 531; Langley and others v Appleby, [1976] STC 368; McKie v Warner, (1961) 40 TC 65. In Templeton v Jacobs, [1996] STC 991, it was held that a benefit (loft conversion) paid employment started but provided afterwards was taxable. See now section 119(4).

Repairs to the accommodation are usually included: Doyle v Davison, (1961) 40 TC 140. But see IRC v Luke, (1963) 40 TC 630 and Butter v Bennett, (1962) 40 TC 402.

(b) Rent paid by your employer for your accommodation: Connolly v McNamara, 2 ITR 452.

(c) Garage allowance paid for storing company property: Beecham Group Ltd v Fair, [1984] STC 15.

(d) School fees paid by your employer in respect of your child: Glynn v Hong Kong CIR, [1990] STC 227.

(e) A loan to a non-resident employee benefit trust: O’Leary v McKinley, [1991] STC 42.

(f) Provident contributions: Bell v Gribble, (1903) 4 TC 522, Smyth v Stretton, (1904) 5 TC 36.

(g) Insurance premiums: Richardson v Lyon, (1943) 25 TC 497.

(h) Encashable car benefit: Heaton v Bell, (1969) 46 TC 211.

(i) Clothing allowances: Fergusson v Noble, (1919) 7 TC 176.

(j) Meals allowances: Sanderson v Dunbridge, (1955) 36 TC 239.

(k) Tax paid by your employer on your behalf: North British Railway Co v Scott, (1922) 8 TC 332; Hartland v Diggines, (1926) 10 TC 247.

(l) Lodging allowance: Nagley v Spilsbury, Evans v Richardson, (1957) 37 TC 178.

(m) Overseas allowances: Robinson v Corry, (1933) 18 TC 411; Barson v Airey, (1925) 10 TC 609.

(n) Temporary pensions: Esslemont v Estill, [1980] STC 387.

(o) Attendance allowances: Dingley v McNulty, (1937) 21 TC 152.

(p) Loan waivers: Clayton v Gothorp, (1971) 47 TC 168.

(q) Compensation for withdrawal of a company car: Bird v Martland; Bird v Allen, [1982] STC 603.

(r) Preferential university fees for children of full-time university staff, free medical services, recreational services, uniforms, but not free transport provided where you are are required to work late and do not have your own transport (Inspector Manual 5.3.8).

In Pepper v Hart, [1992] STC 898, the UK House of Lords held that a BIK consisting of reduced fees for children of schoolteachers was taxable on the basis of marginal cost (not full cost). The judges accepted that statements made in parliament, recorded in Hansard, could be helpful in interpreting the intent of the legislation. In Crilly v T & J Farrington, HC, 21 December 1999, a non tax case, the judge accepted that the court could consider parliamentary materials as an aid to statutory interpretation.

Is accommodation taxed as BIK?

(2) Accommodation provided in an employer’s premises is not taxed if such accommodation is provided and used only in the performance of the employee’s duties.

Is compulsory accommodation taxed as BIK?

(3) BIK does not apply where the employee must live on the premises to perform his duties. This exemption only applies:

(a) In the case of accommodation provided under what was the prevailing practice before 30 July 1948. This means that a bank manager provided with accommodation on the bank’s premises is not liable to BIK.

(b) Where it is necessary for the type of trade in question that the employee should reside on the premises.

In Butter v Bennett, (1962) 40 TC 402, it was held that this exemption did not apply to payment by a company of coal, electricity and garden maintenance expenses.

In Vertigan v Brady, [1988] STC 91, it was held in relation to a nursery foreman that it was neither necessary for performance of his duties nor the custom of the trade to provide him with living accommodation.

Are staff meals taxed as BIK?

(4) Staff canteen meals that are provided for all staff are not subject to BIK.

Example

Family company employs husband, wife, son, daughter.

Meals are provided free of charge in the company canteen.

No BIK.

Are employer contributions to a pension taxed as BIK?

(5) Employer contributions to a pension do not count for BIK purposes.

Is a bus or train pass taxed as BIK?

(5A) BIK does not apply to a monthly or annual bus or train pass issued by an approved transport provider. Originally, this meant only Coras Iompair Éireann and its subsidiaries (e.g. Bus Éireann, Iarnrod Éireann, Bus Atha Cliath), licensed private bus operators and passenger transport providers. The new definition allows monthly or annual LUAS/Metro passes. The definition was further broadened in 2005 to include operations of ferry services within the Republic of Ireland.

Tax Briefing 41, September 2000

Is a mobile phone taxed as BIK?

(5B) BIK does not apply to a “business” mobile phone, provided any private use is incidental. The exemption includes a mobile phone in a car or van, though the vehicle may be chargeable to BIK. Cordless phones are not exempt.

Is home broadband taxed as BIK?

(5C) BIK does not apply to home broadband if private use is incidental.

Is a computer taxed as BIK?

(5D) BIK does not apply to computer equipment provided any private use is incidental. Computer equipment includes a fax, printer, scanner, CDs, software, and computer peripherals – for example a digital camera/videocamera connectible by USB cable.

Are professional subscriptions taxed as BIK?

(5E) Since 1 January 2011. BIK applies to professional membership paid by an employer on behalf of an employee.

Is use of a goods vehicle taxed as BIK?

(5F) BIK does not apply to the use of a goods vehicle that is unsuitable for use as a private vehicle

Is a bicycle for travel to work taxed as BIK?

(5G) BIK does not apply where an employer spends up to €1,000 providing an employee with a bicycle and associated safety equipment, provided the bike and equipment is used for qualifying journeys. The scheme must be available to all staff.

To qualify, a bicycle must be a pedal cycle, or pedelec, i.e. a bicycle or tricycle with a low power auxiliary electric motor.

A qualifying journey means a journey from home to work or between difference places of work.

This exemption may only be claimed once in every five year period.

How much of a BIK is taxed?

(6) If only part of the employer’s expenditure relates to the benefit, only that part is taxed.

In Westcott v Bryan, (1969) 45 TC 476, an employee was obliged to reside in a house owned by his employer in order to entertain customers. It was held that expenses borne by the company should be apportioned as to the benefit to the company and the benefit to the employee. In other words, the employee would be taxed on the benefit to him, and not on the total expenses figure.

Is a benefit from a person connected to the employer taxed?

(7) BIK applies where the benefit is provided by a company or trust connected (section 10) with the employer.

Who is connected with an employer for BIK purposes?

(8) The “connected person” rules(section 10) are used to decide who is connected with an employer.

Section 118A Costs and expenses in respect of personal security assets and services

What are personal security expenses?

(1)-(2) An employee may be entitled to tax relief if there is a “credible and serious threat” to his personal physical safety arising from his employment.

Are personal security expenses tax deductible?

(3) Personal security expenses are tax deductible.

Example

Possible instances of this relief:

1. Installation of a high-tech home security system for a banking employee who might be targeted by criminals.

2. Expenditure on making a vehicle bullet proof or bomb proof.

3. Taxi costs of staff working late in a dangerous area.

Are personal security expenses taxed as BIK?

(4) BIK does not apply to qualifying personal security expenses.

Is incidental use of personal security assets taxed?

(5) Incidental private use of the personal security asset is ignored.

Is partial use of personal security assets taxed?

(6) Where assets are partly used to improve your personal security, the expenditure must be apportioned.

When are personal security expenses deductible?

(7) The relief only applies if it results in an improvement in to the employee’s personal physical security.

When is relief for personal security expenses taxed?

(8) Personal security relief is not lost if:

(a) the asset becomes fixed to land,

(b) the property in the asset passes to the employee,

(c) the asset or service also improves the personal physical security of the employee’s family or household.

Section 118B Revenue approved salary sacrifice agreements

Salary Sacrifice: Tax Briefing Issue 70 – 2008

Does a salary sacrifice work for exempt employee benefits?

(1)-(2) In general, a salary sacrifice is ineffective for tax purposes, and the employee is taxed on the remuneration forgone.

However this does not apply where the salary sacrifice relates to an exempt employee benefit:

(a) a travel pass,

(b) an approved profit-sharing scheme, or

(c) a bike.

Does a salary sacrifice work if the exempt benefit is paid to a connected person?

(3) A salary sacrifice in relation to an exempt benefit is ineffective if the benefit is provided to a connected person.

Does a salary sacrifice work if there is a compensating payment?

(4) If a scheme exists to provide the employee with an exempt benefit within (2)(a), together with a compensating payment, the benefit is no longer exempt.

Does a salary sacrifice work if there is a bonus after the year end?

(5) A salary sacrifice is ineffective if there is a bonus after the year end.

When do the salary sacrifice rules take effect?

(6) From 31 January 2008.

Section 119 Valuation of benefits in kind

Is the use of an employer-owned asset taxed as BIK?

(1) In general, the value of a BIK is the cost to the employer of providing the benefit, less any contribution by the employee (section 118(1)).

If the asset remains the property of the employer, the capital cost is ignored.

How is the transfer of an asset to an employee taxed?

(2) Where an asset is transferred to an employee, BIK is based on the tax written down value of the asset.

How is the use of an employer-owned asset taxed as BIK?

(3) An employee who has the use of an asset is taxed on the annual value of such use, less any contributions paid to the employer.

How is the use of accommodation provided by an employer taxed as BIK?

(4) Where an employer provides an employee with accommodation, rent-free or at a reduced rent, BIK is calculated as:

the open market rent (generally taken as 8% of the property’s current market value or a more accurate figure if available),

plus the annual value of any furnishings/fittings in the house (generally taken as 5% of their cost when new),

plus any incidental expenses (repair, maintenance, insurance etc) paid by the employer, less any payment the employee makes towards the rent and/or expenses.

No BIK arises if it is a condition of the employment that the employee live on the premises because of the nature of the job (e.g., a lighthouse keeper).

Example

Your employer provides you with the use of an apartment which has an annual market rental value of €10,000. The apartment is fully furnished and the annual value of the furnishings is €1,000.

Your employer also pays the electricity bills of €600 and gardener’s wages of €1,000. You pay your employer a rent of €6,000 per annum.

BIK is calculated as:
Market rent 10,000
Annual value of furnishings 1,000
Plus other expenses paid by employer 1,600
12,600
Less rent paid by you 6,000
Taxable BIK 6,600

Section 120 Unincorporated bodies, partnerships and individuals

Do the BIK rules apply to non-corporate bodies?

(1) The BIK rules also apply to employees of non-corporate bodies and public bodies.

Is an employee of a partnership controlled by a company double-charged BIK?

(2) An employee of:

(a) a partnership controlled by a company is regarded as employed by that company, and

(b) a company controlled by a partnership is regarded as employed by that partnership.

Control means the right to more than 50% of the partnership assets or income.

A person employed by both the partnership and the company is regarded as employed by the company for BIK purposes.

Are benefits provided to an employee of a sole trader subject to BIK?

(3) Benefits provided to an employee of a sole trader are also subject to BIK.

Are benefits provided to an office holder or employee of a public body subject to BIK?

(4) Benefits provided to an office holder or employee of a public body are also subject to BIK

What are “public bodies”?

(6) Public bodies are the Civil Service. the Gardaí and the Permanent Defence Force.

Section 120A Exemption from benefit in kind of certain childcare facilities

This section is now spent.

Section 121 Benefit of use of car

Is the use of a company car taxed as BIK?

(1)-(2) A car is a private (i.e., non-commercial) passenger motor vehicle. it does not include a motor-cycle or a van (section 121A). A motor-cycle means a vehicle with less than four wheels which weighs less than 410kg.

An employee who has the use of a company car is taxed on the cash equivalent (see (3)) of the private use.

Business use means necessary business travel undertaken in the performance of the employment duties. A car is regarded as available for private use unless the employee is prohibited from using, and does not use, the car for private use.

“Made available” means made available by reason of the employment.

Available includes being available to the employee’s family or household, i.e., spouse, children, children in law, parents, servants and guests. Therefore a company car provided to the employee’s wife is taxed on the employee.

The other BIK provisions (section 118) do not apply to company cars.

Business mileage means the total such mileage recorded on the car during that year.

A relevant log book is a daily record of distances travelled, nature and location of business conducted, and time spent away from the office, which is certified by the employer.

This BIK charge on company cars is not unconstitutional: Browne and others v Attorney General and others, 4 ITR 323.

A car is not regarded as available if the employee is working outside the Republic of Ireland:

(a) For at least 30 days a year (excluding foreign holidays). A day for this purpose must include an overnight stay.

(b) The car remains in Ireland.

(c) The car is not available for use by the employee’s family or household while he is abroad.

(Tax Briefing 28).

How is the use of a company car valued for BIK?

(3) The cash equivalent of the benefit of the car is 30% of the car’s original market value (including customs duty, excise duty and VAT), i.e., 30% of the list price of the car when new.

This is scaled back proportionately where the car is only available for part of the year.

Example

You pay all of the running costs of the car that cost €20,000 when new.

You have no “business mileage” (see (4)).

Your BIK is 30% of the car’s original market value.

This works out as 30% x €20,000 = €6,000.

Is company car BIK reduced where there is high business mileage?

(4) An employee with high business mileage (over 24,000 kilometres in a year), is allowed tapering relief in accordance with the table:

Business mileage Percentage of original market value
lower limit upper limit
(1) (2) (3)
kilometres kilometres per cent
24,000 32,000 24
32,000 40,000 18
40,000 48,000 12
48,000 6

This means that the 30% used to calculate the cash equivalent of the benefit of the car can be reduced to as low as 6%.

Example

On 1 March in a tax year, you are provided with a company car with a list price (when new) of €25,000.

Your business mileage from March to December in the same year is 45,000 kilometres.

The cash equivalent is calculated as 6% x €25,000. This works out at €1,500.

Furthermore, as you only had the car from March to December = 275 days of the tax year, you are only taxed on (275/365) x €1,500 = €1,130.

How is company car BIK calculated?

(4A)-(4B) From 1 January 2009, BIK is calculated by multiplying the car’s original market value (OMV) by “A”, the percentage appropriate to the car’s CO2 emission level, taking into account annual business mileage.

Business mileage Vehicle Categories
lower limit upper limit A, B and C D and E F and G
(1) (2) (3) (4) (5)
kilometres kilometres per cent per cent per cent
24,000 30 35 40
24,000 32,000 24 28 32
32,000 40,000 18 21 24
40,000 48,000 12 14 16
48,000 6 7 8
Vehicle Category CO2 Emissions (CO2g/km)
(1) (2)
A 0g/km up to and including 120g/km
B More than 120g/km up to and including 140g/km
C More than 140g/km up to and including 155g/km
D More than 155g/km up to and including 170g/km
E More than 170g/km up to and including 190g/km
F More than 190g/km up to and including 225g/km
G More than 225g/km

Example

Your employer provides you with a new diesel car, with CO2 emission levels of 130g/km (category B).

The car costs €24,000.

You drive 45,000km for business purposes in the car per annum.

Your BIK is €24,000 x 12% = €2,880.

What is simplified company car BIK?

(5) As an alternative to tapering relief, an employee can opt to be taxed on 24% (i.e., 80% x 30%) of the cash equivalent if he:

(a) drives over 8,000 business km per year,

(b) works more than 20 hours per week,

(c) spends 70% or more of his time away from the employer’s premises.

The employee must keep a relevant logbook showing distances travelled, nature of business, and amount of time spent away from the office. This logbook must be certified by the employer and must be shown to an inspector within 30 days of a request to do so. It must be kept for inspection for six years after the end of the year to which it relates, unless agreed otherwise with the inspector.

A Revenue decision as to working hours or logbook details may be appealed within two months of the date of notice. The Appeal Commissioners must determine the appeal as if it were an appeal against an income tax assessment. There is a further right of appeal to the Circuit Court, and on a point of law to the High Court.

Must an employee inform Revenue that he has a company car?

(6) An employee must notify the inspector within 30 days of the end of the tax year if he has the use of a company car. He must provide the inspector with details of the make and list price of the car, and business and private mileage for the year.

In the absence of these details, the inspector must estimate the BIK with 5,000 miles taken as the assumed private mileage.

Is use of a “car pool” car taxed as BIK?

(7) The use of a “car pool” car (i.e., a car that is available to, and used by, more than one employee), is not caught for BIK if private use is incidental and the car is not kept overnight at or near the employee’s home, unless the employer premises happens to be near the employee’s home.

One or more employees can claim the car pool relief.

A Revenue decision as to car pool arrangements may be appealed to the Appeal Commissioners within two months of the date of notice.

The decision of the Appeal Commissioners is binding on all the employees, even if they have not taken part in the appeal proceedings. Once such a decision has been made, no further appeals may be entertained by the inspector in respect of the same car for the same year.

Example

Family company employs husband, wife, son and daughter.

The business premises is located 100m from the family home.

The company has two company Range Rovers which are left overnight at the business premises. These are ‘car pool” vehicles available for use by all employees.

No BIK.

Section 121A Benefit of use of van

What is a van?

(1) A van is a road vehicle with an engine which:

(a) has been designed to carry things,

(b) has a roofed area to the rear of the driver,

(c) has no side windows or seating in the roofed area.

Is use of a van taxed as BIK?

(2) The use of a van (see (1)) is subject to BIK on the difference between:

(a) the cash equivalent of the benefit , i.e., 5% of its original market value, and

(b) the amount reimbursed to the employer.

Example

You are provided with a van which cost €25,000 when new. You do not reimburse the employer any part of the cost of providing or running the van.

Your taxable benefit in kind is €25,000 x 5% = €1,250.

When is use of a van not taxed as BIK?

(2A)-(3) BIK does not apply where:

(a) the van is used to perform the employment duties,

(b) the van must be kept near the employee’s home when not being used for work,

(c) private use of the van other than for travel between home and workplace is prohibited, and there is no such use, and

(d) at least 80% of the employee’s time is spent away from his “base” place of work.

Do company car BIK rules apply to vans?

(4) The following car BIK rules also apply to vans:

(a) Time apportionment where a car has not been held for the full tax year (section 121(3)(b)).

(b) The obligation to report the provision of the vehicle (section 121(6)).

(c) Exemption for “pool” vehicles (section 121(7)).

Section 122 Preferential loan arrangements

Tax Relief on Qualifying Home Loans / BIK on Preferential Loans: Tax Briefing Issue 77 – 2009

What is a preferential loan?

(1) A preferential loan is a loan carrying interest at a preferential rate, made by an employer to an employee. It does not include a loan from a financial institution at an arm’s length interest rate. It can include an advance of salary: Williams v Todd, [1988] STC 676.

Is a preferential loan taxed as BIK?

(2) An employee who receives a preferential loan from your employer is taxed on the difference between the interest at the specified rate and the interest paid.

BIK applies if the employee has an outstanding balance at any time during the year.

An employer includes a prospective employer (section 112(2)), a former employer, and a person connected (section 10) with an employer.

A preferential rate is a rate less than the specified rate:

4% in the case of a home loan;

13.5% for other loans.

Example

You receive a home purchase loan at an interest rate of 3.5%.

Interest payable at 4% 4,000
Interest payable at 3.5% 3,500
BIK 500
less made good to employer 100
taxable BIK 400

Subject to the limits applicable to home loan interest (section 244), you are entitled to a standard rate tax credit in respect of the gross interest, i.e., €4,000 at 20% in your Certificate of Tax Credits and Standard Rate Cut-Off Point.

Is the write off of a preferential loan taxed as BIK?

(3) Where an employer writes off a preferential loan, or the interest, the employee is taxed on the amount written off.

Does a preferential loan qualify for home loan interest relief?

(4) Yes. Even though you may be taxed on the benefit of a preferential home loan, you remain entitled to home loan interest relief on the loan.

Is a personal loan taxed as BIK?

(5) Private loans made in the normal course of domestic, family or personal relationships are not subject to BIK.

Does a preferential loan BIK charge entitle the employee to the PAYE credit?

(6) The fact that an employee is caught for BIK on a preferential loan does not, of itself, entitle you to the employee (PAYE) tax credit (section 472).

Must preferential loan regulations be passed by Dáil Éireann?

(7) Regulations relating to preferential loans must be laid before Dáil Éireann and if not passed within 21 days, are annulled.

Section 122A Notional loans relating to shares etc

Is an award of shares at undervalue taxed as BIK?

(1)-(2) An employee who is allotted shares at an undervalue is regarded as having received an interest free (notional loan). That loan is treated as a preferential loan (section 122).

When are shares received at undervalue?

(3) Shares are received at undervalue if:

(a) they are obtained without payment, or

(b) they are acquired at less than the market value,

irrespective of whether there is any future obligation to make any further payment for the shares.

How is a notional loan valued?

(4) The amount initially outstanding for the notional loan is the amount of the undervalue on acquiring the shares. The loan is outstanding until terminated (see (5)). Payments towards the shares reduce the loan.

When does a notional loan terminate?

(5) The notional loan terminates when:

(a) it has been cleared by payments toward the shares,

(b) the employee is released from an obligation to pay for the shares,

(c) the employee disposes of the shares, or

(d) the employee dies.

Is the write off of the notional loan taxed as BIK?

(6) If the loan terminates in the manner described in (5)(b) or (c), the outstanding loan balance is treated as written off, and the employee is taxed on the amount written off (section 122(3)).

How is the sale of shares acquired at undervalue taxed?

(7) Where an employee disposes of shares:

(a) and does not retain any interest in the shares, and

(b) for a consideration in excess of the shares’ market value,

the excess is taxed as emoluments (section 113) for the tax year in which disposal occurs.

Is the sale of shares of a former employer taxed?

(8) The tax charge under (6) applies even where the employment that gave rise to the benefit has ceased.

Is a post-death sale of shares taxed?

(9) A post-death disposal of shares does not give rise to a tax charge.

Is an interest in shares taxed as BIK?

(10) These rules also apply where an employee disposes of an interest in shares which does not amount to full beneficial ownership, for example a future interest or a life interest, but not a share option. In such cases:

(a) the employee is treated as acquiring the shares at the time the interest is acquired,

(b) the market value of the interest in the shares is proportionate to the market value of the shares in which the interest subsists,

(c) interests in shares are to be compared with interests in shares of the same class,

(d) the market value of an interest in fully paid-up shares of a certain class means a corresponding proportionate interest in the market value of such shares.

Does payment for shares include non-cash payment?

(11) Payment includes consideration in money or money’s worth.

Section 123 General tax treatment of payments on retirement or removal from office or employment

Is a termination payment taxed?

(1) Generally, a termination payment receivable by an employee from his employer is taxed. Subject to certain conditions, it may be exempt (section 201) or if not exempt it may qualify for further relief (Schedule 3).

What termination payments are taxed?

(2) The following payments are taxable:

(a) compensation for loss of office,

(b) salary or wages in lieu of notice,

(c) damages for breach of employment contract,

(d) a payment to release an employee from the employment contract (except lump sums under an exempt approved scheme (section 778) or a statutory scheme (section 777) – see section 201(2)),

(e) a lump sum in commutation of pension rights,

(f) a retirement gratuity at the employer’s discretion,

(g) a non-statutory redundancy payment.

This section catches:

(a) the gross payment before expenses (Warnett v Jones, [1979] STC 131),

(b) an inducement payment from your former employer to join a new employer (Shilton v Wilmshurst, [1991] STC 88),

(c) non-residents (Nichols v Gibson, [1994] STC 1029),

(d) “damages” paid in consideration of, connection with the loss of employment, and not otherwise taxed (Revenue Precedent IT97-1533, 13 June 1997),

(e) compensation awarded by the Labour Court arising from an unfair dismissals case (Revenue Precedent IT97-1507, 18 April 1997),

(f) a termination payment that is repayable to your employer from the proceeds of a life policy on your death (Horner v Hasted, [1995] STC 766),

(g) an award from the Employment Appeals Tribunal as compensation for the loss of employment. See Tax Briefing 40.

It does not catch:

(a) a payment in lieu of notice if such a payment is provided for in your employee contract. In such a case, the payment in lieu of notice is taxed as part of your normal emoluments. See EMI Group Electronics Ltd v Coldicott, [1999] STC 803.

(b) A payment in compensation for making you “redundant” if you are immediately re-engaged by the same employer: (Tax Briefing 22). Such a payment is taxed as part of normal salary.

(c) an award from the Employment Appeals Tribunal as compensation for loss of earnings – see Tax Briefing 40,

(d) a retirement gift: Mulvey v Coffey, 1 ITR 618.

Example

You retire from X Ltd, after 32 years service first as an employee and later as an executive director.

The company decides to pay you an ex gratia “golden handshake” payment of €150,000.

In addition, X Ltd makes an ex-gratia payment of €21,000 to your wife, and Y Ltd (a subsidiary of X Ltd) gives you a company car valued at €15,000. You also retain your certain deferred benefits under X Ltd’s approved pension scheme (section 778).

Subject to the reliefs of section 201 and Schedule 3, you are chargeable to income tax under Schedule E in respect of a “termination payment” of €186,000 made up as follows:

Payment made to you 150,000
Payment made to your wife 21,000
Value of car received 15,000
186,000

For the reliefs given in charging this termination payment, see the Examples under section 201 and Schedule 3.

For the tax treatment of a typical composite redundancy lump sum, see Tax Briefing 28. The lump sum is not caught for pay related social insurance (PRSI). However, the taxable element of the lump sum, i.e., the gross lump sum less the exemption, is caught for health contributions: Tax Briefing 41.

Is a termination payment to a family member taxed?

(3) A termination payment made to a spouse, relative or dependant of the employee is regarded as made to the employee.

A non-monetary termination payment (for example a car) is taxable on the basis of its value.

When is a termination payment taxed?

(4) A lump sum in commutation of a pension is treated as received on the commutation date. Any other termination payment is treated as received on the termination date.

A termination payment is subject to PAYE.

Is a termination payment on death taxed?

(5) Tax arising on a termination payment made on death is collectible from the employee’s estate.

Must Revenue be notified of a termination payment?

(6) An employer must inform the inspector in writing within 14 days of the end of the tax year in which he makes a termination payment.

Section 124 Tax treatment of certain severance payments

Is a severance payment taxed?

(1)-(2) Termination allowances and several allowances paid to members of the Oireachtas are subject to PAYE.

Section 125 Tax treatment of benefits received under permanent health benefit schemes

What is a permanent health benefit scheme?

(1) A permanent health insurance policy, sickness or similar insurance, qualifies as a permanent health benefit scheme if it is drawn up in the standard form (or a variation thereof) approved by Revenue.

Must Revenue approve a permanent health scheme?

(2) Contributions to a permanent health scheme are tax deductible, provided they do not exceed 10% of the contributor’s total income (section 463).

Is a benefit under a permanent health scheme taxed?

(3) The income benefit received under a permanent health scheme is subject to PAYE.

Can Revenue delegate their powers in relation to permanent health benefit schemes?

(4) Revenue may nominate one of their officers to discharge their functions under this section.

Section 126 Tax treatment of certain benefits payable under Social Welfare Acts

Are social welfare payments taxable?

(1)-(2) The following social welfare payments are subject to PAYE:

(a) the widow’s (contributory) pension,

(b) the orphan’s (contributory) allowance,

(c) retirement pension, and

(d) the old age (contributory) pension.

What other benefits are taxable?

(2A)From 1 July 2013 maternity benefit, adoptive benefit and health and safety benefit are subject to PAYE.

Who pays tax on increases in pensions paid to adult dependants?

(2B) The pensioner who has the adult dependant is liable to tax on such increases.

Are unemployment payments taxable?

(3) The following social welfare payments are subject to PAYE:

(a) Jobseeker benefit. The recipient is entitled to the PAYE credit. Revenue leaflet IT24, Taxation of unemployment benefit. Jobseeker allowance is exempt.

(b) Disability benefit. The recipient is entitled to the PAYE credit. Disability allowance is exempt (Inspector Manual7.1.5).

(c) Injury benefit.

(d) Pay related benefit.

Is part of jobseeker benefit exempt?

(4) The first €13 in any income tax week is exempt. The €13 is deducted from the benefit net of child dependant allowance. In other words, child dependant allowance payable with jobseeker benefit is ignored for income tax purposes.

The first income tax week of the calendar tax year is 1 January to 7 January inclusive. The second income tax week of the income tax year is 8 January to 15 January, etc.

Are disability and injury benefits taxable?

(5) Since the tax year 1998-99, the first 36 days of disability and/or injury benefit is exempt from tax.

From what date are social welfare benefits taxable?

(6) Unemployment benefit, disability benefit, injury benefit and pay related benefit (or any one of them) are chargeable to tax from a date to be fixed by order of the Minister for Finance.

Can Revenue make regulations for taxation of social welfare benefits?

(7) The Revenue Commissioners may make regulations for the application of PAYE to social welfare payments.

Such regulations must be laid before Dáil Éireann, and if not annulled within 21 days are deemed to have been passed.

Section 127 Tax treatment of restrictive covenants

What is a restrictive covenant?

(1) A restrictive covenant arises when an employee undertakes not to carry on certain activities, for example:

(a) not to compete with an ex-employer within five years of leaving the job,

(b) not to work for a competitor after leaving the job.

For many years such payments were exempt: Beak v Robson, (1942) 25 TC 33, Higgs v Olivier, (1952) 33 TC 136.

This section ensures that such a payment is taxed under Schedule E (Schedule D Case III in the case of a foreign employment).

Is income from a restrictive covenant taxed?

(2) Income from a restrictive covenant is taxed, even where received before the employment begins, or after the employment ceases.

A post-death payment is taxed as having been paid immediately before death; otherwise, it is taxed for the tax year in which it is paid.

Is a non-cash payment received under a restrictive covenant taxed?

(3) A non-monetary payment under a restrictive covenant (the giving of valuable consideration) is taxed on the basis of its value when given, not when the employer undertakes to give it.

Is a restrictive covenant payment tax deductible?

(4) A business owner may deduct the restrictive covenant payment as a trading expense in his tax computation for the tax year basis period (or corporation tax accounting period) in which he made the payment.

Is a restrictive covenant payment tax deductible to an investment company?

(5) An investment company (section 83) or life assurance company (section 707) may deduct a restrictive covenant payment as part of its management expenses.

Are all restrictive covenant payments taxable?

(6) This section applies to any payment or consideration for any undertaking.

Section 127A Tax treatment of members of the European Parliament

Is MEP income taxed?

(1)-(2) Income arising to an MEP is chargeable under Schedule E or Schedule D Case III, as the case may be.

Section 127B Tax treatment of flight crew in international traffic

Is income of Irish airline flight crew taxed?

(1) Income of flight crew of Irish-based airlines subject to PAYE – even if the employee is not resident in the Republic of Ireland.

What is international traffic?

(2) “International traffic” does not include aircraft operated solely on internal flights in another country.

Section 128 Tax treatment of directors of companies and employees granted rights to acquire shares or other assets

Are share options taxed as BIK?

(1)-(2) An employee who receives a share option is taxed under Schedule E in the tax year in which the option is exercised. This rules applies even if the employee was not resident in Ireland at the time the option was granted.

Share options are “emoluments” for the purposes of calculating:

(a) the Standard Capital Superannuation Benefit (SCSB); see section 201, Schedule 3 (Revenue Precedent IT96-1593, 10 March 1997), and

(b) the foreign earnings deduction (section 823) (Revenue Precedent GM, 14 April 1997).

Example

01.01.2005 You are granted a 10 year option to buy up to 10,000 shares in X plc at €1 each.

2005 tax year: You are not taxed, as you have not yet exercised the option.

01.05.2011 The shares in X plc are now worth €6 each. You exercise your option. You buy 2,000 shares at €1 each, and immediately sell them at €6 each. The tax consequences are:

Proceeds (2011): 2,000 shares at €6 each 12,000
Cost (2005): 2,000 shares at €1 each 2,000
Gain 10,000

Your gain is taxed under Schedule E, at your marginal rate of tax (41% in 2011).

01.05.2011 Assume that instead of exercising your option you assign it to your sister Y. This assignment is treated as an exercise.

Alternatively, assume that you signed an agreement that the only person who could exercise the option was your mother Z. Your restriction of the option to Z is treated as an exercise of the option.

Must Revenue be informed if a share option is exercised?

(2A) An employee who exercises a share option must report the gain on his income tax return.

Are share option taxed as employment benefits?

(3) Tax is not charged under any other provision of the Tax Acts.

How is a gain on the exercise of a share option taxed?

(4) The gain is calculated as follows:

A – B

where-

A is the market value of the shares at the exercise date, and

B is the price paid for the option plus any future amount payable for the shares.

he performance of the employment duties does not count toward payment for the option or for the shares.

Market value at date of acquisition: Tax Briefing 35.

How is a long option taxed?

(5) A “long option”, i.e., a share option that is capable of being exercised more than seven years after it is granted, may be taxed as a perquisite in the year it is granted. The taxable amount is the market value of the right less the price paid for it.

If such an option is later exercised or sold, any tax paid on the grant is set against the tax on the subsequent exercise or sale.

Is the grant of a share option to a connected person taxed?

(6) This is an anti-avoidance provision. A share option is taxed if:

(a) granted to person other than the employee, or

(b) acquired by another person other than by arm’s length price,

(c) the employee and the other person are connected at the time the gain is realised, or

(d) the employee benefits from the other person’s gain.

in the circumstances mentioned in (b)-(d), the employee is taxed on the other person’s gain.

Are share options of bankrupt person taxed?

(7) A gain realised on share options surrendered as part of bankruptcy proceedings is not charged on the employee. The official assignee is taxed under Case IV.

Is the replacement of a share option with another taxed?

(8) The replacement option is not treated as consideration for the exercise of the option.

This is a form of “rollover” relief which allows an option to be replaced without triggering an “exercise”.

Is a series of replacements of share options taxed?

(9) The rule in (8) applies to a series of transactions.

Is the exercise price a base cost for future gains?

(10) The price at which a share option is exercised represents a base cost for future gains.

Must an employer report share options granted?

(11) An employer must, before 31 March in the year following year in which options were granted, provide the inspector with details of such options by approved electronic means.

Must an Irish branch report share options granted?

(12) If an Irish branch of a foreign company granted share options to employees, that branch must file the return in (11).

See Tax Briefing 31.

Section 128A Deferral of payment of tax under section 128

This section is now spent.

Section 128B Payment of tax under section 128

How is the exercise of a share option taxed?

(1)-(2) On the exercise of a share option, the relevant tax is the gain multiplied by the higher rate of income tax in force for the tax year in question.

Example

17.09.2012 You are granted an option to buy 5,000 shares in your employer company at €1 each. The next day you exercise the option and you acquire 1,000 shares with market value of €10 each.

You are taxed on the gain of €10,000 – €1,000: €9,000 at 41% = €3,690.

When is share option tax due?

(3) Relevant tax must be paid on a self-assessment basis within 30 days of exercising the share option.

Example

17.10.2012 This is the due date for the tax payable in the previous example, i.e., within 30 days of the date on which you exercised the option.

Must a share option return be filed?

(4) Relevant tax must be accompanied by a return stating the gain, the tax due, and any other details required by the return.

Must a share option return be on the official Revenue form?

(5) Yes, i.e. the return mentioned in (4). The person filing the return must sign a declaration that the return is correct and complete.

Must a receipt be issued for share option tax?

(6) The Collector-General must issue a receipt for share option tax received.

Can Revenue assess tax understated share option tax?

(7) f a Revenue official believes the tax shown on a return is understated, he may assess the undercharge. The assessed tax is treated as outstanding from the date it should have been paid (see (3)).

Can Revenue adjust figures on a share option return?

(8) A Revenue official may make any necessary adjustments or set-offs to ensure that the liability to tax and interest is correct.

Can Revenue enforce collection of share option tax?

(9) Revenue may use the tax collection procedures to enforce payment of any unpaid relevant tax and interest.

Interest on late payment is charged at 0.0322% for each day or part of a day the tax remains unpaid.

Such interest is not an annual payment subject to withholding tax.

In court proceedings to collect unpaid interest, a certificate signed by the Collector-General stating that an amount is due may be given in evidence and such a certificate is evidence, until the contrary is proved, that the amount is so due.

A Revenue assessment in respect of share option tax may be appealed. The Appeal Commissioners must determine the appeal as if it were an appeal against an income tax assessment. There is a further right of appeal to the Circuit Court, and on a point of law, to the HIgh Court.

Is share option tax credited against total tax due?

(10) Relevant tax can be credited against income tax liability for the tax year in question, and any tax overpaid must be repaid.

Does share option tax count toward preliminary tax?

(11) Share option tax does not count toward preliminary tax.

Does share option tax count in deciding whether preliminary tax paid was sufficient?

(12) Relevant tax does not count in determining whether your preliminary tax paid was sufficient, i.e.:

(a) 90% of the ultimate liability for the year,

(b) 100% of the liability for the preceding tax year, or

(c) 105% of the liability for the pre-preceding tax year.

Must the exercise of a share option be declared on a tax return?

(13) The exercise of a share option must be declared on a tax return.

Can share option tax be calculated at the standard rate?

(14) Relevant tax may be calculated at the standard rate of Revenue are satisfied that the payer is chargeable to tax only at the standard rate.

Section 128C Tax treatment of directors and employees who acquire convertible securities

What are convertible securities?

(1) The conversion of convertible securities into shares is subject to BIK. In this regard, securities include shares, options, warrants, debentures, certificates, and units in a collective investment undertaking.

Can an employee be taxed on securities acquired by another person?

(2) BIK cannot be avoided by having the employer grant securities to another person.

Are convertible securities taxed as BIK?

(3) The BIK charge applies where an employee receives employment-related securities which are convertible securities.

When are securities convertible?

(4) Securities are convertible if they can be converted into different securities or money, or if a contract or agreement exists that allows such conversion.

What is the market value of convertible securities?

(5) In computing a BIK charge, the securities’ market value is determined as if they were not convertible.

This does not apply if the securities were acquired for tax avoidance purposes.

For purposes other than computing a BIK charge, the securities’ market value is calculated as if they wereimmediately and fully convertible, i.e. convertible on acquisition to obtain the maximum gain.

When are convertible securities subject to BIK?

(6) BIK arises on a chargeable event (see (7)) and is charged on the chargeable amount (see (8)).

What is a chargeable event?

(7) A chargeable event arises when:

(a) employment-related securities are converted into different securities,

(b) in return for a payment (consideration), an employee releases his entitlement to convert the securities,

(c) an employee disposes of the securities when they remain convertible,

(d) the employee receives a benefit in money/money’s worth in connection with the entitlement to convert.

 What is the chargeable amount?

(8) The chargeable amount is –

A – B

where

A is the gain on the chargeable event (see (7)), and

B is the amount paid to convert the securities, together with associated expenditure.

A is calculated as follows:

(i) In the case of a conversion of securities, as-

C – (D + E)

where

C is the market value of the converted securities at the time of the chargeable event,

D is the market value of the employment-related securities at the time of the chargeable event (determined on the basis that they are not convertible),

E is the consideration given for the conversion of the securities.

(ii) In the case of a release of an entitlement to convert, the consideration received for the release.

(iii) In the case of a disposal, while the securities remain convertible, as-

F – G

where

F is the consideration given for the securities, and

G is their market value at the time of the chargeable event.

(iv) Where a benefit is received in connection with the entitlement to convert, the gain is the market value of that benefit.

Where securities are acquired for tax avoidance purposes, the chargeable amount is reduced by

H – I

where

H is the amount by which the market value of the securities exceeded what it would have been had they not been convertible, and

I is the aggregate of any previous equivalent reductions in the chargeable amount.

Is consideration deductible when calculating the BIK charge?

(9) In calculating ‘B’ in (8)(a) – the gain on the chargeable event – consideration given for the entitlement to convert may only be counted if it exceeds the securities’ market value, determined on the basis that they are not convertible when acquired.

Does job performance count as consideration?

(10) Performing the duties of the employment does not count as consideration. No part of the consideration may be deducted more than once.

When is there no tax charge on employment-related securities?

(11) The charge does not apply if:

(a) the securities are shares of a class, all of the company’s shares are convertible, all of the company’s shares areaffected by an event similar to the chargeable event, and prior to the ‘chargeable event’, the majority of the company’s shares are not employment-related, or

(b) the emoluments are not chargeable under Schedule D or E at the time the employment-related securities are acquired.

When are shares affected by an event similar to a chargeable event?

(12) This occurs where:

(a) in the case of convertible securities, they are converted into shares of a different class,

(b) in the case of entitlement to convert, the entitlement is released,

(c) in the case of a disposal while the shares remain convertible, the shares are disposed of,

(d) in the case where a benefit is received in connection with the entitlement to convert, the employee receives a similar benefit.

Must an award of convertible securities be reported to Revenue?

(13) An employee in receipt of convertible securities must file a self-assessment tax return for the year.

Is tax paid on convertible securities part of the acquisition cost for CGT purposes?

(14) Income tax charged on the acquisition of convertible securities is a deductible cost for CGT purposes when calculating a gain on the disposal of the shares.

When must awards of securities be reported to Revenue?

(15) An employer who makes a grant of convertible securities must provide Revenue with the details on or before 31 March in the following year.

Section 128D Tax treatment of directors of companies and employees who acquire restricted shares

What rules apply to a trust that holds restricted shares?

(1) The trust must be resident in the Republic of Ireland or in an EEA State.

Are restricted shares taxed as BIK?

(2) BIK on restricted shares depends on how long the restriction lasts – see (4).

What are restricted shares?

(3) Shares are restricted if-

(a) the employee is contractually bound not to assign, charge, pledge, or otherwise dispose of the shares for aspecified period (one year or longer),

(b) the contract is for bona fide commercial reasons, and does not form part of a scheme or plan to avoid tax,

(c) the shares cannot be transferred during the specified period, other than:

(i) on the employee’s death, or

(ii) as a result of the employee agreeing to:

(I) engage in a share-for-share swap,

(II) a transaction which equally affects all the ordinary shares of the company, or

(III) accept a cash offer fot the shares, which forms part of a general offer made to all shareholders and which will give the new owner control of the company,

(d) during the specified period, the shares are held in an employee share ownership trust, or held under other arrangements allowed by Revenue.

How is BIK calculated on restricted shares?

(4) BIK is calculated using the formula-

A  x    B  
100

where A is income tax charge based on the shares’ market value at the acquisition date, and B depends on the length of the specified period:

Specified Period B
one year 10
two years 20
three years 30
four years 40
five years 50
more than 5 years 60

What is the consequence of lifting the restriction on the shares?

(5) If the restriction on the shares is removed or varied, or the shares are disposed of on death or on a share-for-share exchange, the tax charge is recomputed to take account of the actual period for which the restrictions was in effect.

Does BIK tax paid by an employer on restricted shares qualify for restriction?

(6) The income tax element also qualifies for the percentage adjustment in (4).

Can Revenue approved scheme shares qualify for restricted share relief?

(7) Shares in a Revenue approved scheme cannot also qualify for restricted share relief.

Must an employer report the lifting of a restriction on the shares?

(8) If the restriction is lifted, the employer must provide Revenue with the details on or before 31 March in the following tax year.

What is an “award” of restricted shares?

(9) An award of restricted shares includes a situation where such shares are acquired on the exercise of an option.

Section 128E Tax treatment of directors of companies and employees who acquire forfeitable shares

Are forfeitable shares taxed as BIK?

(1)-(2) The rules in this section apply to forfeitable shares.

What are forfeitable shares?

(3) Shares are forfeitable if-

(a) the employee is contractually bound to forfeit the shares in certain circumstances, and does not receive any compensation on such forfeiture over and above what was paid for the shares, and

(b) the contract is for bona fide commericial reasons and does not form part of a scheme or plan to avoid tax.

Are shares that are called up, but unpaid, forfeitable shares?

(4) Called up shares that have not been paid for are not regarded as forfeitable shares.

How is BIK calculated on forfeitable shares?

(5) BIK is calculated on the shares’ market value at the time of acquisition as if the shares were not forfeitable.

If forfeitable share are forfeited, can tax paid be reclaimed?

(6) Where shares are forfeited the employee may claim a refund of any tax paid on their acquisition.

Does the four year time limit apply to refunds of tax on forfeitable shares?

(7) The general four year time limit does not apply in this instance. Revenue can repay tax beyond the previous four tax years.

Is a loss on forfeitable shares allowable for CGT purposes?

(8) A loss on forfeitable shares is allowable, but must not exceed the amount paid on acquiring the shares, less any consideration received for forfeiting the shares.

Must an employer report awards of forfeitable shares?

(9) An employer must provide Revenue with the details on or before 31 March in the tax year following the year in which the shares were awarded or forfeited.

Section 129 Irish resident company distributions not generally chargeable to corporation tax

Is franked investment income exempt?

In general, a company is not subject to tax on distributions received from Irish resident companies (franked investment income).

Section 129A Dividends paid out of foreign profits

What are profits?

(1) Profits means the profit after tax as shown in the company’s profit and loss account, i.e. the accounting net profit.

A company is connected with another company if one controls both or a person controls one company and persons connected with him/her control the other.

Is a distribution from a (previously foreign) subsidiary exempt?

(2) The recipient company is denied relief if the paying company became resident in the State in the 10 years prior to the distribution. In such a case, the recipient is caught for income tax under Schedule D Case IV.

How is a distribution from a (previously foreign) subsidiary taxed?

(3) The excess is treated as paid out of profits arising before the company became resident in the State.

Can a parent claim credit for tax paid by the (previously foreign) subsidiary?

(4) Yes.

When is a distribution from a (previously foreign) subsidiary exempt?

(5) The exemption continues to apply if the paying company was, at all times prior to its relocation into Ireland, controlled by non-Irish residents.

Section 130 Matters to be treated as distributions

What is a distribution?

(1) Distribution is widely defined to include not only dividends but also any other method by which you extract money from a company.

However, the term does not include a distribution on winding up – such payments are treated as a repayment of share capital.

If you receive a distribution in respect of shares you own in an Irish resident company, you are taxed under Schedule F (section 20).

What payments are treated as a distribution?

(2) The following types of payment by your company are treated as a distribution:

(a) A dividend.

(b) A “bonus” (free) distribution (other than a repayment of share capital).

(c) A payment to redeem bonus shares.

(d) Interest paid in respect of securities that:

(i) are “bonus” (i.e., free),

(ii) are convertible into shares other than quoted shares,

(iii) depend on your company’s profits (in which case all of the interest is a distribution) or which carry more than a reasonable commercial return (in which case only the excess over such return is treated as a distribution),

(iv) are held by non-resident company, and that company owns 75% of your company,

(v) are linked to shares in the company (so that to hold the securities a person must have a proportionate shareholding in the company),

Interest is treated as a distribution to prevent you withdrawing profits in the guise of “interest” which would have the added benefit of being tax-deductible to the paying company. By deeming such interest to be a distribution, it is is no longer deductible to the paying company.

This provision takes priority over Article 12 (Interest) of the Ireland/Japan Double Taxation Convention (SI 259/1974): Murphy v Asahi Synthetic Fibres (Ireland) Ltd, 3 ITR 246.

If there is a conflict with a double tax treaty as to the treatment of a payment as interest or as a distribution, the treaty provisions apply unless the company makes a claim to the contrary (Revenue precedent IR 10407/339/95, 1 July 1997).

Therefore, under the Ireland/Netherlands Double Tax Treaty (SI 22/1970), interest paid by an Irish subsidiary to its Dutch parent is treated as interest and is deductible to the paying company (Revenue precedent DTX 7008/94, 11 March 1994).

(e) value received from a company (see (3)) or certain bonus shares in a company (section 131).

(f) A payment to a beneficiary of an employee share ownership trust.

Is loan interest that varies with a company’s profits tax deductible?

(2A) If your company pays interest under a normal loan agreement which allows for the interest to rise if your profits fall, and interest to fall if your profits rise, the rule in (2)(d)(iii)(I) is disapplied. In other words, you get a tax deduction for such interest. See also: Tax Briefing 43.

Is interest paid to a foreign 75% parent a distribution?

(2B) If your company is a 75% subsidiary of a non-resident parent, interest you pay to that parent is treated as a distribution (see (2)(d)(iv)). However, this rule does not apply if the parent is resident in another EU State or a country which has a tax treaty with Ireland.

Is a payment to an ESOT beneficiary a distribution?

(2C) It is only treated as a distribution to the extent that the dividend exceeds the aggregate of:

(a) trust expenses,

(b) interest on trust borrowing,

(c) payments made to personal representatives of a deceased beneficiary,

(d) repayment of capital borrowings,

(e) expenditure on acquiring securities.

Is the transfer of an asset from a company to a member a distribution?

(3) It can be – if the market value of assets transferred to you from a company exceeds any payment or other new consideration given by you, the excess is treated as a distribution.

However, this does not apply if you and the transferring company are both resident in an EU State and one of you is a subsidiary of the other or both of you are subsidiaries of a third company.

What is a subsidiary?

(4) Your company is a subsidiary of another company if it is a 51% subsidiary of that company, i.e., if the other company owns more than 50% of your company’s ordinary share capital (section 2). Share capital owned by a share dealing company or a company not resident in the EU is ignored in calculating the 51%.

Is a transfer of an asset to another company a distribution?

(5) Usually, no. If your company transfers assets to another company, the transfer is not treated as a distribution provided both companies are resident in the Republic of Ireland, neither is a 51% subsidiary of a non-resident company, and they are not under common control.

Section 131 Bonus issues following repayment of share capital

At one stage, it would have been possible to extract profits from a company tax-free by issuing (free) bonus shares and then repaying the “capital” in respect of those shares, even though no capital had in fact been contributed since the shares were free.

This section deals with the reverse situation, i.e., where you repay share capital first, and then issue bonus shares to replace the capital that had been repaid, achieving the same result.

Is a repayment of capital a distribution?

(1)-(2) If your company repays share capital, the repayment is not a distribution (section 130(2)(b)). However if you repay share capital and then issue bonus shares, the issuing of those bonus shares is regarded as a distribution, up to the amount of share capital repaid. In this context, bonus shares includes any shares which are not matched by the introduction of fresh capital (new consideration) to the company.

See IRC v Parker, (1966) 43 TC 396. In relation to a bonus issue followed by a redemption of preference shares, seeHasloch v IRC, (1971) 47 TC 50. In relation to a bonus issue followed by a reduction in capital, Hague v IRC, (1968) 44 TC 619.

Example

You are a limited company that repays share capital of €250,000.

You subsequently issue 125,000 fully paid €1 ordinary shares at 40c a share and later a bonus issue of 500,000 fully paid €1 preference shares (no new consideration).

The first issue is treated as a distribution of €75,000 (125,000 x 60c) and the second one of €175,000 (€250,000 – €75,000).

Source: Inspector Manual 6.2.2

Is a repayment of preference shares a distribution?

(3) Bonus shares are not regarded as a distribution if the capital repaid consists of shares that were fully paid uppreference shares on 27 November 1975 and remained fully paid up preference shares from that date to the date of their repayment.

Preference shares are shares which carry a right to a dividend at a fixed percentage of the shares’ nominal value and the dividend entitlements of which are not excessive, having regard to the dividend entitlements available for comparable quoted shares.

Bonus shares are also not regarded as a distribution if the capital repaid consists of fully paid up preference shares issued after 27 November 1975, provided that those shares were wholly paid through new consideration not derived from ordinary shares. Again, the preference shares must have remained fully paid up from their issue date to the date of their repayment.

When are bonus shares not a distribution?

(4) Bonus shares are not regarded as a distribution if you are a non-close company, the shares are not redeemable, and the issue takes place more than 10 years after the you repaid the share capital.

Section 132 Matters to be treated or not treated as repayments of share capital

What is a relevant distribution?

(1) This section supplements section 130 (meaning of “distribution”) and section 131 (repayment of share capital followed by bonus issue). It clarifies when a distribution you make in respect of bonus shares (i.e., a relevant distribution) is treated as a repayment of share capital.

Is a distribution in respect of bonus shares a repayment of capital?

(2) If you make a relevant distribution, it is not regarded as a repayment of share capital to the extent that, together with any previous distributions you have made in respect of those shares since they were issued, it does not exceed the amounts paid up in respect of those shares.

In this regard, you must treat all shares of the same class as representing the same share capital. You must also treat shares which replace other shares as representing the same share capital.

Does repayment of share premiums count as part of the share capital?

(3) If you make a distribution in respect of share capital issued at a premium, the premium – provided it has not been used to pay for other shares – counts as part of the share capital in determining whether you have made a repayment of share capital.

Is a payment of a premium a repayment of capital?

(4) Apart from (3), if you pay a premium on the redemption of share capital, it is not regarded as a repayment of share capital.

Is there a time limit for a distribution to be treated as repayment of capital?

(5) If you are a non-close company, the fact that you make a distribution more than 10 years after the bonus issue does not prevent it from being treated as a repayment of share capital provided the shares are not redeemable shares.

Section 133 Limitation on meaning of “distribution” – general

What was “section 84” lending?

In the 1980s and early 1990s, Irish banks lent a lot of money under Corporation Tax Act 1976 section 84 (now section 130).

Because the interest rate varied in relation to the borrower’s profitability, the interest payable on the “section 84” loan was treated as a distribution of profits and was not therefore

(a) taxable when received by the lender, or

(b) deductible for the borrower.

As a result, the lender could charge a lower net interest rate.

Due to concerns about loss of tax revenue from Irish banks, various restrictions were imposed to curtail the amount of “section 84” lending the banks could make. (10)-(11)

Lenders would be taxed on interest from “section 84” loans advanced after 20 December 1991, except loans to companies whose names were included (before 25 March 1991) on “the €317m list” prepared by the IDA.

The maximum “section 84” lending to such companies is €215m plus the amount by which €215m exceeds all such loans made between 31 January 1990 and 19 December 1991 to companies on the €215m list.

Section 134 Limitation on meaning of “distribution” in relation to certain payments made in respect of “foreign source” finance

Was interest on foreign-source “section 84” loans deductible?

This section allowed interest on foreign source “section 84” loans to escape the section 133 restrictions.

It applied to loans given to a company carrying on a specified trade, i.e., a manufacturing or deemed manufacturing activity.

Section 135 Distributions: supplemental

What is new consideration?

(1) New consideration is, essentially, new money coming into a company – money that does not come from the company’s existing assets. It does not include a profits transferred directly to the capital account – as such profits come from the company’s assets.

A share premium is new consideration unless that premium has already been deemed to be a repayment of share capital.

What is not new consideration?

(2) Consideration derived from the value of a company’s shares or voting rights is not regarded as new consideration unless it consists of:

(a) a distribution from profits,

(b) a repayment of share capital,

(c) the giving up of rights to share capital when it is acquired by the company.

Amounts within (b) and (c) are not new consideration unless they exceed the new consideration received by the company.

Can companies make distributions to each other’s shareholders?

(3) This is an anti-avoidance provision. Where your company colludes with one or more other companies to pay distributions to each other’s shareholders, all of the companies concerned may be treated as if anything done by one company had been done by any other.

Can a distribution by a group member be treated as made by another member?

(4) This is an anti-avoidance provision. If your company is a member of a 90% group (a principal company and its 90% subsidiaries), a distribution made in respect of shares in the company includes a distribution in respect of shares of another group member.

This does not mean that you must actually make that distribution to the other group member.

If you are a life company, you are not treated as making a distribution if you acquire shares in your quoted parent company as part of your investment portfolio (Insurance Act 1990 section 9).

Is a distribution regarded as paid out of assets?

(5) Yes, if the cost falls on the company.

What is a share?

(6) In this context, a share includes stock and any other any interest of a member in a company.

What is “issuing share capital as paid up”?

(7) “Issuing share capital as paid up” includes paying up of share capital previously issued.

What is a security?

(8) A security includes a security not creating or evidencing a charge on assets.

Interest paid by your company on an unsecured loan is treated as paid in respect of a security given for that loan.

Therefore, any loan can regarded as a security, and the interest on an unsecured loan can be treated as a distribution (section 130(2)(d)).

What is the principal on unquoted securities?

(9) If you issue unquoted securities for less than the amount repayable, the principal must not be taken as exceeding the issue price, unless the terms of issue are comparable with those for quoted securities.

What is meant by “in respect of” shares?

(10)-(11) Anything done “in respect of” a share (or security) applies to anything done by you as the holder or any former holder of the share (or security). It also applies to anything done in obtaining an option on the share (or security).

Section 136 Tax credit for certain recipients of distributions

This section is now repealed.

Section 137 Disallowance of reliefs in respect of bonus issues

What is a bonus issue?

(1) This rule applies if you are a recipient of a bonus issue, i.e.:

(a) bonus shares after a repayment of share capital (section 131),

(b) bonus shares preceding a repayment of share capital (section 132),

(c) interest treated as a distribution (section 130(2)(c)-(d)).

Can an exempt recipient claim a refund of tax credits on a bonus issue?

(2) If you are a recipient within (1), you will not get a refund of the tax credits attaching to a bonus issue on the grounds that:

(a) you are exempt from tax,

(b) you can elect to be taxed on the distributions (franked investment income) and then utilise losses against that income, or

(c) you have paid interest (which as a charge, reduces your total income).

Can a bonus issue be treated as franked investment income?

(3) No.

Can a “normal” bonus issue give rise to a refund?

(5) You are not caught by the restrictions in (2)-(3) to the extent that the bonus issue represents a normal return on your investment. In other words, only the excess over a normal return is treated as a bonus issue.

How do I calculate the “normal” return?

(6) If you paid above or below the market price for your shares, you calculate the normal return based on the market price at the time you acquired the shares.

In deciding whether your return exceeds a normal return, you must take into account the length of time between your acquisition of the shares and the payment of the dividend.

Section 138 Treatment of dividends on certain preference shares

What are preference shares?

(1) This anti-avoidance provision applies to banks and lenders. It counteracts artificial preference share arrangements, whereby what is in effect a loan is disguised as a subscription for a special class of preference shares – having a variable interest rate. The lender would pay no tax on such “loans” and as a result, would charge a lower interest rate.

It does not apply to “normal” preference shares, i.e.:

(a) quoted preference shares,

(b) unquoted fixed-rate preference shares,

(c) Non-transferable preference shares issued by an IFSC or Shannon zone company to a 100% foreign-owned investor. (There is no loss to the Irish Exchequer where a foreign bank lends to Irish borrowers through its Irish subsidiary.)

What anti-avoidance rules apply to preference shareholders?

(2) This section applies if you receive a dividend because you are a subscriber for preference shares in another company (the issuer).

How is a preference share dividend taxed?

(3) If you are a subscriber within (2), the dividend you receive on the preference shares is chargeable to tax under Schedule D Case IV .

Are preference share issued by a Shannon or IFSC company taxed?

(4) Preference shares issued by a Shannon (section 445) or IFSC (section 446) company issued to foreign investors remain excluded from the anti-avoidance provision in (1) even though the 10% rate have been abolished since 31 December 2010.

Section 139 Dividends and other distributions at gross rate or of gross amount

This section is now repealed.

Section 140 Distributions out of profits or gains from stallion fees, stud greyhound services fees and occupation of certain woodlands

What are exempt profits?

(1) Exempt profits are profits from the occupation of woodlands (section 232).

Other profits include distributions (other than distributions from exempt profits) you receive from Irish resident companies.

How is a distribution made partly from exempt profits treated?

(2) Such a distribution is to be regarded as two separate distributions: one from exempt profits and one from other profits.

Is a distribution from exempt profits itself exempt?

(3) Yes.

Must the warrant state that a distribution is from exempt profits?

(5) Yes, you must show on the dividend warrant that the distribution is from exempt profits.

What accounting period is a distribution made from?

(7) In general, a distribution is treated as payable from your distributable income (section 144(8)) for the accounting period for which it is made and, to the extent that it exceeds that distributable income, from your distributable income of the previous accounting period (and so on).

Can a distribution be made for part of an accounting period?

(8) You calculate the part of the distribution treated as being within the accounting period in the same proportion as the period of account bears to the accounting period.

What if the period from which a distribution is made is not specified?

(9) Where you do not express a specified period for a distribution, the distribution is treated as made for the accounting period in which it is made.

However, see section 154(1) which allows you to specify the particular accounting period(s) for which the distribution is to be regarded as payable.

Section 141 Distributions out of income from patent royalties

This section is now spent.

Section 142 Distributions out of profits of certain mines

This section is now spent.

Section 143 Distributions out of profits from coal, gypsum and anhydrite mining operations

This section is now spent.

Section 144 Distributions out of profits from trading within Shannon Airport

This section is now spent.

Section 145 Distributions out of profits from export of certain goods

This section is now spent.

Section 146 Provisions supplementary to section 145

This section is now spent.

Section 147 Distributions

This section is now repealed.

Section 148 Treatment of certain deductions in relation to relevant distributions

This section is now repealed.

Section 149 Dividends and other distributions at gross rate or of gross amount

This section is now repealed.

Section 150 Tax credit for recipients of certain distributions

This section is now repealed.

Section 151 Appeals

This section is now repealed.

Section 152 Explanation of tax credit to be annexed to interest and dividend warrants

What information must be included with a dividend payment?

(1) Every dividend payment must have an attaching warrant showing:

(a) The amount paid.

(b) The period for which it is being paid.

A capital dividend must be separately listed.

What penalty applies if information is not attached to a dividend payment?

(2) If the correct warrant is not attached to a dividend payment, a penalty of €10 applies for each offence, subject to a maximum penalty of €100.

Can a shareholder require the company to provide payment details?

(3) A recipient of a distribution can require the company to provide a written statement setting out the amount of the distribution.

Section 153 [Distributions to certain non-residents]

Who is a qualifying non-resident?

(1) A qualifying non-resident person is:

(a) an individual who is neither resident nor ordinarily resident in the Republic of Ireland (ROI), and who is resident in another EU State or a tax treaty country (i.e., a relevant territory), or

(b) a foreign company:

(i) resident in another EU State or a tax treaty country, and not controlled (see (1A) below) by ROI residents,

(ii) controlled (see (2) below) by resident of another EU State or a tax treaty country and not controlled by non-residents of that State or country, or

(iii) whose shares, or

(I) the shares of its 75% parent (see (3) below), or

(II) the shares of the companies that jointly own all of its shares (see (3A) below),

are regularly traded on a recognised stock exchange in another EU State or a tax treaty country, or a stock exchange that has been approved for this purpose by the Minister for Finance.

Example

Qualifying non-resident persons:

An individual resident in Germany who is neither resident, not ordinarily resident, in ROI.

A US resident US corporation.

A British Virgin Islands which does not carry on any activity in the ROI, all of your shares are owned by a company resident in Canada (a tax treaty country).

When do Irish residents control a foreign company?

(1A) In relation to (1)(b)(i), an Irish resident controls a company if he/she can control the company’s affairs, or if he/she is entitled to more than half its share capital, voting power, distributable income, or assets on winding up (section 432(2)).

Shares or voting power obtainable at some future date are counted as available immediately, as are shares held by nominees. Rights and powers held by his/her associates or by companies under his/her control are treated as available now (section 432(3)-(6)).

When do foreign residents control a foreign company?

(2) In relation to (1)(b)(ii), a foreign resident controls a company if he/she can control the company’s affairs, or if he/she is entitled to more than half the of the company’s share capital, voting power, distributable income, or assets on winding up (section 432(2)).

Shares or voting power obtainable at some future date are counted as available immediately, as are shares held by nominees. Rights and powers held by associates or by companies under his/her control are treated as available now (section 432(3)-(6)).

What is a 75% parent company?

(3) In relation to (1)(b)(iii)(I), a 75% parent company is one that owns 75% or more of the subsidiary’s share capital. To ensure a genuine parent-subsidiary relationship exists, the parent must also be entitled to 75% or more of the subsidiary’s profits (section 414) available for distribution to its equity holders (section 413), and at least 75% of the assets available for the subsidiary’s equity holders on a notional winding up (section 415).

Must joint parents be jointly entitled to profits and liquidation proceeds?

(3A) In relation to (1)(b)(iii)(II), to ensure a genuine parent-subsidiary relationship exists, the joint owners must be jointly entitled to 100% of the subsidiary’s profits (section 414) available for distribution to its equity holders (section 413), and 100% of the assets available for the subsidiary’s equity holders on a notional winding up (section 415).

Is a distribution to a qualifying non-resident subject to DWT?

(4) A qualifying non-resident person (see (1)) is not liable to income tax on distributions receivable from Irish resident companies. The company paying the dividend should not withhold DWT on the basis that the payment is an “annual payment” (section 237, 238).

Example

A Jersey company receives distributions of €25,000 from an Irish resident company.

It files a qualifying non-resident declaration (Schedule 2A para 8).

It is not chargeable to Irish income tax on the distributions.

The company need not deduct Irish DWT (section 172D(3)).

Is there an exception to the exemption from DWT?

(4A) A property income dividend paid by a REIT (see section 705A)is not exempt from DWT even if paid to a qualifying non-resident.

Is a distribution to a foreign 75% parent subject to DWT?

(5) A 75% subsidiary of a non-resident parent need not deduct DWT from a distribution to that parent. In such a case, income tax is not chargeable on distributions in the hands of the non-resident parent, nor should you withhold tax on the basis that the payment is an “annual payment” (sections 237, 238).

Example

A US-resident company receives distributions of €25,000 from X Ltd, its Irish resident 100% subsidiary. You have filed a qualifying non-resident declaration (Schedule 2A para 9).

It is not chargeable to Irish income tax on the distributions, as it is a parent within section 831(5).

X Ltd need not deduct DWT from the distribution (section 172D(3)).

Is a distribution to a foreign resident subject to DWT?

(6) This rule applies to a person who is not a qualifying non-resident person (see (1)), but is neither resident nor ordinarily resident in the ROI.

Where such a person receives a distribution from an Irish resident company:

(a) tax tax is limited to the DWT withheld, and

(b) the distribution is not treated as an annual payment (section 237, 238).

Example

You are resident for tax purposes in Gibraltar. You are neither resident nor ordinarily resident in the ROI.

You receive a distribution of €800,000 (i.e., €1,000,000 net of €200,000 DWT) from an Irish resident company.

Your income tax is limited to the DWT withheld (€200,000). You are not liable at the higher rate on the distribution.

Section 154 Attribution of distributions to accounting periods

When is the deadline for attributing a distribution to an accounting period?

(1) This rule applies to distributions paid from exempt woodlands income (section 140).

A company may, within six months of the end of the accounting period in which it made a distribution, elect in writing to attribute that distribution to any accounting period ended within the preceding nine years.

If no period is specified, the company is treated as having made the distribution for the most recent accounting period ended before the date of the distribution (section 147(2)).

Example

You had the following results:

distributable income Exempt distribution undistributed
Year ended 31.12.2003 nil nil nil
Year ended 31.12.2004 2,000 nil 2,000
Year ended 31.12.2005 25,000 5,000 22,000
Year ended 31.12.2006 160,000 40,000 142,000
Year ended 31.12.2007 250,000

30.04.2008 (i.e., in your accounting period to 31.12.2008), you propose to make a distribution of €200,000 in respect of the year ended 31.12.2007.

You can elect, before 30.06.2008, to specify the distribution as having been made from the accounting periods ended in the nine year period to 31.12.2007 for which there are undistributed income (i.e., 31.12.2006, 31.12.2005 and 31.12.2004).

When can a distribution be attributed to a previous accounting period?

(2) A company may only attribute a distribution to a prior accounting period up to the amount of its as yet undistributed income for that prior accounting period.

It may only attribute a distribution further back than nine years before that day, if the distribution exceeds its undistributed income for accounting periods ending not more than nine years before that day.

Example

Continuing with the previous example:

You may only attribute €166,000 (i.e.,€142,000 + €22,000 + €2,000) of the €200,000 distribution to previous accounting periods. The remainder, €34,000, is treated as made for the accounting period 31.12.2007.

When can a distribution be attributed to the accounting period in which it is made?

(3) A company may not attribute a distribution to the accounting period in which it is made except in the following cases:

(a) interim dividends paid before 1 January 2003,

(b) “section 130” distributions,

(c) artificial preference dividends (section 138(1)),

(d) a dividend paid in your first or last accounting period.

For all other distributions, the accounting period specified must be one ended before the current accounting period.

Example

Continuing with the previous examples:

You may not allocate your €200,000 distribution to the accounting period 31.12.2008 unless the distribution falls within (a)-(d) above.

How is undistributed income defined for distribution purposes?

(6) Undistributed income for an accounting period on any given day is the distributable (after tax) income for that period reduced by all distributions made, or treated as made, for the period before that day. See section 144(8).

Example

Continuing with the previous examples:

Before making the current distribution (€200,000), your undistributed income is €166,000.

In what order must distributable income be attributed to an accounting period?

(7) If distributable income exceeds cumulative undistributed income (see (6)), the company must attribute the current distribution to the most recent accounting period, and then to the next most recent accounting period, and so on, until the undistributed income has been cleared.

Example

Continuing with the previous examples:

You must allocate your proposed €200,000 distribution in the following order:

undistributed
Year ended 31.12.2006 142,000
Year ended 31.12.2006 22,000
Year ended 31.12.2004 2,000
Year ended 31.12.2007 (balance) 34,000
Total 200,000

Section 155 Restriction of certain reliefs in respect of distributions out of certain exempt or relieved profits

What is a scheme to eliminate financial risk?

(1)-(2) The business expansion scheme (BES) was aimed at encouraging investors to place risk capital in new and growing businesses.

However, tax advisers developed schemes to enable investors get a BES deduction and a guaranteed minimum return. This was done by routing the investment through a company that was capable of issuing tax-exempt distributions – from woodland income (section 140). This section counteracts such schemes.

Example

You might invest €10 in a specially formed company which in turn invests the money in a woodlands company: €9 by way of a loan, and a €1 share.

The woodlands company would pay a tax free dividend to the specially formed company and that company would pay a further exempt dividend to the investors. The scheme promoters would guarantee a minimum dividend, exempt from tax.

Is a distribution under a scheme which eliminates financial risk taxed?

(3) A distribution under a scheme which eliminates financial risk is taxed under Case IV if it is paid from woodland income (section 140).

Is a distribution to a foreign resident taxed?

(4) The Case IV treatment does not apply to a foreign resident.

Is a distribution to a company partly owned by foreign residents taxed?

(5) Unless owned entirely by non-residents, a company’s tax liability is to be determined as if the exemption in (4) did not exist.

This anti-avoidance measure was drafted before the current residence rules (Part 34) became effective. The planning opportunities envisaged are circumvented by those rules.

Section 156 Franked investment income and franked payments

What is franked investment income?

(1) A company’s franked investment income for an accounting period means its total distributions received in that period.

What is a franked payment?

(2) The value of a distribution made by a company is referred to as a franked payment.

Section 157 Set-off of losses, etc against franked investment income

This section has been deleted.

Section 158 Set-off of loss brought forward or terminal loss against franked investment income in the case of financial concerns

This section has been deleted.

Section 159 Liability for advance corporation tax

This sections has been repealed.

Section 160 Set-off of advance corporation tax

This sections has been repealed.

Section 161 Rectification of excessive set-off of advance corporation tax

This sections has been repealed.

Section 162 Calculation of advance corporation tax where company receives distributions

This sections has been repealed.

Section 163 Tax credit recovered from company

This sections has been repealed.

Section 164 Restrictions as to payment of tax credit

This sections has been repealed.

Section 165 Group dividends

This sections has been repealed.

Section 166 Surrender of advance corporation tax

This sections has been repealed.

Section 167 Change of ownership of company: calculation and treatment of advance corporation tax

This sections has been repealed.

Section 168 Distributions to certain non-resident companies

This sections has been repealed.

Section 169 Non-distributing investment companies

This sections has been repealed.

Section 170 Interest in respect of certain securities

This sections has been repealed.

Section 171 Returns, payment and collection of advance corporation tax

This sections has been repealed.

Section 172 Application of Corporation Tax Acts

This sections has been repealed.

Section 172A Interpretation

Who is a relevant person?

(1) A relevant person is an Irish resident company that makes a relevant distribution, i.e.:

(a) a dividend, or any payment of profits (sections 20(1), 130), but not a distribution to a government department, and,

(b) shares issued in place of a cash dividend (section 816).

A relevant person must deduct dividend withholding tax (DWT) from the payment. A relevant person also includes aqualifying intermediary through whom a distribution is paid. The recipient (the specified person) must allow the tax to be deducted.

A relevant distribution does not include one made by, or received from, a collective investment undertaking (section 734) – which includes an undertaking for collective investment (section 738), an “insurance” investment undertaking (section 739B) but not an offshore fund (section 743).

DWT does not apply to distributions paid to:

(a) a non-liable person, i.e., an excluded person (section 172C(2)), or a qualifying non-resident person (section 172D(3)) who is resident for tax purposes in another EU State or a tax treaty country (relevant territory),

(b) a qualifying intermediary (section 172E), or

(c) an authorised withholding agent (section 172G).

A relevant person may issue an electronic dividend voucher, provided each voucher has a unique electronic number, the security’s ISI number and a unique recipient ID code (section 172I(1A)).

What is a relevant distribution?

(2) A relevant distribution is the gross distribution before deducting DWT:

(a) If the distribution is paid in cash, it is the gross payment.

(b) If the distribution consists of shares, the amount it is the foregone cash dividend.

(c) If the distribution is a scrip dividend issued by a quoted company, the amount is the shares’ cash value.

(d) If it is a non-cash distribution (not within (b)-(c)), the amount is the value of the distribution.

Can a relevant distribution be paid without DWT?

(3) A relevant distribution may be paid without DWT being deducted to:

(a) an Irish resident company,

(b) a pension scheme (sections 774, 784, 785),

(c) a qualifying employee share ownership trust (Schedule 12),

(d) a collective investment undertaking, or

(e) a qualifying non-resident person.

However, to be paid gross, the recipient must complete the relevant declaration (Schedule 2A).

Section 172B Dividend withholding tax on relevant distributions

Who must deduct DWT?

(1) An Irish resident company that makes a relevant distribution (section 172A) to a specified person must deduct DWT.

The recipient must allow the deduction.

The company is treated as if it had paid the full amount to the recipient, and is therefore acquitted of its debt to the recipient.

Example

X Ltd pays a cash dividend of €10,000 to its shareholder X.

X is not an excluded person (section 172C(2)), a qualifying non-resident person (section 172D(3)), a qualifying intermediary (section 172E), or an authorised withholding agent (section 172G).

X Ltd must deduct DWT of €2,000 (20% x €10,000) and pay the DWT to the Collector-General (section 172K).

Therefore, the distribution received by X is €8,000 (i.e., €10,000 – €2,000).

X must allow the deduction.

Is a distribution consisting of additional shares subject to DWT?

(2) On paying a relevant distribution consisting of:

(a) additional shares instead of a cash dividend, or

(b) a scrip dividend,

the payer must reduce the value of the shares so that the shareholder receives the net value that he/she would have received had he/she been paid in cash instead of shares.

The recipient must allow the reduction.

The company is treated as if he/she had paid the gross distribution to the recipient, and is therefore acquitted of the debt to the recipient.

It must also pay Revenue the DWT that would have applied had the payment been made in cash.

Example

Y Ltd. gives shares worth €10,000 to its shareholder Y in lieu of a cash dividend. Y is not an excluded person (section 172C(2)), a qualifying non-resident person (section 172D(3)), a qualifying intermediary (section 172E), or an authorised withholding agent (section 172G).

Y Ltd. must deduct €2,000 (20% x €10,000) DWT and pay it to Revenue (section 172K). Y receives shares worth €8,000 (i.e., €10,000 – €2,000). Y must allow the deduction.

Is a non-cash distribution subject to DWT?

(3) On paying a non-cash distribution which is not within (2), the paying company must pay Revenue the DWT that would been deducted had the distribution been paid in cash.

The company is entitled to recover DWT from the recipient as if were a contract debt in court proceedings.

When is DWT not deductible?

(4) A company must deduct DWT from every relevant distribution it paid to a specified person. If satisfied that DWT does not apply, it may pay the distribution without deducting DWT, until it has information that DWT should be applied.

How long should DWT declarations be kept?

(4A) A company must keep DWT declarations, certificates and notifications, which it makes or receives, for the longer of:

(a) six years, or,

(b) three years after the date on which it ceased to make distributions to the declarant.

It must, if requested in writing by Revenue, produce for inspection:

(a) all DWT declarations, certificates and notifications made or received, or

(b) any DWT declarations, certificates and notifications specified in the notice given by Revenue.

Revenue may examine, take extracts from, or make copies of the declarations, certificates and notifications.

Does a recipient include the gross distribution in his tax return?

(5) The recipient of a distribution must include the gross amount (before deduction of DWT) in his/her tax return.

Is a distribution paid to foreign 75% parent subject to DWT?

(6) A company need not deduct DWT from a distribution paid to its non-Irish-resident parent (section 831(5)).

Example

A company’s share capital is owned as follows:

€1 10%
ordinary preference
shares shares total
Mr and Mrs A 35,000 25,000 60,000
B, a Belgian company 4,000 36,000 40,000
39,000 61,000 100,000

B is regarded as the company’s “parent” for the purposes of the EU Parent-Subsidiary Directive (90/435/EEC), because it owns 40% (i.e., more than 25%) of your share capital.

The company need not deduct DWT from a dividend paid to B

Is a distribution paid from exempt profits subject to DWT?

(7) A company need not deduct from a distribution paid out of exempt profits, e,g, from commercial forestry (section 140).

Is a dividend paid to an Irish parent subject to DWT?

(8) DWT need not be deducted from a distribution paid to an Irish 51% parent.

Section 172C Exemption from dividend withholding tax for certain persons

Is a distribution to an excluded person subject to DWT?

(1) A distribution to an excluded person is not subject to DWT. See: Tax Briefing 41.

Who is an excluded person?

(2) An excluded person is a person on the following list who has made the appropriate declaration:

(a) an Irish resident company (Schedule 2A para 3),

(b) a pension scheme (Schedule 2A para 4),

(ba) a qualifying fund manager of an ARF (section 784A) or AMRF (section 784C) (Schedule 2A para 4A),

(bb) a PRSA administrator (Schedule 2A para 10),

(c) a qualifying employee share ownership trust (Schedule 2A para 5),

(d) a collective investment undertaking (Schedule 2A para 6),

(da) a person exempt in respect of compensation for personal injuries (section 189(2)), investments held by a trust for a permanently incapacitated person (section 189A(2), (3)(b)), or investment proceeds of compensation for thalidomide injuries (section 192(2)) (Schedule 2A para 6A),

(db) an exempt unit trust (Schedule 2A para 11),

(e) a recognised charity (Schedule 2A para 7),

(f) a Revenue-approved amateur sports body (Schedule 2A para 7A).

Who is the beneficial owner of a relevant distribution?

(3) For DWT purposes:

(a) a collective investment undertaking is treated as the owner of the distributions received on behalf of unit holders,

(c) a qualifying fund manager is treated as the owner of distributions received in respect of assets held in an ARF or AMRF,

(ca) a PRSA administrator is treated as the owner of the distributions received in respect of PRSA assets,

(cb) an exempt unit trust is treated as the owner of the distributions you receive on behalf of its holders,

(d) the trustees of a trust for a permanently incapacitated individual are treated as the owner of income received on behalf of the individual.

Section 172D Exemption from dividend withholding tax for certain non-resident persons

Is a distribution to a qualifying non-resident person subject to DWT?

(2) A distribution to a qualifying non-resident person is not subject to DWT.

Who is a qualifying non-resident person?

(3) A qualifying non-resident person is:

(a) an individual who:

(i) is neither resident nor ordinarily resident in the Republic of Ireland (ROI),

(ii) is resident in another EU State or a tax treaty country (i.e., a relevant territory), and

(iii) has made a declaration and produced a certificate of non-residency (Sch 2A para 8(f)),

or

(b) is company that has made the declaration and produced a certificate of non-residency (Sch 2A para 9(f)) and:

(i) is tax-resident in another EU State or a tax treaty country under the laws of that State or country, and is not controlled by persons resident in the ROI,

(ii) is controlled by persons resident for tax purposes in another EU State or a tax treaty country and not controlled by persons resident outside that State or country, or

(iii) the shares of which, or

(I) the shares of its 75% parent, or

(II) the shares of the companies that jointly own all of its shares,

are traded on a recognised stock exchange in an EU State or a tax treaty country.

Example

An Irish resident company pays a cash dividend of €10,000 to a shareholder X (a private individual).

X is resident for tax purposes in France, and has filed the appropriate declaration and non-residency certificate with Revenue.

DWT need not be deducted from the payment.

Example

An Irish resident company pays a cash dividend of €10,000 to a shareholder Y Inc (a US corporation).

Y Inc is resident for tax purposes in the USA (i.e., a tax treaty country), and has filed the appropriate declaration and non-residency certificate with Revenue.

DWT need not be deducted from the payment.

Example

An Irish resident company pays a cash dividend of €10,000 to a UK-resident parent Z Ltd, which is a 100% subsidiary of Z plc (a UK corporation).

Z plc is resident for tax purposes in the UK, its shares are quoted on the London Stock Exchange, and it has filed the appropriate declaration and non-residency certificate with Revenue.

DWT need not be deducted from the payment.

When do Irish residents control a company?

(3A) In relation to (3)(b)(i), control means control over the company’s affairs, and includes entitlement to more than half the of the company’s share capital, voting power, distributable income, or assets on winding up (section 432(2)).

Shares or voting power obtainable at some future date are counted as available immediately, as are shares held by nominees. Rights and powers held by associates or controlled companies are treated as available t o the holder of such rights(section 432(3)-(6)).

Is there an exception to the exemption from DWT?

(3B) Property income dividends paid by a REIT (see Section 705A) are not exempt from DWT even when paid to a qualifying non-resident.

When do foreign residents control a company?

(4) In relation to (3)(b)(i), control means control over the company’s affairs, and includes entitlement to more than half the of the company’s share capital, voting power, distributable income, or assets on winding up (section 432(2)).

Shares or voting power obtainable at some future date are counted as available immediately, as are shares held by nominees. Rights and powers held by associates or controlled companies are treated as available t o the holder of such rights(section 432(3)-(6)).

What is a 75% parent?

(5) In relation to (3)(b)(iii)(I), a 75% parent company is one that owns 75% or more of the subsidiary’s share capital. To ensure a genuine parent-subsidiary relationship exists, the parent must also be entitled to 75% or more of the subsidiary’s profits (section 414) available for distribution to its equity holders (section 413), and at least 75% of the assets available for the subsidiary’s equity holders on a notional winding up (section 415).

Must joint parents be jointly entitled to profits and liquidation proceeds?

(6) In relation to (3)(b)(iii)(II), to ensure a genuine parent-subsidiary relationship exists, the joint parent must be jointly entitled to 100% of the subsidiary’s profits (section 414) available for distribution to its equity holders (section 413), and 100% of the assets available for the subsidiary’s equity holders on a notional winding up (section 415).

Section 172E Qualifying intermediaries

Is a distribution to a QI subject to DWT?

(1) DWT need not be deducted from a relevant distribution made through a qualifying intermediary to an excluded person (section 172C(2)), or to a qualifying non-resident person (section 172D(3)).

Example

A company pays a cash dividend of €10,000 to a licensed bank which is a qualifying intermediary.

The company need not deduct DWT from the payment.

Who is a QI?

(2) A qualifying intermediary (QI) in relation to relevant distribution is a person who:

(a) is resident in the Republic of Ireland (ROI) or a tax treaty country,

(b) has entered into a qualifying intermediary agreement with Revenue,

(c) has been authorised in writing by Revenue to be a qualifying intermediary for distributions and such authorisation has not been revoked

What is a QI agreement?

(3) A qualifying intermediary agreement is an agreement between a person and Revenue, whereby the QI:

(a) To accept DWT declarations and to keep DWT declarations, certificates and notifications for the longer of:

(i) six years, or

(ii) three years after the date on which the company ceased to make relevant distributions to the declarant.

(b) If requested to do so in writing by Revenue, to produce for inspection:

(i) all DWT declarations, certificates and notifications made or received, or

(ii) the DWT declarations, certificates and notifications specified in the notice given to you by Revenue.

(c) To inform Revenue if a declaration or notification appears to have been falsely made.

(d) To inform Revenue if a declaration or notification appears false.

(e) To fulfil compliance obligations correctly and efficiently and file QI returns on time.

(f) To file with Revenue, within three months of the end of the first year of operation, a compliance report signed by an auditor. On being requested in writing by Revenue, to file a similar report for a specified period, within the time limit specified in the Revenue notice.

(g) To provide a bond or guarantee to indemnify Revenue against loss arising from fraud or negligence in relation to DWT.

(h) In the case of a depositary bank holding shares in trust for American depositary receipt holders, to comply with the related exempt fund conditions (section 172F(3)(d)) and any other conditions specified in the agreement.

(i) To allow Revenue to verify compliance with the agreement, and the operation of DWT, in any other manner they consider necessary.

Can Revenue examine a QI’s records?

(3A) Revenue may examine, take extracts from, or make copies of the declarations, certificates and notifications mentioned in (3)(b).

Who can Revenue authorise as a QI?

(4) Revenue may not authorise a person who is not:

(a) a licensed bank,

(b) a subsidiary of a licensed bank,

(c) a member firm of a recognised stock exchange, or

(d) a person suitable in the opinion of Revenue to be a qualifying intermediary.

Is there a list of QIs?

(5) Revenue must keep an up-to-date list of authorised QIs and official secrecy rules do not apply to that list.

The list can be seen at www.revenue.ie under publications/lists.

Can Revenue de-authorise a QI?

(6) Revenue may by written notice revoke a QI’s authorisation from the date specified in the notice if they are satisfied that the QI:

(a) has not complied with the agreement, or

(b) is otherwise unsuitable to be a qualifying intermediary.

Can Revenue publish notice of a QI’s de-authorisation?

(7) Revenue must publish in Iris Oifigiúil a notice of revocation of a QI’s authorisation.

When does a QI’s authorisation expire?

(8) A QI’s authorisation is automatically cancelled on the seventh anniversary of the date it came into effect. This does not prevent:

(a) the making of a new agreement with Revenue,

(b) the QI from being re-authorised at some future date.

Section 172F Obligations of qualifying intermediary in relation to relevant distributions

What are a QI’s Exempt Fund and Liable Fund?

(1) A QI must create and maintain an Exempt Fund and a Liable Fund in respect of payments received:

(a) relevant distributions from Irish resident companies,

(b) payments representing such distributions from another QI.

The QI must notify the payer in writing as to whether the person on whose behalf you receive the distribution or payment is included in your Exempt Fund or your Liable Fund.

Example

A QI receives a payment of €10,000 from X Ltd, an Irish resident company.

The ultimate recipients and distribution of the payment are:

DWT Fund
A (Irish resident individual) 5,000 1,000 Liable (section 172B)
B (a German resident individual) 1,000 nil Exempt (section 172D(3))
C Inc (Pension scheme) 1,000 nil Exempt (section 172C)
Z plc (qualifying intermediary) 3,000 nil* Exempt (3)(b)
10,000

Z plc will include the €3,000 distribution in its exempt fund as the ultimate recipient is a Canadian corporation. Ireland has a tax treaty with Canada.

What should be included in a QI’s Exempt Fund?

(2) The Exempt Fund should include distributions and payments received on behalf of:

(a) a non-liable person,

(b) another QI for inclusion in its Exempt Fund.

Who should a QI include in its Exempt Fund?

(3) In handling its Exempt Fund:

(a) a QI must not include a non-liable person unless it has received the appropriate declaration:

(i) from an Irish company, pension scheme, employee share ownership trust, collective investment undertaking, or charity,

(ii) together with a non-residency certificate in the case of a non-resident recipient.

(b) a QI must not be included unless it provides a written notice stating that it will include the payments or distributions to it in its Exempt Fund.

(c)-(d) a depositary bank holding shares on behalf of American depositary receipt (ADR) holders must include:

(i) an ADR holder with an address in the USA,

(ii) a specified intermediary (see (e)) who receives distributions or payments on behalf of:

(I) a US-resident ADR holder who is included in the bank’s Exempt Fund, or

(II) a specified intermediary for inclusion in its Exempt Fund on behalf of ADR holders.

(e) A specified intermediary is one that:

(i) operates as an intermediary from a US base and is a licensed bank, a wholly owned subsidiary of a licensed bank, a stock exchange member firm, or a person suitable in Revenue’s view to be a QI,

(ii) maintains an Exempt Fund and a Liable Fund,

(iii) includes in its Exempt Fund distributions and payments received on behalf of US-resident ADR holders, or a specified intermediary for inclusion in its Exempt Fund,

(iv) includes in its Liable Fund distributions and payments received on behalf of ADR holders not included in its Exempt Fund,

(v) notifies the QI or specified intermediary as to whether the distribution or payment is included in its Exempt Fund or its Liable Fund, and

(vi) agrees with the QI or specified intermediary that it will comply with the conditions in (7A) below.

(f) A person who would not otherwise qualify as a non-liable person is included in the Exempt Fund must be treated as a non-liable person.

(g) In the event of non-compliance, Revenue may:

(i) cancel a person’s specified intermediary status, and

(ii) send a copy of the cancellation notice to a QI (which is a depositary bank holding shares in trust for ADR holders) or a specified intermediary.

(h) Revenue may revoke a cancellation notice in (g).

Revenue must send a copy of the revocation notice to any person to whom they sent the original cancellation notice

Who should a QI include in its Liable Fund?

(4) A QI must include in its Liable Fund all persons not included in its Exempt Fund.

How often should a QI update its Exempt and Liable Funds?

(5) A QI must update its Exempt Fund and its Liable Fund as often as necessary to ensure it complies with all conditions in (2)-(4), and it must notify any company or QI from whom it receives distributions of such updates.

How should a QI treat an Irish distribution received on behalf of a non-liable person?

(6) If a QI receives a distribution on behalf of a non-liable person, it must notify the company that the non-liable person is included in its Exempt Fund. Otherwise, the Irish company must deduct DWT.

Is a QI obliged to file a return to Revenue?

(7) A QI must, if required in writing by Revenue, file a return for a tax year showing:

(i) the name and address of:

(I) each Irish company from whom it received distributions in that year, and

(II) each other person from whom Irish company distributions were received in that year,

(ii) the amount of each distribution,

(iii) the name and address of each person to whom a distribution was paid,

(iv) the name and address of each person within (iii) who has provided an appropriate declaration.

Revenue may confine the return to a particular class of distributions.

What rules apply where a QI return includes a distribution to a specified intermediary?

(7A)(a) Where a return includes details of a distribution given to a specified intermediary:

(b) The QI must request the specified intermediary to provide the name and address of each person to whom that intermediary gave a distribution.

(c) The specified intermediary must provide the information in (b) within 21 days of the request.

(d) The QI must include the information under (b) in its return. Where the specified intermediary has filed the information directly to Revenue, the QI must include a statement to that effect in its return under (7)(a).

(e) If the first specified intermediary cannot provide the information in (b), because it has given the distribution to a second specified intermediary, the first must request the second to notify it of the name and address of each person to whom the second gave a distribution.

(f) The second intermediary must provide the information in (e) to the first intermediary or directly to Revenue, within 21 days of the request.

(g) Where the second intermediary provides the information in (e):

(i) To the first intermediary, he/she must immediately transmit the information to the QI, or directly to Revenue. The QI must include in its return under (7)(a) a statement to the effect that the information has been filed directly to Revenue.

(ii) Directly to Revenue, it must immediately inform the first intermediary of that fact, and the first intermediary must immediately inform the QI. The QI must then include in its return under (7)(a) a statement to the effect that it has been advised by the intermediary that the information has been filed directly to Revenue.

(h) Where a specified intermediary provides information directly to Revenue in electronic format, that format must be agreed in advance with Revenue.

How should a QI return be filed?

(8) A QI return must be filed electronically in a Revenue-approved format, with a declaration that the return is correct and complete.

Can a QI file a paper return?

(9) Revenue may allow a QI to file a paper return if they are satisfied that it does not have the facilities to file an electronic return.

Section 172G Authorised withholding agent

Is a distribution to an AWA subject to DWT?

(1) A distribution to an AWA is not subject to DWT.

Who is an AWA?

(2) An authorised withholding agent (AWA) is an intermediary that:

(a) is resident in the Republic of Ireland (ROI) or resident in a tax treaty country and trading through an ROI branch,

(b) has entered into an AWA agreement with Revenue,

(c) has been authorised in writing by Revenue to be an AWA in relation to distributions received on behalf of others from Irish companies.

What is an AWA agreement?

(3) An authorised withholding agent agreement is an agreement between an AWA and Revenue, under which the AWA undertakes:

(a) To accept DWT declarations and notifications, and to keep DWT declarations, certificates and notifications for the longer of:

(i) six years, or

(ii) three years after the company ceased to make distributions to the shareholder.

(b) If requested to do so in writing by Revenue, to produce for inspection:

(i) all DWT declarations, certificates and notifications made or received, or

(ii) the DWT declarations, certificates and notifications specified in the Revenue notice.

(c) To inform Revenue if a declaration or notification appears to have been falsely made when it was made.

(d) To inform Revenue if a declaration or notification appears false.

(e) To fulfil compliance obligations correctly and efficiently.

(f) To file an AWA return and pay any DWT due on time.

(g) To file with Revenue, within three months of the end of the first year of operation, a compliance report. The report must be signed by an auditor. The AWA must also undertake, on being requested in writing by Revenue, to file a report for a specified period, within the time limit in the Revenue notice.

(h) To allow Revenue to verify compliance with the agreement, and the operation of DWT, in any other manner they consider necessary.

Can Revenue examine an AWA’s records?

(3A) Revenue may examine, take extracts from, or make copies of the declarations, certificates and notifications in (3)(b).

Who can Revenue authorise as an AWA?

(4) Revenue must not authorise an AWA who is not:

(a) a licensed bank,

(b) wholly owned by a licensed bank,

(c) a stock exchange member firm, or

(d) suitable in the opinion of Revenue to be an AWA.

Is there a list of AWAs?

(5) Revenue must keep an up-to-date list of AWAs; official secrecy do not apply to the release of names on that list.

Can Revenue de-authorise an AWA?

(6) Revenue may by written notice revoke an authorisation if they are satisfied that an AWA:

(a) has not complied with the agreement,

(b) is otherwise unsuitable to be an AWA.

Can Revenue publish notice of an AWA’s de-authorisation?

(7) Revenue must publish the notice of an AWA’s revocation in Iris Oifigiúil.

When does a AWA’s authorisation expire?

(8) An AWA’s authorisation is automatically cancelled on the seventh anniversary of the date it first came into effect. This does not prevent:

(a) a new agreement,

(b) reauthorisation as an AWA at some future date.

Section 172H Obligations of authorised withholding agent in relation to relevant distributions

Who should an AWA notify?

(1) An AWA must notify any Irish company from whom it receives dividends on behalf of others that it is an AWA.

Is a distribution paid by an AWA subject to DWT?

(2) On paying a distribution, an AWA must deduct DWT and pay it to Revenue.

Is a distribution paid to an AWA subject to DWT?

(3) A person paying a dividend to an AWA must deduct DWT unless they have been notified not to deduct tax.

Section 172I Statement to be given to recipient of relevant distributions

What document must be given to a distribution recipient?

(1) A person making a relevant distribution (the payer) must give the recipient a written statement or email showing:

(a) the payer’s name and address (and that of the distributing company),

(b) the recipient’s name and address,

(c) the date the distribution was made,

(d) the (gross) amount of the distribution, and

(e) the DWT deducted from the distribution.

Example

A company pays a cash dividend of €10,000 to its shareholder Y and deducts €2,000 (20% x €10,000) DWT from the payment. The distribution received by Y is €8,000 (i.e., €10,000 – €2,000).

The company must give Y a written statement showing:

(a) its name and address,

(b) Y’s name and address,

(c) the date of the distribution,

(d) the amount of the distribution (€10,000),

(e) the DWT deducted (€2,000).

Can a company issue an electronic dividend voucher?

(1A) A company may issue an electronic dividend voucher to an intermediary or the recipient of the distribution provided:

(a) it contains:

(i) an International Securities Identification Number (ISI Number),

(ii) a unique code that identifies the recipient (recipient ID code),

(iii) the date, the amount of the distribution and the amount of DWT,

(iv) a unique number which identifies the particular electronic dividend voucher (electronic number),

(b) the intermediary or the recipient of the distribution has agreed to receive the voucher in electronic format, and

(c) Revenue agree to accept the voucher as being a proper dividend voucher.

Can a company attach the required information to the dividend warrant?

(2) A company may include the written statement in (1) with or as part of the dividend warrant (section 152(1)).

What penalty applies to a company that does not provide the required information?

(3) A company that does not provide the information in (1) is liable to a penalty of €12.70 for each offence, subject to a maximum penalty of €127.

Section 172J Credit for, or repayment of, dividend withholding tax borne

Can a recipient credit DWT against tax?

(1) The recipient of a distribution may offset any DWT borne in that year against his/her tax liability.

Example

You receive a cash dividend of €10,000 from which €2,000 (20% x €10,000) DWT of has been deducted, leaving you with €8,000.

Assuming your marginal tax rate is 41%, the tax on the dividend in your tax return will be €4,100 (41% x €10,000), of which €2,000 is available as a credit.

Can a distribution recipient get a refund of DWT?

(2) A distribution recipient may receive a refund of DWT if DWT exceeds his/her tax liability.

Can a non-liable person get a refund of DWT?

(3) A non-liable person may be entitled to a refund of any DWT borne in a tax year. Refund claims: Tax Briefing 41.

What document is needed to vouch a claim for DWT credit?

(4) The dividend warrant or statement of tax withheld is needed to support a claim for DWT.

What information do Revenue need to allow DWT credit?

(5) Revenue must not allow a credit or refund of DWT unless they have evidence that the recipient is entitled to the credit or refund.

Section 172K Returns, payment and collection of dividend withholding tax

What details must be provided to Revenue on making a distribution?

(1) An accountable person who makes a relevant distribution must file a return to Revenue within 14 days of the end of the month stating:

(a) the company’s name, address, and tax reference number,

(b) in the case of an AWA, the AWA’s name,

(c) the recipient’s name and address,

(d) the date the distribution was made,

(e) the (gross) amount of the distribution,

(f) the DWT deductible,

(g) the aggregate DWT deductible for the month covered by the return, and

(h) whether the distribution is paid from exempt profits (section 172B(7)).

When is DWT due?

(2) DWT is due and payable, on a self-assessment basis, within 14 days of the end of the month to which the return relates.

The inspector retains the right to assess DWT due.

Can the inspector assess unpaid DWT?

(3) An inspector may estimate and assess any DWT underpaid. Interest on underpaid tax accrues from the due date.

Can the inspector adjust a DWT return?

(4) An inspector may make any assessments, adjustments or set offs necessary to recover any underpaid tax, or to refund any tax overpaid.

When is an assessment of DWT due?

(5) The tax assessed by the inspector is due within one month of the date of the notice of assessment.

Can Revenue enforce collection of unpaid DWT?

(6) Revenue may enforce payment of unpaid DWT and interest.

Interest is charged at 0.0274% for each day or part of a day the DWT remains unpaid.

Tax may not be withheld from such interest on the basis that it is an “annual payment.”

In court proceedings a certificate signed by the Collector stating that tax is due is evidence, until the contrary is proved, that the amount is so due.

How should a DWT return be filed?

(7) A DWT return must be filed electronically in a Revenue-approved format, with a declaration that the return is correct and complete.

Can an accountable person file a paper DWT return?

(8) Revenue may allow a paper return to be filed if they are satisfied that the person does not have the facilities to file an electronic return.

Can an assessment under this section be appealed?

(9) A person aggrieved by an assessment under this section may appeal it to the Appeal Commissioners within 30 days of the notice.

Section 172L Reporting of distributions made under stapled stock arrangements

What are stapled stock arrangements?

(1) A non-resident company is said to make distributions under a stapled stock arrangement where:

(a) the recipient has exercised a right to receive distributions from that company instead of from a resident company, and

(b) that right has not been revoked.

What is a stapled stock return?
(2) Where a distribution is made under a stapled stock arrangement, the resident company must make a stapled stock return to Revenue stating:

(a) its name and tax reference number,

(b) its name and address,

(c) the name and address of each recipient of a distribution,

(d) the date on which each distribution was made,

(e) the (gross) amount of each distribution.

The return must be filed within 14 days of the end of the month in which the distributions were made.

How should a stapled stock return be filed?

(3) The resident company must file its stapled stock return electronically in a Revenue-approved format, with a declaration that the return is correct and complete.

Can a company file a paper stapled stock return?

(4) Revenue may allow the company to file a paper return if they are satisfied that the company does not have the facilities to file an electronic return.

Section 172LA Deduction of dividend withholding tax on settlement of market claims

What is a stockbroker?

(1) A stockbroker means a member firm of the Irish Stock Exchange, or of a recognised foreign stock exchange.

What is a market claim?

(2) A market claim arises where:

(a) an Irish company makes a distribution to a person on its share register (the recorded owner),

(b) as a result of a specified event, i.e., the sale of the shares or another event, another person (the proper owner) is entitled to a distribution in respect of the shares, and

(c) the accountable person (stockbroker, QI or AWA) who acted on the seller’s behalf must pay any post-sale distribution to the new owner’s stockbroker in settlement of the market claim.

Is the settlement of a market claim subject to DWT?

(3) When settling a market claim, the accountable person must deduct DWT. The proper owner must allow the deduction.

The payer is treated as if he/she had paid the full distribution to the proper owner. The payer has no debt to the proper owner (or to his stockbroker) in respect of the tax deducted.

What documentation must be provided when settling a market claim?

(4) When settling a market claim, the accountable person must give the proper owner (or his/her stockbroker) a written statement showing:

(a) your name and address,

(b) the distributing company’s name and address,

(c) the amount of the distribution, and

(d) the DWT deducted.

When is market claim DWT due?

(5) DWT is due and payable on a self-assessment basis within 14 days of the end of the month in which the tax should have been deducted.

The inspector retains the right to assess DWT due.

What information must accompany a market claim DWT payment?

(6) The DWT must be accompanied by a written statement showing:

(a) the accountable person’s name and address,

(b) the names and addresses of the distributing companies that make up the payment,

(c) the DWT included in the payment.

When is a market claim annual return due?

(7) A market claim DWT return must be filed on or before 15 February stating:

(a) the accountable person’s name and address,

(b) in relation to each market claim which arose in that year:

(i) the distributing company’s name and address,

(ii) the amount of the distribution,

(iii) the DWT deducted in relation to the distribution.

How should a market claim annual return be filed?

(8) A market claim annual return must be filed electronically with a declaration that the return is correct and complete.

Can an accountable person file a paper market claim DWT return?

(9) Revenue may allow an accountable person to file a paper return if they are satisfied that it does not have the facilities to file an electronic return.

How long should market claim information be kept?

(10) An accountable person must:

(a) keep documents and records relating to market claims for six years, and

(b) allow Revenue to inspect such documents and records, and to check DWT compliance.

Section 172M Delegation of powers and functions of Revenue Commissioners

Can Revenue delegate their powers in relation to DWT?

Revenue may delegate any of their functions in relation to DWT to an authorised officer.

Section 173 Interpretation (Chapter 9)

What definitions are relevant regarding a share buyback?

(1) The following terms may apply:

A trading company is one whose business consists mainly of carrying on a trade. In this context, “trade” does not include dealing in shares, land, futures or traded options.

A holding company is one whose business consists of holding shares in its 51% subsidiaries.

A company, together with its 51% subsidiaries, is a group.

A company is a quoted company if its shares are listed on a stock exchange or traded on an unlisted securities market.

Personal representatives are the executors or administrators of an estate.

Who is an owner of shares?

(2) The owner of shares is their beneficial owner, i.e., their true owner, and not a nominee shareholder – the person in whose name they are registered.

A beneficiary who is absolutely entitled to shares held on trust is regarded as the owner of those shares. Otherwise, the trustees are regarded as the owner.

A deceased person’s personal representatives are regarded as the owner of shares formerly held by the deceased.

Can a company buy back shares by transferring assets to the seller?

(3) A company may buy back its shares by transferring an asset to the seller. Such a transfer may qualify for CGT treatment even though it is a payment in kind.

What is an unquoted company?

(4) An unquoted company is one that is not a quoted company or a 51% subsidiary of a quoted company.

Section 174 Taxation of dealer’s receipts on purchase of shares by issuing company or by its subsidiary

What are fixed rate preference shares?

(1) Fixed rate preference shares are shares issued wholly for new consideration (i.e., consideration that has not been provided from company assets) which:

(a) are non-convertible,

(b) carry a right to a dividend at a fixed percentage of the shares’ nominal value, and

(c) the dividend entitlements of which are not excessive, having regard to the dividend entitlements available for comparable quoted shares.

Bonus issues (shares not issued wholly for new consideration) do not qualify.

Can a share dealer claim buyback CGT treatment?

(2) Share sales by a share dealer are taxed under Schedule D Case I or II.

A share dealer is not entitled to CGT treatment on a share buy back.

Who is a share dealer?

(3) A share dealer is a person whose share dealing profits are taxed under Case I (in the case of a bank or corporate dealer) or Case II (in the case of a broker).

Does a buyback include a redemption of shares?

(4) In (2), the purchase of shares includes their redemption.

Does redemption of fixed rate preference shares qualify for buyback treatment?

(5) The rule in (2) does not apply to a gain on the redemption of fixed rate preference shares held in a company since its formation.

Such a gain qualifies for CGT treatment in the normal way.

Section 175 Purchase of own shares by quoted company

Does a buy back of quoted shares qualify for CGT treatment?

(1) The buyback of shares by a quoted company is not regarded as a distribution.

The seller’s gain is subject to CGT. However, the buy back must not be part of a tax avoidance scheme.

Must a quoted company provide Revenue with details of buybacks made?

(1A) From 4 February 2010, the paying company must notify Revenue of share buybacks within 12 months of the end of the accounting period in which the buyback took place.

Does a quoted company include a member of its group?

(2) In (1), a quoted company includes a member of a quoted company’s group.

Section 176 Purchase of unquoted shares by issuing company or its subsidiary

When does a share buyback qualify for CGT treatment?

(1) A share buyback is treated as subject to CGT (not income tax), provided:

(a) the company is an unquoted trading company (or an unquoted holding company of a trading group), and

(b) the purpose of the buyback is to benefit the company’s trade.

See Tax Briefing 25. In Moody v Tyler [2000] STC 296, it was held that meeting the trade benefit test was a question of fact.

Further conditions (sections 177181) must be met to qualify for the CGT treatment.

The CGT treatment also applies, if for hardship reasons, shares are sold to:

(a) pay inheritance tax arising on the acquisition of those shares, or

(b) repay money borrowed to pay inheritance tax arising on the acquisition of those shares.

Can a buyback by a subsidiary qualify for CGT treatment?

(2) Yes. A buyback by a subsidiary is treated as a buyback by the parent.

Example

A company has issued share capital of €50,000 consisting of 50,000 shares.

You own 10,000 shares, for which you subscribed €10,000.

You agree to buy back half of your shares, for €40,000.

Contributed: 10,000 shares at €1 each 10,000
Redeemed: 5,000 shares at €8 each 40,000
Premium on redemption 30,000
IT treatment CGT treatment
Sch F distribution 30,000
Income tax (at 41%) 12,300
Consideration 40,000
Less: purchase price (€10,000 in 1989-90) Indexed at 1.503 15,030
Chargeable gain (no personal exemption) 24,970
CGT at 30% 7,491
Comparison 12,300 7,491

Section 176A Purchase of own shares – supplementary

Is expenditure on a share buyback tax-deductible?

(1) Expenditure on a share buyback is not tax-deductible.

When is expenditure on a share buyback allowed?

(2) The rule in (1) is disapplied if the payment for the shares is given as consideration for goods and services, or to an employee or director.

Section 177 Conditions as to residence and period of ownership

How does a vendor qualify for share buyback CGT treatment?

(1) To obtain CGT treatment on the purchase of shares by the company that issued those shares, the vendor must meet the conditions in (2)-(9).

Must the vendor be resident?

(2) The vendor must be resident and ordinarily resident in the Republic of Ireland (ROI) for the tax year in which the shares are bought. If the shares are held through a nominee, the nominee must be resident and ordinarily resident.

This is to ensure that CGT is collectible.

Must trustees of trust-held shares be resident?

(3) In the case of shares are held by trustees, the trustees’ residence is determined as for CGT purposes (section 574).

Must personal representatives be resident?

(4) Personal representatives are assumed to have the same residence and ordinary residence as the deceased had at the time of death.

Must a company owner be resident?

(5) A company owner need not be resident.

How long must the shares have been owned?

(6) The shares must have been owned throughout the five year period ending on the repurchase date.

This is reduced to three years in the case of shares appropriated under an approved profit sharing scheme.

Does ownership by one spouse count toward ownership by the other?

(7) The ownership period for shares acquired from a spouse/civil partner counts as ownership by the acquirer, provided both were married and living together at the time of the transfer and at the time of the buyback.

Does ownership by the deceased count toward ownership by his representatives?

(8) In the case of a personal representative, the ownership period for shares acquired from the deceased counts as ownership by the personal representative.

What is the order of disposal of shares acquired at different times?

(9) In the case of shares acquired at different times, the latest disposal is matched to the earliest acquisition (the First In First Out (FIFO) rule) in the five year period.

Disposals prior to that period are matched with the most recent acquisition (the Last In First Out (LIFO) rule).

Example

You bought €1 ordinary shares in X Ltd as follows:

01.05.2008 1,000 shares 1,000
01.06.2009 2,000 shares 2,000
01.04.2010 3,000 shares 3,000

The shares are all paid up.

02.11.2013 You sold 500 shares to your son Y for €4,000.

02.12.2013 You sold 2,000 shares to X Ltd for €12,000.

In applying the five year rule to the November disposal, the 500 shares sold to Z are assumed to have come from the 3,000 shares acquired on 01.04.2010. The 2,000 shares sold to X Ltd are assumed to have come from the earliest acquisitions:

01.05.2008 1,000 shares (held for more than five years). The sale qualifies for CGT treatment.

01.06.2009 1,000 shares (held for less than five years). The sale does not qualify for CGT treatment as the shares were not held for the required five year period.

When are bonus shares acquired?

(10) Bonus shares (and exchange shares acquired on a company reconstruction or amalgamation) are treated as acquired on the same date as the original shareholding which gives rise to the bonus issue (or the share exchange).

Nevertheless, rights issues are treated as acquired when issued, not when the original holding was acquired.

Section 178 Conditions as to reduction of vendor’s interest as shareholder

Must a vendor sell all of his shares?

(1) To ensure that minor disposals do not qualify for the CGT treatment, the vendor’s shareholding must besubstantially reduced.

Are associates’ holdings included in the substantial reduction test?

(2)-(3) The shareholdings of the vendor’s associates are taken into account in calculating the vendor’s shareholding percentage.

This is to prevent circumvention of the substantial reduction test by temporary sales to associates.

When is a shareholding substantially reduced?

(4) A shareholding is treated as substantially reduced if the nominal value of the vendor’s shares, expressed as a percentage of the company’s issued share capital does not exceed 75% of the corresponding percentage before the buy back.

Example

X Ltd has issued share capital of 2,000 €1 shares. 400 shares are owned by you and 100 are owned by your spouse.

Assume X Ltd buys 100 shares from you and 100 shares from your spouse.

Total You Spouse
Holding before buyback 2,000 400 100
Percentage holding 25% 20% 5%
Shares bought back (100) (100)
Holding after buyback 1,800 300 0
Percentage 16.67% 16.67% 0%

Your spouse’s holding is not taken into account as she holds no shares after the buy back.

As your percentage share after the buyback (16.67%) exceeds 75% of what it was before the buy back (75% x 20% = 15%), your disposal does not qualify for CGT treatment.

Assume X Ltd buys 200 shares from you.

Total You Spouse
Holding before buyback 2,000 400 100
Percentage holding 25% 20% 5%
Shares bought back 200 0
Holding after buyback 1,800 200 100
Percentage 16.67% 11.11% 5.56%

As your percentage holding after the buyback (16.67%) does not exceed 75% of what it was before the buyback (75% x 25% = 18.75%), your disposal qualifies for CGT treatment.

Assume X Ltd has the following share capital:
Issued Owned by You
€1 ordinary shares 600 100
€1 preference shares 400 300
Total 1,000 400 (40%)
Assume X Ltd buys your 100 ordinary shares: 100 100
Revised share capital 900 300 (33.3%)

As your percentage holding after the buyback (33.3%) exceeds 75% of what it was before the buyback (75% x 40% = 30%), you do not qualify for CGT treatment.

Does profit entitlement count in the substantial reduction test?

(5) For CGT treatment to apply, the vendor’s entitlement to a share of profits available for distribution expressed as a percentage of total such profits must also be substantially reduced, i.e., after the buy back it must not exceed 75% of what it was before the buy back.

Does profit entitlement include preference dividends?

(6) In calculating profits available for distribution, it is assumed that the maximum (fixed rate) preference share dividends are paid to the preference shareholders.

What are profits available for distribution?

(7) Profits available for distribution are taken as €100 plus accumulated realised profits (net of losses) before deducting any fixed rate distributions payable.

If the share buyback payment exceeds the profits available for distribution before the buyback, the amount of that excess is added to such profits.

Example

X Ltd has the following share capital:

Before the buyback Issued Owned by You
€1 ordinary shares 20,000 3,000
€1 preference shares 12,000 5,000
Total 32,000 8,000 (25%)
Revised share capital:  Issued  Owned by You
After the buyback
€1 ordinary shares 19,000 2,000
€1 preference shares 9,000 2,000
Total 28,000 4,000 (14.3%)

You have substantially reduced your shareholding in X Ltd, as your percentage holding after the buyback (14.3%) does not exceed 75% of what it was before the buyback, i.e., 75% x 25% = 18.75%.

Assume that the cumulative undistributed profits are:

Profits Your share
Before the buyback
Accumulated undistributed profits 3,600 540 (15%)
€100 100 15
8% preference dividend 960 400 (5/12)
Excess of buyback cost over distributable
profits (€5,000 – €3,600) 1,400 210
6,060 1,165 (19.2%)
After the buyback
Accumulated undistributed profits 0 0
€100 100 11
8% preference dividend 720 160 (2/9)
820 171 (20.9%)

The distributable profits have been used to buy back the shares.

Your profit share has increased from 19.2% to 20.9% even though the profits have decreased. The buyback does not qualify for CGT treatment as it does not meet the reduction in profits test.

What is entitlement?

(8) In this section, entitlement means beneficial entitlement, except in the case of a trustee or a personal representative.

Section 179 Conditions applicable where purchasing company is member of a group

What is a group?

(1) A company, together with its 51% subsidiaries, is classed as a group.

Is a company’s membership of a group relevant for share buybacks?

(2) If the business of your company (the successor) was previously carried on by the purchasing company or a member of its group, your company and its group members are treated as being part of the same group as the purchasing company.

This is to stop a company being taken out of a group to meet the tests for reduction in shareholding or profits.

When does the successor restriction not apply?

(3) The rule in (2) does not apply in the case of a company that has been carrying on the business for more than three years before the purchase.

Can a company be temporarily de-grouped?

(4) If a company “temporarily” ceases to be a 51% subsidiary, and any arrangement exists whereby it may again become a 51% subsidiary, it is treated as remaining a 51% subsidiary.

How does the substantial reduction test apply where the buyer is a member of a group?

(5) In the case of a buyback by a group company, the CGT treatment does not apply unless the vendor’s shareholding in the group is substantially reduced.

Are associates’ holdings included in the substantial reduction test?

(6) In the case of a buyback by a group company, the CGT treatment does not apply unless the vendor’s shareholding, combined with that of his/her associates in the group is substantially reduced.

What is a relevant company?

(7) A relevant company means the company buying the shares, and a company in that company’s group.

How is the substantial reduction test applied to a group?

(8) In determining whether a vendor has substantially reduced his/her shareholding in a group, the vendor’s interests together with those of his/her associates must be taken into account.

Example

You have the following shareholdings in the ABC group:

A Ltd B Ltd C Ltd
Before buyback
Issued share capital 10,000 10,000 10,000
Held by you 2,000 500 0
Your % in each company 20 5 0
Total of the %s 25
Divide by number of companies 3
Your interest in the group 8.33%
After buyback
Issued share capital 10,000 9,500 10,000
Held by you 2,000 0 0
Your % in each company 20 0 0
Total of the %s 20
Divide by number of companies 3
Your interest in the group 6.67%

Reduction in interest: 8.33% – 6.67% = 1.66%

% reduction: 1.66 / 8.33 = 19.27%

The buyback does not qualify for CGT treatment as your percentage after the buyback (6.67%) exceeds 75% of what it was before, i.e., 75% of 8.33% = 6.25%.

How is group percentage shareholding calculated?

(9) A vendor’s percentage shareholding in the group is calculated by adding the percentage value of the issued share capital owned by the vendor in each company and dividing the result by the number of companies (including any in which the vendor owns no shares).

When is a shareholding in a group substantially reduced?

(10) A vendor’s shareholding in a group is substantially reduced if, after the buyback, it does not exceed 75% of what it was before the buyback.

Does profit entitlement count in the substantial reduction test?

(11)-(12) The vendor’s entitlement to a share of group distributable profits must also be substantially reduced, i.e., after the buyback, it must not exceed 75% of what it was before the buyback.

Section 180 Additional conditions

What is a group?

(1) A company, together with its 51% subsidiaries, is a group.

Can vendor and purchaser be connected after the buyback?

(2) After the buyback, the vendor must not be connected (section 186) with the purchasing company or with any member of its group.

Can a temporary substantial reduction qualify?

(3) The buyback must not be part of a scheme under which the vendor’s interest after the buy back, although below the 30% limit, was only temporarily reduced in order to meet the substantial reduction tests.

For how long must the vendor maintain an interest of less than 30%?

(4) If within one year of the buyback, a transaction results in the vendor’s interest exceeding the 30% limit, the transaction is deemed to be part of a scheme within (3).

Example

X Ltd has the following share capital:

Before the buyback Issued You own
€1 ordinary shares 10,000 4,000
€1 preference shares 5,000 1,000
Total 15,000 5,000 (33.33%)

01.01.2008 X Ltd buys back 2,000 ordinary shares and 1,000 preference shares from you.

After the buyback Issued You own
€1 ordinary shares 8,000 2,000
€1 preference shares 4,000 0
Total 12,000 2,000 (16.67%)

The buyback qualifies for CGT treatment as your percentage holding after the buyback (16.67%) does not exceed 75% of what it was before the buyback, i.e., 75% x 33.33% = 24.75%.

Assume that it was agreed before 01.01.2008 that X Ltd would buy back further shares later.

01.09.2008 X Ltd buys back a further 2,000 ordinary shares and the remaining 4,000 preference shares from other shareholders.

After the buyback Issued You own
€1 ordinary shares 6,000 2,000
€1 preference shares 0 0
Total 6,000 2,000 (33.33%)

You now own more than 30% of X Ltd. Had you held this interest on 01.01.2008, you would not have been entitled to CGT treatment on the buyback. CGT treatment, if already granted, is withdrawn.

Section 181 Relaxation of conditions in certain cases

Can Revenue allow buyback CGT treatment if the conditions are not all met?

To qualify for CGT treatment:

(a) The vendor’s shareholding, combined with that of his/her associates, after the buyback must not exceed 75% of what it was before the buyback.

(b) If the vendor is a member of a group, his/her interest in the group after the buyback, combined with that of his/her associates, must not exceed 75% of what it was before the buyback.

(c) The vendor’s distributable profits entitlement after the buyback, combined with that of his/her associates, must not exceed 75% of what it was before the buyback.

(d) The vendor’s shareholding, combined with those of his/her associates, after the buyback must not exceed 30% of the company’s ordinary share capital, loan capital or voting power.

If the vendor fails to meet the above tests because an associate’s holdings are combined with his/hers, he/she may still qualify for CGT treatment.

Example

X Ltd has the following share capital:

Before the buyback Issued You own Your spouse owns
€1 ordinary shares 10,000 500 2,500

You own (with your associate, your spouse) 30% (3,000 / 10,000) of the share capital.

01.01.2008 X Ltd buys back your shares.

After the buyback Issued You own Your spouse owns
€1 ordinary shares 9,500 0 2,500

You own (with your associate, your spouse) 26.31% (2,500 / 9,500) of the share capital.

As your percentage holding after the buyback (26.31%) exceeds 75% of what it was before the buyback, i.e., 75% x 30% = 22.75%, the buyback does not qualify for CGT treatment.

For you to meet the reduction in shareholding test, your spouse’s 30% shareholding would have to drop to 75% of the 30% original percentage holding, i.e., to a 22.5% shareholding. To achieve this, your spouse would need to sell 363 shares, as 2,137 / 9,500 gives 22.5%

Section 182 Returns

Is a company buying back its own shares obliged to file a return?

(1)-(2) An unquoted company which is buying back its shares, must complete the prescribed form showing:

(a) the amount paid for the shares,

(b) the name, address and share ownership period of each seller.

What is the deadline for filing a share buyback return?

(3) The buyback return must be filed within nine months of the end of the accounting period in which the buyback took place, or within 30 days of an inspector’s request for the form.

What penalties apply for failure to file a share buyback return?

(4) The penalties that apply for failure to file a corporation tax return apply to failure to file a buyback return.

Section 183 Information

Must a connected person notify Revenue if the substantial reduction test is not met?

(1) If a person connected with the purchasing company becomes aware of an arrangement under which the seller’s interest after the buyback was temporarily reduced in order to meet the substantial reduction tests, that person must notify the inspector within 60 days.

Can Revenue investigate whether a reduction in shareholding is temporary?

(2) The inspector may ask any person having more than 30% of the company’s capital or voting power to provide, within 60 days, a written declaration stating whether or not a “temporary reduction in shareholding” arrangement exists, together with any information he/she may need to establish whether it exists.

Can Revenue ask a nominee shareholder to provide information?

(3) The inspector may also ask any nominee holder of company shares to provide the beneficial owner’s name and address.

Section 184 Treasury shares

How are treasury shares treated?

(1) Bought back shares (treasury shares) are deemed to have been cancelled.

The cancellation is treated as giving rise to no gain/no loss for CGT purposes.

Reissued treasury shares are treated as newly issued.

What are treasury shares?

(2) Treasury shares (Companies Act 1990 section 209) are bought back shares which are held for subsequent reissue or cancellation.

Section 185 Associated persons

Who are regarded as associates?

(1) The following are regarded as a person’s associates:

(a)(i) His/her spouse – assuming they are living together.

(ii) His/her parents and children aged under 18.

(b) A company he/she controls.

(c) A company controlled by a company he/she controls.

(d)(i) The trustees of a trust he/she has created.

(ii) A trustee entitled to a material interest in shares held by the trustees.

(e) Personal representatives of an estate of which he/she is a beneficiary entitled to a material interest.

(f) A nominee director if he/she is a “shadow director” (a person who instructs the nominee director how to act in relation to the company).

Are pension scheme trustees associates?

(2) The rule in (1)(d), which treats trustees and settlors as associates, does not apply to trustees of a Revenue approved pension scheme, or of an employee benefit trust.

What is a material interest in a trust?

(3) A material interest in a trust ((1)(d)) or estate ((1)(e)) means an interest worth more than 5% of the value of the trust property or estate property concerned.

Section 186 Connected persons

What persons are regarded as connected?

(1) To qualify for CGT treatment, the vendor must not be “connected” with the company after the buyback. This means that the vendor must not control the company, or have (or be able to acquire) more than 30% of the company’s:

(a) issued ordinary share capital,

(b) issued share capital plus loan capital,

(c) voting power, or

(d) assets available to equity shareholders if the company were to be wound up.

An equity shareholder is a person who holds ordinary shares, or a convertible loan, in the company (section 13(3)).

Does loan capital count in determining a bank’s holding?

(2) In the case of a bank, a holding of loan capital is ignored in calculating whether it is entitled to more than 30% of the company’s loan capital and issued share capital, unless it is actively involved in managing the company.

What is loan capital?

(3) A company’s loan capital means any debt incurred for money borrowed or capital assets acquired, or for a right to receive income or consideration with a value substantially less than the debt.

Must a vendor include his associates’ holdings with his?

(4) In deciding whether a vendor is connected with a company, his/her shareholding is treated as including his/her associates’ holdings (section 185). His/her shareholding also includes shares which he/she an option to acquire in the future.

Section 187 Exemption from income tax and associated marginal relief

This section is now spent.

Section 188 Age exemption and associated marginal relief

What is total income for the purposes of age exemption?

(1) Total income means income from all sources calculated in accordance with income tax rules, but it also includes foreign income not chargeable to tax.

What is the age exemption limit?

(2) A person aged 65 or over is exempt from tax if his/her income does not exceed the exemption limit (the specified amount):

single person: €18,000

married couple (one aged 65 or over) or widowed person in bereavement year: €36,000

Section 189 Payments in respect of personal injuries

Are personal injury awards exempt?

(1) This section applies to certain payments made to an individual who, because of mental or physical infirmity, is permanently and totally unable to maintain him/herself. It applies where the payment that gave rise to the infirmity is:

(a) a compensation order made by the Personal Injuries Assessment Board, or

(b) a court award for damages as a result of civil proceedings taken by the individual.

Is income arising from the investment of a personal injury award exempt?

(2) If the recipient of the payment mentioned in (1) invests the compensation proceeds:

(a) the resulting investment income (relevant income) is exempt from tax under Case III, IV and V, and

(b) any gain realised by selling some of the investments (relevant gains) is exempt from CGT.

The exemption only applies if the aggregate of the relevant income and the recipient’s gains exceeds 50% of the aggregate of total income and gains for the tax year.

Example

01.06.2012 You claim exemption under section 189. Your injuries are such that you are permanently and totally incapacitated from maintaining yourself.

Your total income for the tax year 2011 is:
Investment income 11,000
Rental income 8,500
Invalidity pension 4,800
Total income 24,300
Chargeable gains from sale of investments 5,000
Total income and chargeable gains 29,300

In deciding whether you are entitled to the exemption claimed, the invalidity pension is ignored. Because the combined investment income and chargeable gains (€16,000 = €11,000 + 5,000) exceeds 50% of your total income and chargeable gains excluding the invalidity pension (i.e., 50% x €25,500), you are entitled to the exemption as claimed.

Your total income for tax purposes is calculated as follows:
Case V 8,500
Schedule E 4,800
Total income 13,300

The investment income of €11,000 and the gains of €5,000 are exempt by virtue of section 189.

See also Tax Briefing 44.

Section 189A Special trusts for permanently incapacitated individuals

What is a qualifying trust?

(1) A qualifying trust is a trust established to benefit an incapacitated individual when money has been raised by appeal to the public (public subscriptions). The subscription limit is €381,000, but unlimited provided no particular donor contributes more than 30% of the total raised).

The 30% test applies on or after the self assessment return filing date (section 950) of the person claiming the exemption.

An incapacitated individual is a person who is unable to maintain him/herself due to permanent incapacity from physical or mental injuries.

The trust deed must provide that the trust funds be applied for the benefit of the incapacitated individual, or if he/she dies, to a surviving spouse, civil partner or children or to appropriate charitable purposes. No trustee may be connected (section 10) with the incapacitated individual.

Is income arising in a qualifying trust exempt?

(2) Income (which would otherwise be taxed under Schedule C or Schedule D) arising to the trustees of a qualifying trust from the trust funds (public subscriptions and any resulting investment income) is exempt from income tax and is not to be included in an income tax computation.

Example

The ABC trust was set up to raise funds for a named victim of a totally incapacitating disease (the disease might be, for example, Alzheimer’s Disease, Creutzfeld Jacobs Disease, Motor Neurone Incapacity).

The trust fund meets the conditions, and the trust raises €567,381 for you by public subscription. No particular donor contributed more than 30% of this sum.

The trust fund is therefore a qualifying trust, and income arising to the trustees, together with any resulting investment income, is exempt from income tax.

Are gains arising in a qualifying trust exempt?

(3) Gains arising to the trustees of a qualifying trust from the trust funds (public subscriptions and any resulting investment income) are exempt from CGT.

Is income paid to an incapacitated person from a qualifying trust exempt?

(4) The following relevant income is exempt from income tax and is not to be treated as income:

(a) Payments made by the trustees of a qualifying trust to an incapacitated individual who is a subject of the trust.

(b) Income (which would otherwise be taxed under Schedule C or Schedule D) arising to that individual from the investment of payments from the trustees.

Similarly, any gain accruing to that individual from selling some of the investments (relevant gains) is exempt from CGT.

The exemption only applies if the aggregate of the relevant income and gains exceeds 50% of the aggregate of the individual’s total income and gains for the tax year in question.

Just and reasonable apportionments may be made as necessary in computing whether income is relevant income and whether a gain is a relevant gain.

Sole or main

“Sole or main” means more than 50%.

An invalidity pension payable by the Department of Social, Community and Family Affairs is not taken into account in determining whether the investment income is the sole or main income of the individual.

DIRT may be repaid to the trustees of a trust which qualifies for exemption under section 189A, in respect of interest arising from investment of trust funds.

Source: Tax Briefing 38, December 1999.

Documents

The following documentation should be submitted to the tax office in support of a claim:

(a) a medical certificate stating the cause, nature and extent of the infirmity, and the nature and extent of the individual’s incapacity,

(b) copy of the trust deed,

(c) a declaration from the trustees confirming that the conditions regarding public subscriptions are met.

Source: Tax Briefing 38, December 1999.

Example

Continuing with the facts of the example to (2), assume that the ABC trust pays €300,000 (inclusive of €2,500 interest) from the trust funds to you, the trust victim.

You have other income of €3,500 per year.

The €300,000 is exempt in your hands.

When does the qualifying trust exemption take effect?

(5) This section applies for 1997-98 and later tax years.

Section 190 Certain payments made by the Haemophilia HIV Trust

What is the HHT?

(1) The Trust refers to the Haemophilia H.I.V. Trust, also known as the HHT.

What HHT payments are exempt?

(2) This section applies to income received by a beneficiary of the Trust from payments made by the trustees into the trust.

Are payments made to a HHT beneficiary disregarded?

(3) Compensation payments made by the Haemophilia HIV Trust (the Trust) are exempt from income tax and are to be ignored in calculating the recipient’s total income.

The Haemophilia HIV Trust (the HHT): Inspector Manual 7.1.4.

Section 191 Taxation treatment of Hepatitis C compensation payments

What is the Hepatitis C Compensation Tribunal?

(1)-(2) This exemption applies to compensation payments awarded by the Hepatitis C Compensation Tribunal (the Tribunal) and similar legal compensation following court action to a person:

(a) listed in the Hepatitis C Compensation Tribunal Act 1997 section 4(1), or

(b) mentioned in the regulations made under the Hepatitis C Compensation Tribunal Act 1997 section 9.

Are Hepatitis C compensation payments exempt?

(3) Hepatitis C compensation payments are treated as personal injury compensation (within section 189), and are therefore exempt from income tax and ignored in calculating the recipient’s total income if the individual is unable to maintain him/herself due to permanent incapacity from physical or mental injuries.

Income resulting from investment of the compensation proceeds is exempt from tax under Schedule C and Schedule D.

Any gain realised by selling some of the investments is also exempt from CGT.

The exemption only applies if the aggregate of the relevant income and the relevant gains exceeds 50% of the aggregate of the indvidual’s total income and total gains for the tax year in question.

Although the investment income is ignored in calculating total income, the individual must file a tax return showing his/her total income.

Conditions for exemption: Tax Briefing 35.

Section 192 Payments in respect of thalidomide children

Are payments to thalidomide victims exempt?

(1)-(2) Payments made by the German foundation Hilfswerke für behinderte Kinder to an individual incapacitated due to infirmity linked to thalidomide are exempt from income tax and are to be ignored in calculating the recipient’s total income.

Income resulting from investment of the compensation proceeds is exempt from tax under Schedule C and Schedule D.

Although the investment income is ignored in calculating total income, the individual must file a tax return showing his total income.

Are gains arising to thalidomide victims exempt?

(3) Gains arising to a thalidomide victim from the disposal of investments acquired with compensation proceeds, or income derived from such proceeds, are exempt from CGT.

How should income and gains be apportioned?

(4) Just and reasonable apportionments may be made as necessary in computing whether income is relevant income and whether a gain is a relevant gain.

Section 192A Exemption in respect of certain payments under employment law

What is a relevant authority?

(1)-(2) This section applies to compensation payments made by an employer or former employer to an employee or former employee. The payment must be made in accordance with a recommendation, decision or determination given by a relevant authority under legislation which protects employee rights (relevant Act).

Are mediation settlements exempt?

(3) A payment which is arrived at by way of settlement as a result of a process of mediation is to be treated as if it had been made by the relevant authority under the relevant Act.

Are settlement agreements exempt?

(4) This exemption also applies to a payment that meets the following conditions:

(a) It is made between unconnected persons, by written agreement, in settlement of a claim which:

(i) would have been a bona fide claim had it been made to the relevant authority,

(ii) is evidenced in writing,

(iii) had it not been settled by agreement would likely have been the subject of a ruling by a relevant authority.

(b) It is below the maximum that might have been awarded by the relevant authority had the claim not been settled by agreement.

(c) The employer must keep copies of the agreement and statement of claim for six years from the date the payment was made. If requested to do so by a Revenue officer, the employer has provided that official with copies of the agreement and statement of claim.

An employer is obliged, on being asked to do so by a Revenue officer, to provide that officer with copies of the agreements and statements of claim retained by him/her. The Revenue officer may examine and take extracts from the documents in question.

What payments are not exempt?

(5) The exemption provided by this section does not apply to:

(a) disguised remuneration,

(b) a termination payment or a disturbance payment.

Are employment compensation payments exempt?

(6) A payment that meets all of the conditions in this section is exempt from income tax and is to be ignored for income tax purposes.

Section 192B Foster care payments etc

Who is a foster parent?

(1)-(2) This section applies to payments by the Health Service Executive:

(a) to foster parents in respect of the care of foster children,

(b) to carers in relation to the care of former foster children (aged 18 or over) who suffer from a disability or until such children reach 21 or complete their full-time education course.

It also applies to payments made under the corresponding legislation of another EU state.

Are payments made to foster parents exempt?

(3) Payment within (2) are exempt from income tax and are ignored in computing income for tax purposes.

Section 192C Exemption in respect of payments of State support

Is care service income exempt?

Care service income received under the Nursing Home Support Scheme Act 2009 is exempt from tax.

Is care service income subject to withholding tax?

(2) Care service income is not subject to withholding tax.

Section 192D Exemption in respect of fuel grant

Are fuel grants exempt from tax?

Yes.

Section 192E Exemption in respect of water conservation grant

Is the water conservation grant exempt from tax?

Yes.

Section 193 Income from scholarships

What is a relevant scholarship?

(1) A scholarship includes an exhibition, bursary or similar educational endowment.

A relevant scholarship is a scholarship funded by a relevant body (a body corporate, unincorporated body, or other body, a partnership, or an individual) which is payable to an employee or director of that body.

It also covers scholarships payable to the spouse, family, dependants or servants of an employee or director of a relevant body.

A trustee of a settlement made by a relevant body is regarded as connected with a relevant body. A relevant body is regarded as connected with another relevant body if it would be connected under the connected person rules (section 10).

A payment received from the Home Office for sponsoring a post-graduate course was held to be exempt under the equivalent UK law; Walters v Tickner, [1993] STC 624.

Is scholarship income exempt?

(2) Income under a relevant scholarship is exempt from income tax and is to be ignored for tax purposes.

Is the scholarship exemption transferable?

(3) The scholarship exemption is not transferable.

Is scholarship income from a trust fund exempt?

(4) Scholarship income payments are only regarded as exempt if in the tax year in which the payment is made, not more than 25% of the total payments from the fund or scheme is attributable to relevant scholarships.

Relevant scholarships: these changes reverse the effect of the decision in Wicks v Firth, (1984) 56 TC 318. In that case, scholarships awarded to children of employees from a fund set up by an employer were held to be exempt.

Can Revenue consult outside experts?

(5) In deciding whether income qualifies as scholarship income, the Revenue Commissioners may consult with the Department of Education.

Section 194 Child benefit

Is child benefit exempt?

Child benefit (formerly children’s allowance) is exempt from income tax.

Section 194A Early childcare supplement

Is early childcare supplement exempt?

Early childcare supplement is exempt from income tax.

Section 195 Exemption of certain earnings of writers, composers and artists

What is artistic exemption?

(1) An artist (i.e. a creative writer, musical composer, painter, or sculptor) can claim exemption in respect of income from an original and creative work of art. The work of art may be:

(a) a book or other writing,

(b) a play,

(c) a musical composition,

(d) a painting or other like picture,

(e) a sculpture.

How is artistic exemption granted?

(2) Exemption is obtained when the Revenue Commissioners make a determination that an individual has created anoriginal and creative work generally recognised as having cultural or artistic merit (see notes to (12) below).

The exemption applies to an individual who is resident in one or more EU Member States or in another EEA State (or ordinarily resident and domiciled in such a State) and not resident elsewhere.

Artistic exemption must be claimed. A claim may be made in respect of general work or a single work.

How to claim initial relief, and applications by non-residents: Tax Briefing 42. A full time journalist was refused relief in respect of income from writing newspaper articles: Healy v Breathnach, 3 ITR 496, [1986] IR 105. See now subs (12) below.

How does artistic exemption operate?

(3) Once Revenue have made a determination that artistic exemption applies, income arising from the publication, production or sale of the work (and work in the same category) is exempt from tax provided the income is below the €50,000 annual limit.

The exemption does not apply for tax years before the tax year in which you claim the exemption.

Example

You have just completed your first novel and you are due to receive an advance of €15,000 in 2012.

You apply to Revenue for tax exemption in respect of income from your writing. Revenue request copies of the book, and grant the exemption.

As the €15,000 is below the €40,000 exemption threshold, the advance is not subject to income tax, but it is caught for universal service charge (section 531AN) and PRSI.

What evidence is needed to support a claim to exemption?

(4) Where a claim is made in respect of general work, Revenue may ask for documents, information or other evidence they need to decide entitlement to the exemption.

Where a claim is made in respect of a particular book, play or musical composition, the claimant must supply the Revenue Commissioners with three copies of the work.

Where a claim is made in respect of a particular picture or sculpture, the claimant must facilitate the Revenue Commissioners to view the work.

Can Revenue examine an artist’s records?

(5) Revenue may write to a claimant requesting production of royalty statements and any other books or accounts relating to the publication, promotion or sale of the artistic work.

Can a Revenue decision be appealed?

(6) If Revenue have not made a decision within six months of having received an artistic exemption claim, the claimant may appeal.

The appeal may be made within 30 days after the end of the six months period, but only if all Revenue requests for evidence to support your claim have been complied with.

What evidence may be considered at an appeal?

(8) The Appeal Commissioners may determine whether you have created an original and creative work having cultural or artistic merit. They may consider evidence and consult experts to help them make their decision.

How are expenses to be apportioned?

(10) Business expenditure that applies to both the exempt artistic activity and a fully chargeable activity may be apportioned by Revenue between the two activities.

Example

If you are a writer, half of whose income derives from writing newspaper articles, and half of whose income derives from writing novels, business expenditure on computer programs etc, printing paper etc. may be apportioned by Revenue between the two activities.

Is an artist obliged to file a tax return?

(11) Although artistic income is exempt, the claimant must file a tax return.

What are the guidelines for artistic exemption?

(12) The Arts Council and the Minister for Arts may produce guidelines as to what art works are original and creative, having cultural or artistic merit. These guidelines may list works that would not be regarded as original and creative.

According to these guidelines, a work has cultural merit if its contemplation enhances the quality of individual or social life by virtue of that work’s intellectual, spiritual or aesthetic form and content.

A work has artistic merit when its combined form and content enhances or intensifies the aesthetic apprehension of those who experience or contemplate it.

A work need not have both cultural and artistic merit: the presence of either quality is sufficient.

The term original and creative encompasses any unique work which is brought into existence for the first time as an independent entity by the exercise of its creator’s imagination.

A non-fiction book or other writing is considered original and creative only if it comes fully within one or more of the following categories:

(a) The terms of reference of the Arts Council for fiction writing, drama, music, film, dance, mime or visual arts, and related commentaries by bona fide artists: arts criticism, arts history, arts diaries, autobiography, belles-lettres essays, biography, cultural dictionaries, literary translation, literary criticism, literary history, literary diaries.

(b) The terms of reference of the Heritage Council, including works relating to archaeology and publications associated with items or areas of significant heritage value.

(c) The terms of reference of the National Archives Advisory Council. Publications which relate to the archives which are more than 30 years old concerning Ireland, and are based largely on research from such archives.

In addition, the essence of the work must be the presentation of the author’s own ideas or insights in relation to the subject matter, and the ideas or insights are of such significance that the work would be regarded as a pioneering work casting new light on its subject matter or changing the generally accepted understanding of the subject matter.

The following types of work are not regarded as original and creative:

(a) A book or other writing published primarily for, or primarily for use by, students or persons engaged in any trade, profession, vocation or branch of learning as an aid to professional or other practice in connection with the trade, profession, vocation or branch of learning.

This reverses the effect of decisions in Revenue Commissioners v O’Loinsigh, [1994] ITR 199 where exemption was given to an author of school history text books, and Forde v Revenue Commissioners, 4 ITR 348, where exemption was given to an author of legal books.

An article or series of articles published in a newspaper, magazine, book or elsewhere. Except a book consisting of a series of articles by the same author connected by a common theme and therefore capable of existing independently in its own right.

(b) A play written for advertising purposes which does not exist independently in its own right by reason of quality or duration.

(c) A musical composition written for advertising purposes which does not exist independently in its own right by reason of quality or duration.

Arrangements, adaptations and versions of musical compositions by a person other than a bona fide composer who is also actively engaged in musical composition.

(d) Photographs or drawings (other than a set or sets of photographs or drawings that are collectively created for an artistic purpose) which are mainly of records, or which serve a utilitarian function, or which would not exist independently in their own right by reason of quality or by reference to their potentiality for inclusion as part of an art exhibition.

(e) Objects which are primarily functional in nature, objects produced by processes other than by hand, objects produced by hand by persons other than those actively engaged as bona fide artists in the field of the visual arts.

Must a work comply with the guidelines?

(13) Unless a work complies with the Arts Council guidelines, Revenue are not permitted to decide that it is original and creative, or that it has artistic or cultural merit.

How long does artistic exemption last?

(14) If first published, produced or sold after 3 May 1994, a work in the same category as a work for which exemption has previously been granted does not qualify for artistic exemption unless it complies with the Arts Council guidelines.

Example

If you are a writer who was previously given artistic exemption for royalties from a school textbook, “A”, royalties arising after 3 May 1994 from sales of a newly published school textbook, “B”, in the same category as “A”, are not exempt.

Must Revenue supply an applicant with a copy of the guidelines?

(15) The Revenue Commissioners must supply any applicant with a free copy of the Arts Council guidelines.

Can Revenue publish a list of persons with artistic exemption?

(16) Revenue may publish the names of person who have been granted artistic exemption, together with the category and title of the their work.

Section 195A Exemption in respect of certain expense payments

What is a non-commercial body?

(1) This section exempts expense payments made to a member of a non-commercial body. A member means an office-holder:

(a) who is not an employee of, or connected with, the body,

(b) whose annual income (apart from expenses exempted by this section) from the body does not exceed €14,000 (€24,000 in the case of a chairperson of the body).

A non-commercial body is a body, i.e., an unincorporated body of persons such a board, council or committee where the duties of the body’s members are discharged in meetings of such members. It must also:

(a) be established as non-profit, as evidenced in the body’s (founding) documents,

(b) in practice, operate solely on a non-profit basis; it will be treated as profit-making if it engage in profit-making activities and channels the profits of such activities to the non-profit activity,

(c) be incapable of paying benefits to its officers, employees or members other than as wages, salaries, fees or expenses covered by this section.

Are expense payments exempt?

(2) The exemption applies in relation to payments to compensate the member for travel and subsistence expenses incurred in attending the body’s meetings.

What limit applies to expense payments?

(3) The payments are exempt if they do not exceed the upper limit set out in the travel and subsistence limits for civil servants.

Section 195B “Exemption in respect of certain expense payments for relevant directors

What expenses of directors are exempt from income tax and USC?

(1)-(3) Vouched expenses of travel to directors meetings by non-resident non-executive directors are exempt from tax from 1 January 2016. Subsistence expenses in connection with the same meetings are also exempt.

Section 195C Exemption in respect of certain expenses of State Examinations Commission examiners

What expenses of examiners are exempt?

(1)-(3) Travel and subsistence expenses paid to employees of the State Examinations Commission in connection with developing examination papers, marking examination papers or carrying out invigilator duties are exempt from tax provided they do not exceed the published Civil Service rates.

Section 196 Expenses of members of judiciary

Are judicial expense allowances exempt?

(1)-(2) Department of Justice expense allowances paid to a judge (a member of the judiciary) are exempt from income tax.

Are judicial expenses also deductible under Schedule E?

(3) Judicial expenses are not deductible under Schedule E.

Section 196A State employees: foreign service allowances

Are foreign allowances paid to State employees exempt?

(1)-(2) Foreign-service allowances paid to:

(a) Civil servants,

(b) Garda Síochána,

(c) soldiers and sailors,

as compensation for the extra cost of living abroad to perform their employment duties are ignored for income tax purposes.

When are foreign allowances exempt from?

(3) These changes apply from 1 January 2005.

Section 196B Employees of certain agencies: foreign service allowances

What is a State agency?

(1) This section deals with emoluments payable to employees of Enterprise Ireland, An Bord Bia, Tourism Ireland Ltd, and the Industrial Development Agency (Ireland). These employees are frequently required, by virtue of their employment, to spend significant amounts of time outside Ireland.

Are foreign allowances paid to State agency employees exempt?

(2) Technically, in the absence of specific legislation, any additional allowance payable such an employee to compensate for the cost of living/working abroad (e.g., accommodation expenses) is taxable.

This section exempts allowances payable to such employees to cover the extra cost of having to live outside the State to perform their duties.

Section 197 Bonus or interest paid under instalment savings schemes

Is interest on instalment savings schemes exempt?

Bonuses (or interest) on instalment savings schemes operated by An Post are exempt from income tax.

To qualify, the holder must not hold more savings bonds or certificates than entitled to under the scheme.

Section 198 Certain interest not to be chargeable

Are foreign residents subject to tax on Irish source interest?(1) interest paid by a Shannon company (section 445), an IFSC company (section 446), or a specified collective investment undertaking (section 734) is not chargeable to Irish income tax where

received by a company which is not resident, or an individual who is not ordinarily resident, in the Republic of Ireland (ROI).

Interest paid in the course of its trade by a relevant person (i.e., a company or a collective investment undertaking) is not chargeable to income tax where received by a company that is resident in a relevant territory, i.e., another EU State or a tax treaty country (a territory with which the government has made arrangements).

Interest paid in respect of quoted Eurobonds (section 64(2) or in respect of an asset covered security) isnot caught for irish tax if received by:

(a) a person resident in a relevant territory, or

(b) a company resident in a non-treaty country which is controlled by residents of a treaty country or by a company the shares of which are publicly quoted on a stock exchange of a treaty country.

Certain interest paid by a securitisation company (section 110) out of the assets of the company not chargeable to income tax where received by a person resident for tax purposes in a relevant territory.

Discounts arising on securities issued by a company or investment undertaking (section 246) are not taxed if received by a person resident for tax purposes in a relevant territory.

Are foreign residents subject to tax on Shannon and IFSC source interest?

See section 246, which allows interest on relevant securities to be paid gross, i.e., free of retention tax.

Although Shannon (section 445) and IFSC (section 446) reliefs are abolished, interest on relevant securities issued by companies in these zones may continue to be paid gross, i.e., free of withholding tax.

Section 199 Interest on certain securities

Is interest on tax reserve certificates exempt?

Tax reserve certificates are temporary investments for persons who wish to provide in advance for income tax payments. A certificate, together with accrued interest, may be tendered in payment of income tax.

Interest earned on tax reserve certificates is exempt from income tax and is ignored in calculating total income.

Section 200 Certain foreign pensions

What foreign pension income is exempt?

(1)-(2) Pensions, (including certain foreign State pensions) arising in a foreign country that would be exempt in that country, are exempt from Irish income tax.

The types of foreign State pension referred to are those broadly equivalent to the Irish old age (contributory) pension, widow’s (contributory) pension, orphan’s (contributory) pension, old age (non-contributory) pension, and widow’s and orphan’s (non-contributory) pension.

Is a US social security pension exempt?

(2A) The general exemption for foreign pensions mentioned in (1)-(2) does not apply to US social security pensions payable to Irish residents.

Is a foreign pension a Case III foreign possession?

(3) Such a foreign pension is not income from a foreign possession and is not therefore chargeable under Case III (section 18).

Section 201 Exemptions and reliefs in respect of tax under section 123

What is the basic exemption?

(1) This section exempts, and Schedule 3 gives potential further relief for, employee termination payments (charged under section 123).

The basic exemption means €10,160, increased by €765 for each complete year of service of the employee (with the possibility of a further increase of up to €10,000; see subs (6) below and Schedule 3 para 8).

Foreign service means a period of service in an employment for which:

(a) tax was not chargeable on the emoluments,

(b) part of the emoluments were not fully chargeable under Schedule E, or

(c) the employment was chargeable under Case III.

The relevant date means the date of the termination of the office or employment or that of the change in its functions for which the payment is being made.

A person controls a body corporate if, either through holding shares or through special voting powers, he/she can ensure that the body’s affairs are conducted in accordance with his/her wishes.

A person controls a partnership if he/she has the right to more than half the partnership’s income or assets.

Employers are associated if one employer can control the other or both are controlled by a third person.

Tax treatment of redundancy/termination payments: Tax Briefing 28.

Example

You are the sales director of X Ltd, and you receive a termination payment of €186,000 in respect of your retirement on 30 June 2009 (see Example to section 123). Your employment with X Ltd. had commenced on 1 September 1977 so that your service with the company totalled 32 years 10 months. For the basic exemption, this is counted as 32 complete years.

Your basic exemption for the termination payment of €186,000 before considering Schedule 3 para 8 is:

Initial basic exemption: 10,160

Add: €765 x 32 full years service: 24,480

Basic exemption (subject to Schedule 3 para 8): 34,640

Are retraining costs exempt?

(1A) Where an eligible employee is made redundant, the first €5,000 of retraining costs which are part of his/her redundancy package are exempt. The retraining must be made available to all eligible employees.

In this regard, a person is an eligible employee if he/she has completed at least two years’ service in full-time employment, or he/she has deemed for redundancy law purposes to have done so.

Retraining means a training course provided by the employer as part of the redundancy package which:

(i) provides skills/knowledge relevant to gaining employment or setting up a business,

(ii) is practical,

(iii) is completed within six months of the termination of the employment.

A redundancy package is a compensation scheme offered to an employee on the ending of this employment.

The exemption does not apply if the retraining is provided to the employee’s spouse or dependant.

The exemption does not apply if there is a scheme in place for the employee to receive the cost of the retraining in money or money’s worth, and the employee receives that cost.

What part of a termination payment is exempt?

(2)(a) The following payments are exempt:

(i) a payment, not exceeding €200,000, made on the death in service of the employee, or on account of injury or disability to the employee,

(ii) restrictive covenant payments (these are taxed under section 127), and

(iii) a benefit paid under a pension scheme where the employee was chargeable to tax on the contributions made to the scheme,

(iv) a benefit paid under a Revenue-approved scheme, a statutory scheme, or a foreign government service scheme.

(2)(b)No other relief will be available against the excess over €200,00

(2)(c) The amount of €200,000 will be reduced by the amount of any previous or other current payment. In effect the €200,000 is a lifetime limit.

An ex gratia payment to an employee who resigned due to ill-health was treated as a disability payment in O’Shea v Mulqueen, [1995] 1 IR 504. In Harding, Coughlan and others v O’Cahill, 4 ITR 233, redundancy payments made to disabled employees were not regarded as disability payments, and were therefore taxed as termination payments within section 123. See also Glover v BLN Ltd, [1973] IR 432.

An individual employed by a foreign employer (who does not operate PAYE) is entitled to these exemptions and reliefs (Revenue Precedent IT96-1514, 2 February 1996).

To qualify for exemption, a payment made to an individual who suffers from an injury or disability must be made on account of that injury or disability. Such a payment is not treated as a termination payment unless it is made “in connection with” (section 123) the termination of the office or employment (Revenue Precedent IT94-1509, 27 January 1994).

Therefore if a payment made to an injured employee relates to his injury, it is exempt. If the payment is made in connection with the termination of the employment it is taxable.

What information must be given to Revenue in relation to a death in service payment?

(2A) This rule applies where an employer makes a payment on the death in service of the employee, or an account of injury or disability to the employee.

In such a case, the employer must provide the following details to the inspector within 46 days of the end of the tax year in which the payment was made:

(a) the employee’s name and address

(b) the employee’s personal public service (PPS) number,

(c) the amount of the payment,

(d) the basis on which the payment is not chargeable – indicating, if appropriate, the extent of the injury or disability.

Are Oireachtas severance payments exempt?

(3) The following are taxed as termination payments as long as they exceed the basic exemption:

(a) a severance payment to a member of the Oireachtas,

(b) a civil service severance gratuity.

How does foreign service affect a termination payment?

(4) If an employee’s foreign service comprised:

(a) 75% of his/her entire service ending on the termination date,

(b) the entire 10 year period ending on the termination date, or

(c) half of a period longer than 20 years ending on the termination date (including any 10 of the last 20 years),

the entire termination payment is exempt from income tax.

(4A) Subsection 4 ceases to have effect from 27 March 2013.

Example

01.03.2012 You receive a payment of €100,000 from X Ltd in compensation for the loss of your employment with that company following its merger with another company.

Since 1 March 1992, the date you joined X Ltd, you worked in Dubai for the company’s subsidiary there for a period of 15 years and 3 months to 31 May 2008. From that date, you worked in X Ltd’s office in Dublin.

Your foreign service with X Ltd (15.25 years) works out as 76.25% of the total 20 years from 1 March 1992.

Since this exceeds 75% of your total service, the entire termination payment of €100,000 is exempted from any tax charge under section 123.

How many basic exemptions does an employee get?

(5) Although the following payments made to an employee in connection with the termination of an employment are chargeable:

(a) compensation for loss of office,

(b) salary or wages in lieu of notice,

(c) damages for breach of employment contract by the employer,

(d) payment to release the employer from the employment contract,

(e) a lump sum in commutation of pension rights (except approved pension lump sum payments – see (2)),

(f) retirement gratuity at the employer’s discretion,

(g) non-statutory redundancy payments,

the tax charge (section 123) only applies to the amount by which the termination payment exceeds the basic exemption.

An employee gets one basic exemption for the same job or the same employer (including any associated employers).

If an employee receives two payments for the same job (for example, one payment as a reduction in salary, and one termination payment), the payments are aggregated and the basic exemption is deducted from the total. If the payments are in two separate tax years, the basic exemption is deducted from the payment in the first of those years.

Similarly, if an employee receives two termination payments (for example, one from his/her employer, and one from an associated employer) the payments are aggregated and the basic exemption is deducted from the total. If the payments are in two separate tax years, the basic exemption is deducted from the payment in the first of those years.

Example

Take the example of you as the sales director of X Ltd, with you receiving a termination payment of €186,000 in respect of your retirement on 30 June 2009 (see examples to section 123, section 201(1)).

Your basic exemption in respect of this termination payment is €34,460 (see example to section 201(1)). The amount chargeable to tax in respect of the payment, before any other relief given in Schedule 3 is considered, is calculated:

Termination Payment 186,000
Deduct: Basic exemption 34,460
“Payment chargeable to tax” 151,360

See Schedule 3 for the finalisation of the computation. In reading Schedule 3 in the context of this example, references to the “amount in respect of which income tax is chargeable under section 123” is to be read as this €151,360, i.e., the net termination payment after the deduction for the basic exemption.

Is top-slicing relief also available in respect of a termination payment?

(6) Schedule 3 provides further reliefs, but only if a claim is made by giving written notice of the claim within four years after the end of the tax year in which the termination payment was made.

Does a termination payment automatically increase the recipient’s marginal tax rate?

(7) A termination payment is to be ignored in calculating the highest part of the recipient’s total income (where this is necessary in applying any income tax rule which refers to that highest part).

What is the lifetime limit for the tax-exempt part of a termination payment?

(8) From 1 January 2011:

(a) The most that can be received as the tax-exempt part of a termination payment is €200,000.

(b) Tax-free payments made prior to 1 January 2011 count toward the lifetime limit of €200,000.

(c) Certain tax-free retraining costs and death in service benefits do not count toward the lifetime limit (see (2A)).

(d) Where an individual receives two or more termination payments, those payments are combined for the purposes of the €200,000 limit.

Section 202 Relief for agreed pay restructuring

Are restructuring agreement payments exempt?

(1)-(2) A company faced with serious competitive pressure (“a substantial adverse change to its competitive environment which will determine its current or continued viability”) may be forced to make pay cuts to ensure the business survives.

If such pay cuts are collectively agreed under a survival agreement (a relevant agreement) with the employees’ representatives, the Minister for Enterprise, Trade and Employment may certify that the qualifying company may make tax exempt restructuring payments (up to a specified amount) to participating employees, i.e., qualifying employees of the company who participate in the survival agreement.

The agreement must apply to more than half of the company’s qualifying employees. Alternatively, if there are severalclasses of qualifying employees in the company and the number of participating employees in one or more classes amounts to 25% or more of the company’s total qualifying employees, the agreement must apply to more than 75% of the qualifying employees in those classes.

A class of qualifying employees consists of a group of employees with common work practices, skills or collective bargaining arrangements.

The pay cuts must be substantial, i.e., at least 10% of the employee’s basic pay (as paid by the claimant company or a company controlling the claimant, or controlled by the claimant) for the two years ending on the date the agreement was registered with the Labour Court (the relevant date).

A person controls a company if, either through holding shares or through special voting powers, he/she can ensure that the company’s affairs are conducted in accordance with his/her wishes.

A person controls a partnership if he/she has a right to more than half the partnership income or assets.

The specified amount means:

Pay cut Specified amount
10% – 15% €7,620 plus €255 for each year of service up the relevant date, subject to a maximum of 20 years. Therefore, the maximum tax-free lump sum is €12,720.
15% – 20% €7,620 plus €635 for each year of service up the relevant date, subject to a maximum of 20 years. Therefore, the maximum tax-free lump sum is €20,320.
20% or over €10,160 plus €765 for each year of service up the relevant date, subject to a maximum of 20 years. Therefore, the maximum tax-free lump sum is €25,460.

The applicant company must include details of its business and the agreement’s terms.

Application is made on the appropriate form to the Minister for Enterprise, Trade and Employment.

The certificate provided by the Minister may list further conditions.

The Minister may revoke a certificate if your company no longer meets the certificate conditions.

A certificate may not be given after 1 January 2004.

Class of employees: for example, fitters, electricians.

Example

The specified amount for you as an employee whose pay is being cut by 14% (i.e., between 10% and 15%) and who has been with the company for 23 years is €12,720, computed as €7,620 + €255 x 20 years.

Must a survival agreement be registered?

(3) If the employee payments are to qualify for relief, the company’s survival agreement must be registered with the Labour Relations Commission. The company must also, on the first five anniversaries of the date the agreement was registered with the Commission (the relevant date), confirm to the Labour Relations Commission that the agreement is still in force.

Can a recipient of a restructuring payment receive a pay increase?

(4) Within the five year period beginning on the relevant date (the relevant period), an employee may obtain a pay increase (in line with Partnership 2000 or your pay scale increments) to your agreed reduced pay.

Is there a limit on restructuring payments?

(5) A qualifying company may make tax free payments up to the specified amount to each employee who participates in the survival agreement. If an employee receives two or more payments from the same company or from an associate company, the payments are treated as a single payment. The specified amount applies to the earlier payment before the later payment.

A company gets one exemption limit for each participating employee. The restructuring payment may be paid in instalments, but in deciding whether the latest such instalment is exempt, the total of previous such payments is taken into account.

Is there a clawback if the company no longer qualifies?

(6) If the company no longer qualifies for relief, relief already given may be withdrawn by making an assessment on each participating employee under Case IV for the tax year for which relief was given.

Can a recipient of a restructuring payment also receive a termination payment?

(7) Where a participating employee receives a termination payment (section 123) during the survival agreement’s five year term, the amount qualifying for termination payment relief (section 201) is reduced by the amount of the survival agreement payment exempted under this section (this reduction cannot exceed the employee’s specified amount).

Can a restructuring payment also qualify as a termination payment?

(8) A restructuring payment cannot also qualify as a termination payment.

Section 203 Payments in respect of redundancy

What is statutory redundancy?

(1) An employee may be entitled to minimum statutory redundancy under the Redundancy Payments Act 1967.

Is a statutory redundancy payment exempt?

(2) A statutory redundancy payment is exempt.

Section 204 Military and other pensions, gratuities and allowances

Are military pensions exempt?

(1)-(2) Army wound or disability pensions, Defence Force demobilisation pay, deferred pay and Defence Force service gratuities are exempt.

Section 204A Exemption in respect of annual allowance for reserve members of the Garda Síochána

Is the annual allowance for reserve members of the Garda Síochána taxable?

No.

Section 204B Exemption in respect of compensation for certain living donors

Is compensation to living organ donors exempt from tax?

Yes. Approved compensation payments are exempt from income tax and not taken into account in calculating income for tax purposes.

Section 205 Veterans of War of Independence

Are pensions payable to War of Independence exempt?

(1)-(2) Military service pensions payable under the relevant legislation to veterans of the War of Independence are exempt.

The pension income is exempt whether received by the veteran, his wife, widow, child or other dependant (or partial dependant).

Veterans: Membership of the “old” Irish Republican Army (and the Irish Volunteers, the Irish Citizen Army, Fianna Éireann, the Hibernian Rifles, and Cumann na mBan).

To qualify for the exemption, the relevant military service must have been during the pre-truce period 1 April 1916 to 11 July 1921, or the post-truce period 12 July 1921 to 30 September 1923.

Pensions of veterans of the Connaught Rangers 1st Battalion (who took part in the mutiny in June and July 1920 at Solon and Jullunder, India) are also exempt.

Section 205A Magdalen laundry payments

What definitions apply to this section?

(1) This section applies to relevant payments, which are ex gratia payments made in accordance with the Magdalen Commission Report, made to relevant individuals.

What payments are covered?

(2) Reelevant payments, State pension payments and other payments made by or on behalf of the Minister for Social Protection are covered.

What payments are exempt?

(3) Any payments referred to in subsection (2) that are made to a relevant individual are exempt from income tax.

Section 206 Income from investments under Social Welfare (Consolidation) Act, 1993

Is Department of Finance investment income exempt?

(1) Income arising to the Department of Finance from investment of social welfare receipts is exempt.

Is Social Insurance Fund investment income exempt?

(2) The Minister for Social Protection is exempt from tax on income from investments of the social Insurance Fund.

Section 207 Rents of properties belonging to hospitals and other charities

Is rental income arising to a charity exempt?

(1) The following income of a charity is exempt, provided it is applied for charitable purposes only:

(a) rental income and other profits from property belonging to a hospital, public school, almshouse,

(b) rental income and other profits from property that has been vested in trustees for charitable purposes.

A body or trust established for charitable purposes is exempt from tax under Schedule C, D and F, on investment income provided the income is applied for charitable purposes only.

Investment income of the trustees of a church, cathedral, college, chapel or building used for divine worship is exempt from tax under Schedule C, provided the income is applied towards the repair of the building.

Charitable purposes

“Charitable purposes” means the relief of poverty, the advancement of education, the advancement of religion, and other purposes of a charitable nature beneficial to the community: Special Commissioners v Pemsel, (1891) 3 TC 53.

Exemption has been refused to charities because:

(a) The charity has powers of appointment for non-charitable purposes: R v Special Commissioners (ex parte Rank’s Trustees), (1922) 8 TC 286.

(b) The charity has made non-charitable payments: Lawrence v IRC, (1940) 23 TC 333.

(c) The objects are not sufficiently specific (for example, “the improvement of international relations”): Buxton and Others v Public Trustee and others, (1962) 41 TC 235.

The onus is on the applicant to indicate the category under which exemption is claimed, i.e., relief of poverty, the advancement of education, the advancement of religion, and other purposes of a charitable nature beneficial to the community (Revenue Precedent APP8538, 12 October 1997).

A distribution to a charity by a unit trust which invested only in rental property could be regarded as rental income in the hands of the charity (and therefore exempt) (Revenue Precedent IT92-2033, 19 March 1992).

Relief of poverty

Charitable purposes coming under this category include:

(a) An almshouse: Mary Clark Home Trustees v Anderson, (1904) 5 TC 48.

(b) The relief of poor widows and orphans of deceased bank officers: Re Coulthurst, [1951] All ER 774; see also IRC v Society for the Relief of Widows and Orphans of Medical Men, (1926) 11 TC 1.

(c) The relief of the poor of a particular church: Re Wall, Pomeroy v Willway, (1889) 43 Ch D 774. Including an association providing annuities to its members (church pastors, evangelists, missionaries) and their widows and orphans: Baptist Union of Ireland (Northern) Corporation Ltd v IRC, (1945) 26 TC 335.

(d) A hospital or convalescent home: Grand Council of the Royal Antediluvian Order of Buffaloes v Owens, (1927) 13 TC 176; IRC v Roberts Marine Mansions Trustees, (1927) 11 TC 425.

(e) A rest home for hospital nurses: Re White’s Will Trusts, Tindall v United Sheffield Hospital Board of Governors, [1951] 1 All ER 528.

(f) A benevolent institution for “tea planters, their wives and families during sickness while in India”: Jackson‘s Trustees v Lord Advocate, (1926) 10 TC 460.

(g) The provision of below-cost nursing care to the poor of the district: IRC v Peeblesshire Nursing Association, (1926) 11 TC 335.

(h) A benevolent fund. Such a fund is for the relief of poverty, and consequently the need for a public element is not great (Revenue Precedent CHY11453, 30 August 1995 – now deleted)

(i) A company operating on a commercial basis and running a packing business. Exemption was given on the basis that its purpose was to give work experience, and in the longer term to generate employment (Revenue PrecedentCHY11503, 15 May 1995).

(j) A gift to a narrow class of person for the relief of poverty. The gift must be expressly for the relief of poverty. If relief of poverty is not expressed, the courts will not infer this intention (Revenue Precedent APP11269, 20 January 1995).

(k) Friends of a Hospital. Exemption was granted to the Friends of a Hospital even though the hospital did not have charitable exemption. In such a case, it is not necessary for a body (the hospital) to have Revenue approval, but it should be capable of obtaining it if required (Revenue Precedent APP11374, 13 October 1995 – now deleted).

(l) Health boards. There is no need for a governing instrument; the terms are set out under the Health Act 1970 (Revenue Precedent APP11471, 30 June 1995).

(m) A fund-raising body whose main object is to raise funds for charitable organisations (Revenue PrecedentAPP11374, 30 December 1993.)

The following bodies do not qualify:

(a) A mutual investment fund (Revenue Precedent APP11990, 4 October 1996).

(b) A Lions Club (Revenue Precedent APP9051, 1 January 1996).

A Social Service Council may or may not be charitable depending on its main objects. The co-ordination of charitable bodies is in itself not regarded as a charitable object (Revenue Precedent APP8815, 1 June 1990).

Advancement of education

Charitable purposes coming under this category include:

(a) A public school: Blake v Mayor etc of London (1887) 2 TC 209. See also Cardinal Vaughan Memorial SchoolTrustees v Ryall, (1920) 7 TC 611; Ereaut v Girls Public Day School Trust Ltd, (1930) 15 TC 529; Bryan v Roman Catholic Arch-Diocese of Glasgow Trustees, (1922) 8 TC 276; Scottish Woollen Technical College v IRC, (1926) 11 TC 139.

(b) A university college: R v Special Commissioners, ex parte University College of North Wales, (1909) 5 TC 408.

(c) The promotion of music (competition) festivals: IRC v Glasgow Musical Festival Association, (1926) 11 TC 154, and the encouragement of choral singing: Royal Choral Society v IRC, (1943) 25 TC 263.

(d) The promotion of an annual chess tournament for boys: Re Dupree’s Deed Trusts, [1944] 2 All ER 443.

(e) The publication of law reports: Incorporated Council of Law Reporting v AG, (1971) 47 TC 341.

(f) The study and dissemination of ethical principles: Re South Place Ethical Society, Barralet v Attorney General, [1980] 3 All ER 918.

(g) The promotion of the playing by students of association football: IRC v McMullen, [1980] 1 All ER 884.

Advancement of religion

The following qualify under this category:

(a) A body for the relief of infirm, sick and aged priests of a particular order (Revenue Precedent APP11648, 23 August 1996) This qualifies under the category of advancement of religion: Re Forster, Gellatly v Palmer, [1938] 3 All ER 767.

(b) Christian fellowships. These qualify under the category of advancement of religion (Revenue PrecedentCHY11445, 11 October 1995). It is important that there be no secular or political dimension; see The Oxford Group v IRC, (1949) 31 TC 221.

(c) School profits used to benefit a convent: Religious Convent of the Blessed Sacrament v IRC, (1933) 18 TC 76.

The following did not qualify:

(a) Rental income from land conveyed to trustees for purposes of a Church, but capable of being used for non-charitable purposes: Ellis and others v IRC, (1949) 31 TC 178; Londonderry Presbyterian Church House Trustees v IRC, (1946) 27 TC 431; Cookstown Roman Catholic Church Trustees v IRC, (1953) 34 TC 350.

(b) A Christian movement the memorandum of which allowed it to carry on activities “far beyond purely religious activities, and permit or even require for their attainment activities which may be secular or political”: The Oxford Group v IRC, (1949) 31 TC 221.

Other purposes of a charitable nature beneficial to the community (in general)

Charitable purposes coming under this category include:

(a) An agricultural society: IRC v Yorkshire Agricultural Society, (1927) 13 TC 58; Peterborough Royal Foxhound Show Society v IRC, (1936) 20 TC 249 See section 215.

(b) A temperance canteen: CIR v Falkirk Temperance Café Trust, (1926), 11 TC 353; Dean Leigh Temperance Canteen Trustees v IRC, (1958) 38 TC 315.

(c) A recreation ground: IRC v Tayport Town Council, (1936) 20 TC 191 But not a recreation ground for the benefit of a particular company’s employees (the general public being admitted only by invitation): Wernher’s Charitable Trust v IRC, (1937) 21 TC 137.

(d) A student’s union: London Hospital Medical College v IRC, (1976) 51TC 365.

(e) Income of a charitable company which was lent to subsidiaries at a high rate of interest: Nightingale Ltd v PriceSpC 66, [1996] SWTI 220.

(f) A payment by one charity to another: IRC v Helen Slater Charitable Trust Ltd, [1981] STC 471.

(g) Tidy town committees. This on the basis that the committees’ objects are of a charitable nature beneficial to the community (Revenue Precedent CHY8691, 1 April 1996).

(h) A housing association. If the model association memorandum and articles are adopted, the case need not be referred to the Chief Examiner (Revenue Precedent CHY7204, 16 June 1986 – now deleted).

(i) A body providing free advice (legal or financial) for the benefit of the community (Revenue Precedent CHY11431, 7 July 1995).

(j) A trust for the benefit of members of a particular industry. The Assistant Revenue Solicitor agreed that in a particular case, this was for a sufficiently large section of the community to render it charitable (Revenue PrecedentAPP11381, 28 February 1995).

(k) Fisheries development societies (Revenue Precedent CHY11043, 16 September 1993).

(l) A co-operative society, provided the possibility of any benefit to members is removed (Revenue PrecedentCHY11012, 12 January 1994).

(m) A gift for the protection of lives or property of the community, for example, lifeboat or public fire brigade (Revenue Precedent APP11302, 19 February 1994).

Local authorities do not qualify for charitable exemption. They are already exempt from income tax (section 214).

In many cases organisations have not been regarded as charitable because their objects promoted sectional interests (i.e. they were “self-interest” groups) and not the interest of the general public, for example:

(a) A body that primarily promotes the interests of a particular profession: R v Special Commissioners, ex parte Headmasters’ Conference, (1925) 10 TC 73; General Medical Council v IRC, (1928) 13 TC 819; General Nursing Council for Scotland v IRC, (1929) 14 TC 645; Geologists’ Association v IRC, (1928) 14 TC 271; Midland Counties Institution of Engineers v IRC, (1928) 14 TC 285; Pharmaceutical Society of Ireland v Revenue Commissioners, 1 ITR 542.

However, if the educational aspect of the body’s activities is primary, it may qualify: CIR v Forrest (Institution of Civil Engineers), (1890) 3 TC 117 and Institution of Civil Engineers v IRC, (1931) 16 TC 158.

(b) A body whose primary purpose is political, for example:

– the winning of legislative and temperance reform: IRC v Temperance Council of the Christian Churches of Englandand Wales, (1926) 10 TC 748;

– political education in the interests of one political party: Bonar Law Memorial Trust v IRC, (1933) 17 TC 508;

– the prevention of killing of animals: IRC v National Anti-Vivisection Society (1948) 28 TC 311; Animal Defence and Anti-Vivisection Society v IRC, (1950) 32 TC 55;

– the pursuit of the objects of The Simplified Spelling Society, i.e., the furthering of simpler spelling of English words than those now in use: Trustees of Sir G B Hunter (1922) “CTrust v IRC, (1929) 14 TC 427;

– the enrolling of voluntary workers to carry on essential public services in the event of a strike or lock-out: Roll of Voluntary Workers Trustees v IRC, (1941) 24 TC 320

(c) A charity with a residual interest in the winding-up of an employer’s share scheme: Guild and Others v IRC, [1993] STC 444.

(d) An athletic association for police officers: IRC v Glasgow Police Athletic Association, (1953) 34 TC 76.

(e) A society to fund travel by Swedish journalists to UK: Anglo-Swedish Society v IRC, (1931) 16 TC 34.

(f) A company whose primary objective was the acquisition of land in the Holy Land for the settlement of Jews thereon: Keren Kayemeth Le Jisroel Ltd v IRC, (1932) 17 TC 27.

(g) A company providing a central representative body for the merchant navy: Master Mariners (Honourable Company of) v IRC, (1932) 17 TC 298.

(h) A body that is a mutual benefit society (facilitating meeting between serving and retired officers) and not an altruistic charitable body: IRC v Royal Naval and Royal Marine Officers’ Association, (1955) 36 TC 187.

(i) A company promoting the pursuit of aviation (exemption was sought in relation to profits from an annual aerial pageant to which the public were admitted): Scottish Flying Club v IRC, (1935) 20 TC 1.

(j) A company founded as a social experiment (an estate of some 70 acres upon which a few persons carried on bee-keeping, poultry farming and vegetable production) which also had some minor rental income: Hugh’s Settlement Ltd v IRC, (1938) 22 TC 281.

(k) A corporation whose primary object was “to watch over and protect the rights and interests of holders of public securities wherever issued but especially of foreign and colonial securities issued in the United Kingdom”:Corporation of Foreign Bondholders v IRC, (1944) 26 TC 40.

(l) A centre in London for promoting the moral, social, spiritual and educational welfare of Welsh people and fostering the study of the Welsh language and of Welsh history music literature and art; exemption was refused on the basis that the center could not be distinguished from a social club: William’s (Sir H J) Trustees v IRC, (1947) 27 TC 409.

(m) A statutory body corporate established to regulate the marketing of pigs: Pig Marketing Board (Northern Ireland) v IRC, (1945) 26 TC 319.

(n) A trust fund (set up by the sole trustee of a foundation) having as its object “the promotion of mutual insurance associations formed to assist the members thereof to meet expenditure necessitated by illness”: Nuffield Foundation v IRC, Nuffield Provident Guarantee Fund v IRC, (1946) 28 TC 479.

(o) A fund to preserve a historic trade hall (but used by trade and craft guilds for non-charitable i.e., non-public purposes): Trade House of Glasgow v IRC, (1969) 46 TC 178.

(p) A body that promotes tourism; however each application having the promotion of tourism as its major object must be examined on its own merits (Revenue Precedent APP11294, 26 January 1996 – now deleted).

(q) An inter-link organisation between Ireland and another country. Normally an organisation set up to develop enterprise, cultural and educational interest between two countries is regarded as being charitable Exemption was not granted in a particular case as the body was considered to be a self-interest group (Revenue PrecedentAPP9256, 9 September 1991).

(s) The provision of insurance (Revenue Precedent APP11332, 25 October 1994).

(t) The promotion of a festival in itself (unless it is for the advancement of the arts, for example, music, theatre etc) (Revenue Precedent APP11342, 24 November 1994).

Is a gift to maintain a grave for charitable purposes exempt?

(2) A gift to maintain a grave for charitable purposes is exempt provided the gift is less than €1,270 in total, or €76.18 a year.

How is a claim for charitable status made?

(3) A claim for charitable status must be sworn and proved by the trustee or authorised agent of the charity.

Application form

The application form is attached to Revenue leaflet CHY1, Applying for relief from tax on the income and property of charities

Accompanying information

A case cannot proceed to appeal if the applicant is not properly constituted, i.e., if there is no governing instrument, or there is no income in respect of which exemption is sought (Revenue Precedent APP11074, 12 January 1994).

Standard memorandum and articles of association

A standard memorandum and articles of association is available for use by bodies who propose to incorporate as a company limited by guarantee and who intend to apply for charitable exemption.

Tax Briefing 41.

What is the penalty for fraudulently claiming charitable status?

(4) A person who makes a fraudulent claim for charitable status under Schedule C must forfeit €125.

Under UK law, to be entitled to relief, the charity must be established in the UK: IRC v Gull, (1937) 21 TC 374 andDreyfus (Camille and Henry) Foundation Inc v IRC, (1955) 36 TC 126.

A charity can accumulate funds for more than two years provided that it is for a specific charitable purpose approved by Revenue charities section, and accounts are submitted and checked annually (Revenue Precedent CHY9661, 30 November 1990).

Revenue Charities Manual. This covers charitable exemption, common problems with applications, obligations associated with exemption.

Section 207A Charities Regulatory Authority and Common Investment Fund

Is the Charities Regulatory Authority exempt from tax?

(1)-(2) The Authority is exempt from tax in respect of income it receives from the Common Investment Fund (in which it invests on behalf of charitable bodies).

Section 208 Lands owned and occupied, and trades carried on by, charities

Are trading profits of a charity exempt?

(1)-(2) Trading profits arising to a charity from quarries, mines, canals, docks, rights of markets, tolls, railways, bridges and ferries (Schedule D Case I(b)), are exempt from tax if those profits arise from land or property rights owned by the charity.

General trading profits of a charity are exempt where:

(a) the trade is central to the charity’s primary purpose, or

(b) the beneficiaries of the charity carry out work related to the trade.

The resulting profits must be applied only to the charity’s activities.

This exempts, for example, fee income of a boarding school established for charitable purposes only, and private patient income of a charitable hospital. This reverses the effect of the decision in Davis v Mater Misericordiae Hospital, 1 ITR 387, where a hospital was taxed on trading profits from a private nursing home. The profits were applied for the purposes of the hospital.

Primary purpose

The meaning of primary purpose was considered in: Grove v Young Men’s Christian Association, (1903) 4 TC 613;Governors of Rotunda Hospital, Dublin v Coman, (1920) 7 TC 517; British Legion, Peterhead Branch v IRC, (1953) 35 TC 509; Religious Tract and Book Society of Scotland v Forbes (1896) 3 TC 415.

Charitable exemption was denied in the case of the following non-primary purpose trades:

(a) A company carrying on a trade of producing plays, concerts, exhibitions, dances etc: Tennent Plays Ltd v IRC, (1948) 30 TC 107; see also Associated Artists Ltd v IRC, (1956) 36 TC 499.

(b) A body promoting the improvement of town amenities having trading income from public dances, a public putting green, sports and concerts: Linlithgow Town Council Entertainments Committee v IRC, (1953) 35 TC 84.

(c) A trading company that benefits only some of its employees: Beirne v St Vincent de Paul Society Wexford, 1 ITR 393. In that case, a business bequeathed to the Vincent de Paul Society was denied charitable status, even though it employed poor people who would otherwise have sought relief from the Society. See also Vernon (Wm) and Sons Ltd Employees Fund v IRC, (1956) 36 TC 484; IRC v Educational Grants Association Ltd, (1967) 44 TC 93.

Are farming profits of a charity exempt?

(3) Farming profits of a charity are also exempt, but they do not need to be applied only to the charity’s activities.

Section 208A Overseas charities

Can a foreign charity apply for exemption?

(1)-(2) A foreign-based charity (one based in an EEA or EFTA State) may apply to Revenue for tax exemption.

Who determines the claim?

(3) A claim for charitable exemption is to be determined by Revenue.

Must Revenue inform the claimant of their decision?

(4) Revenue must issue the charity with a notice confirming their determination of its charitable status.

What documents must accompany a claim for exemption?

(5) Every claim for charitable exemption must be accompanied by the equivalent of a sworn affidavit.

Section 208B Charities – miscellaneous

Who is a charity trustee?

(1) This section provides miscellaneous rules for foreign charities seeking Irish tax exemption. A qualified personmeans a person who is qualified (under Irish law or the equivalent law of the EEA/EFTA State where the charity is established) to audit company accounts.

A charity trustee, in the case of a corporate charity, means a director or officer of the company in question, and in the case of an unincorporated charity, means any officer of the charity.

What information should accompany a claim for exemption?

(2) A claim for charitable exemption should be accompanied by such information as Revenue may reasonably require in order to determine the claim.

What information must a charity provide to Revenue?

(3) Once a charity has been granted charitable exemption, it must, on request, provide Revenue with information they require in relation to the charity’s activities for any financial year following the granting of the exemption.

Must information be provided to Revenue in English?

(4) Information accompanying a claim for charitable exemption or relating to a charity’s activities for any financial year following the granting of the exemption must be submitted in English or Irish.

Can Revenue appoint advisers in relation to claims for exemption?

(5) Revenue may appoint qualified persons to verify information provided under (2) or (3).

Can Revenue charge the cost of advisers used to assess a claim for exemption?

(6) Revenue may recover such expenses as a simple contract debt from the charity’s trustees (or from the charity itself where it is not practicable to recover the expenses from the trustees).

Section 209 Bodies for the promotion of Universal Declaration of Human Rights and the implementation of European Convention for the Protection of Human Rights and Fundamental Freedoms

Is income of human rights protection bodies exempt?

Bodies such as Amnesty International are regarded as charities (section 207). This means the body’s investment income is exempt from tax under Schedule C, D and F, provided the income is applied for charitable purposes only.

Section 210 The Great Book of Ireland Trust

Is income arising to the Great Book of Ireland trust exempt?

(1)-(2) The income of the Great Book of Ireland Trust, and payments by the trustees out of the sale proceeds of the Great Book of Ireland to Poetry Ireland Ltd and Clashganna Mills Trust Ltd, are exempt.

The Great Book of Ireland was envisaged as a modern “Book of Kells”. Its pages consist of manuscript poems by Ireland’s leading poets, with matching original paintings by Ireland’s leading artists. It was proposed to sell the book for £1m and use the proceeds to foster development of poetry in Ireland, through Poetry Ireland Ltd.

Section 211 Friendly societies

Is income of friendly societies exempt?

(1) An unregistered friendly society is exempt from tax if its income does not exceed €205.

A society is also exempt if it is legally unable to assure more than €1,270 or an annuity of more than €70 a year.

How does a friendly society claim exemption?

(2) A registered friendly society must claim exemption. Exemption is not given unless the society is established for the benefit of its members, and not for a tax advantage. Exemption is also denied if the society carries on a trade (but this does not include provision of insurance for its members).

What evidence must Revenue consider in deciding whether a friendly society is exempt?

(3) In deciding whether a friendly society is exempt, Revenue must consider any evidence presented by the claimant.

Can a friendly society appeal a Revenue decision as to its status?

(4) A Revenue decision as to a friendly society’s tax status may be appealed to the Appeal Commissioners within 30 days of the notification of it.

How does a friendly society claim exemption?

(5) A claim for friendly society exemption must be sworn and proved by the trustee or agent of the society.

What is the penalty for fraudulently claiming exemption?

(6) A person who makes a fraudulent claim for friendly society exemption under Schedule C must forfeit €125.

Section 212 Credit unions

This section has been repealed.

Section 213 Trade unions

What are provident benefits?

(1) In (2), provident benefits means:

(a) for the benefit of a sick, injured or elderly member,

(b) towards the funeral expenses of a deceased member (or member’s spouse), or

(c) to provide for the children of a deceased member.

Is investment income of a trade union exempt?

(2) Investment income of a registered trade union is exempt under Schedules C, D and F if the trade union is legally unable to assure by way of gross sum more than €10,160 or an annuity of more than €2,540 a year.

The income must be applied solely for the purpose of:

(a) provident benefits, or

(b) the education, training or retraining of its members or their dependent children.

How does a trade union claim exemption on investment income?

(3) A claim for exemption must be verified in a manner specified by Revenue. The claim may be proved by the treasurer, trustee or authorised agent of the trade union.

What is the penalty for a fraudulent exemption claim?

(4) A claimant who makes a fraudulent claim for exemption under Schedule C must forfeit €125.

Under the equivalent UK law, sickness or injury payments may be made from a tax-free fund: R v Special Commissioners, ex parte National Union of Railwaymen, (1966) 43 TC 445.

Income not covered by this exemption is chargeable to income tax at the standard rate (Revenue Precedent IT91-2007, 13 June 1991).

“Provident benefits” includes dental, optical and legal benefits (Revenue Precedent IT90-3515, 14 December 1990).

Section 214 Local authorities, etc

What is a local authority?

(1) A local authority means a county council, a county or borough corporation, an urban district council, a public assistance authority, town commissioners, a port sanitary authority, and a committee or board appointed to perform the functions of any of these bodies.

Is income arising to a local authority exempt?

(2)-(3) Income (other than deposit interest subject to retention tax) of:

(a) a local authority,

(b) a health board,

(c) a vocational education committee, or

(d) a committee of agriculture,

is exempt from tax.

Section 215 Certain profits of agricultural societies

Is income of an agricultural society exempt?

(1)-(2) Profits or gains of an agricultural society from a show (or exhibition) are exempt.

The income from the show must be applied for the purposes of the society: to promote agriculture, horticulture, livestock breeding, or forestry.

In Ward Union Hunt Races (Trustees of) v Hughes, (1937) 1 ITR 538, it was held that profits from race meetings at Fairyhouse were not exempt as the body was not an agricultural society. See also Royal Agricultural Society ofEngland v Wilson (1924) 9 TC 62; Peterborough Royal Foxhound Show Society v IRC, (1936) 20 TC 249; IRC v City ofGlasgow Ornithological Association, (1938) 21 TC 445.

In a particular case, a trade protection association did not qualify for exemption as an agricultural society, but could be considered as a trade protection association (Revenue Precedent AS4, 1 January 1996.)

Section 216 Profits from lotteries

Is the income of a lottery exempt?

Income of a licensed lottery is exempt.

Section 216A Rent-a-room relief

What is rent-a-room relief?

(1) Rent-a-room relief applies where a person receives rent (relevant sums) from letting rooms in his/her home (qualifying residence, i.e., a residential premises in the State which he/she occupies as his/her main residence). The rent includes sums receivable in respect of meals, cleaning, laundry and other similar goods or services.

Does rent-a-room relief apply to gross income?

(2) Rent-a-room relief applies to the gross income from letting the rooms in the home, before any deductions for expenses. The relief is given by treating any profit or loss from such letting as nil for tax purposes.

If a person does not elect to be taxable in respect of income from letting of rooms in his/her main residence for a year, any wear and tear allowance is deemed to have been granted for that year.

Can rent-a-room relief be disclaimed?

(3) A person can elect not to be exempt (i.e. to be taxable) in respect of rent-a-room income. The election may be made in writing on or before the return filing date for the tax year in question.

Such an election only applies for the tax year in which it is made.

Can exemption be claimed in respect of a room rented to a child?

(3A) Income from the claimant’s child or the child of his/her civil partner does not qualify for relief.

Can exemption be claimed in respect of a room rented to an employer?

(3B) The relief does not apply where the claimant is an employee of the person making the payment.

Must exempt income be included on my tax return?

(4) Although rent-a-room income is exempt, it must be declared in your tax return.

What is the annual limit for rent-a-room relief?

(5) The annual limit for rent-a-room relief is €12,000.

Is rent-a-room split for a jointly owned residence?

(7) Where a qualifying residence is jointly owned, the exemption limit is divided equally among the joint owners.

Does rent-a-room relief affect home loan interest relief?

(8) A claim for rent-a-room relief does not affect entitlement to relief for home loan interest.

Section 216B Payments under Scéim na a bhFoghlaimeoirí Gaeilge

What is the Irish language student scheme?

(1) This section applies to income received by qualified applicants living in the Gaeltacht Area from students under the Irish language student scheme.

Is income received under the Irish language student scheme exempt?

(2) Income received under the Irish language student scheme is exempt.

Section 216C Childcare services relief

What are childcare services?

(1) This section allows relief where relevant sums arise to an individual from the provision of childcare services in a qualifying residence.

In this regard, relevant sums from the use of a room in a qualifying residence:

(a) includes sums from the provision of meals, cleaning, laundry etc, but

(b) excludes amounts arising from the provision of childcare services to minors if they are children of the claimant or if the residence in question is their home.

A residence is a qualifying residence if, during the tax year for which the claim is made:

(a) It is the claimant’s sole or main residence, and

(b) childcare services are provided to not more than three children, excluding children who reside there.

In this regard, relevant sums from the use of a room in a qualifying residence:

(a) includes sums from the provision of meals, ceaning, laundry etc, but

(b) excludes amounts arising from the provision of childcare services to minors if they are children of the claimant or if the residence in question is their home.

Is income received for childcare services exempt?

(2) The relief applies where:

(a) the relevant sums do not exceed the individual’s limit (see (6)) for the tax year.

(b) The figure for relevant sums is gross, i.e., no deduction is allowed for expenses.

In such a case, any profit or losses arising from the receipt of relevant sums are treated as nil for income tax purposes, and any plant and machinery allowance which would otherwise have been due to the claimant is deemed to have been granted.

How is childcare services relief claimed?

(3) To claim the relief for a tax year, a person must:

(a) elect by written notice to the inspector on or before the return filing date for the tax year,

(b) show to the satisfaction of Revenue that he/she has notified the appropriate person, recognised by the Health Service Executive, that he/she is providing childcare services for the tax year.

An election may only be made for one tax year at a time, i.e., it is not possible to make a multi-year election.

Must childcare service income be declared on a tax return?

(4) Childcare income must be declared, even though it is exempt.

What is the childcare service annual income limit?

(5) The childcare service exemption limit is €15,000.

Is the childcare services limit split among joint operators?

(6) If several individuals operate childcare services from the same qualifying residence, the €15,000 limit is divided among those individuals.

Does a claim childcare services affect home loan interest relief?

(7) A claim for childcare services exemption does not prevent a claim for mortgage interest relief or principal private residence relief.

Section 217 Certain income of Nítrigin Éireann Teoranta

This section is now spent.

Section 218 Certain income of Housing Finance Agency plc

Is the income of the Housing Finance Agency plc exempt?

Trading income which accrues to the Housing Finance Agency from providing house purchase loans is exempt from corporation tax.

Untaxed interest earned on such income is also exempt.

Section 219 Income of body designated under Irish Takeover Panel Act, 1997

Is income arising to the Irish Takeover Panel exempt?

Income arising to the Irish Takeover Panel is exempt from corporation tax.

The Irish Takeover Panel is a body set up by the Minister for Enterprise and Employment under the Irish Takeover Panel Act 1997 section 3. Its function is to oversee the conduct of takeovers and mergers.

Section 219A Income of credit unions

Is income of a credit union exempt?

(1)-(2) A credit union registered or deemed to have been registered under the Credit Union Act 1997 is exempt from corporation tax.

Section 219B Income of Investor Compensation Company Ltd

Are profits of the Investor Compensation Company exempt?

(1)-(2) Profits arising to The Investor Compensation Company Ltd are exempt from corporation tax.

Section 220 Profits of certain bodies corporate

What bodies’ profits are exempt?

Profits (income and chargeable gains) of the following bodies are exempt from corporation tax:

(a) the National Lottery.

(b) the Dublin Docklands Development Authority, and any of its 100% subsidiaries.

(c) the Pensions Board (An Bord Pinsean).

(d) Horse Racing Ireland.

(e) Irish Thoroughbred Marketing Ltd.

(f) Tote Ireland Ltd.

(g) The Commission for Electricity Regulation.

The listed bodies remain liable to DIRT. The National Lottery and the Pensions Board remain liable to CGT.

Section 221 Certain payments to National Co-operative Farm Relief Services Ltd and certain payments made to its members

This section is now spent.

Section 222 Certain dividends from a non-resident subsidiary

This section is now spent.

Section 223 Small enterprise grants

Are employment grants exempt?

(1)-(2) Small enterprise employment grants paid by the Industrial Development Agency Ireland and Údarás na Gaeltachta are exempt.

Section 224 Grants to medium and large industrial undertakings

Are medium and large enterprise employment grants exempt?

(1)-(2) Medium or large enterprise employment grants paid by the Industrial Development Agency Ireland and Údarás na Gaeltachta are exempt.

Section 225 Employment grants

Are international services employment grants exempt?

(1)-(2) Industrial Development Agency Ireland employment grants (and equivalent SFADCo grants) aimed at international service industries are exempt from income tax and corporation tax.

Section 226 Certain employment grants and recruitment subsidies

What other employment grants are exempt?

(1)-(2) A wide variety of employment grants and subsidies are available:

(a) Department of Social Welfare Back to Work Allowance grants.

(b) FÁS (Foras Áiseanna Saothair) grants.

(c) County Enterprise Board grants.

(d) Grants or subsidies paid under the Employment Support Scheme administered by the National Rehabilitation Board.

(dd) grants or subsidies under the Wage Subsidy Scheme of the Dept of Social Protection.

(f) Leader II Community Initiative (European Union and Department of Agriculture) grants.

(g) Local Urban and Rural Development (European Union) grants.

(h) Border County (European Union Peace Programme) grants.

(i) INTERREG (Northern Ireland, Ireland, European Union) grants.

(j) International Fund for Ireland grants.

(k) JobPlus

All of these grants and subsidies are exempt from income tax and corporation tax.

Section 227 Certain income arising to specified non-commercial State-sponsored bodies

What is a non-commercial State body?

(1) Over 100 non-commercial State-sponsored bodies are listed in Schedule 4. These are commonly referred to as Quangos (Quasi-Autonomous Non-Governmental Organisations).

Can the list of non-commercial State bodies be amended?

(2) Bodies may be added to or deleted from the list by an order of the Minister for Finance.

Must an amendment to the list of non-commercial State bodies be approved?

(3) Such an order must be laid before and passed by Dáil Éireann.

Is income arising to a non-commercial State body exempt?

(4) Although exempt from income tax and corporation tax, a listed body is chargeable to tax on its trading income (Case I). Furthermore, a body is not exempt from DIRT.

Section 228 Income arising to designated bodies under the Securitisation (Proceeds of Certain Mortgages) Act, 1995

Is NTMA securitisation income exempt?

Securitisation is the process whereby a lender sells a block of loans (a loan book) to another specially formed company which then owns the right to receive the income (the capital and interest repayments) on the loans. That company is then responsible for collection of outstanding repayments, informing borrowers of increases/decreases in interest rates and court action where necessary.

The Securitisation (Proceeds of Certain Mortgages) Act 1995 allows a specially formed company, managed by the National Treasury Management Agency, to securitise local authority housing loan repayment income.

The income of a body designated under section 4(1) of the Securitisation (Proceeds of Certain Mortgages) Act 1995 is exempt from income tax and corporation tax.

Section 229 Harbour authorities and port companies

Is income of a harbour authority exempt?

(1)-(2) Profits earned by a body or company (a relevant body) up to 31 December 1998 from the provision of harbour facilities for ships, goods and passengers, are exempt from tax under Schedule D.

Is income of a harbour authority that does not convert to a company exempt?

(3) Harbour management income earned by a harbour authority that does not convert to a harbour company remains exempt from income tax.

Section 230 National Treasury Management Agency

Is the income of the National Treasury Management Agency exempt?

(1)-(2) The National Treasury Management Agency (NTMA), which manages Ireland’s national debt, is exempt from corporation tax.

Any payments made by the Agency may be made gross, i.e., without deduction of income tax.

Section 230A National Pensions Reserve Fund Commission

This section is now spent.

Section 230AA NAMA profits exempt from corporation tax

This section is now spent.

Section 230AB National Development Finance Agency

Are NDFA profits exempt?

(1) Profits of the National Development Finance Agency (NDFA) are exempt from corporation tax.

Is NDFA interest income exempt?

(2) Interest income of the National Development Finance Agency is exempt.

Section 230AC

Section 231 Profits or gains from stallion fees

This section is now spent.

Section 232 Profits from occupation of certain woodlands

Are profits from the occupation of woodlands exempt?

(1)-(2) Profits from commercial forestry are exempt from income tax and corporation tax.

The exemption is given to an occupier of woodlands, i.e., a person who has the use of the woodlands. This may be a lessee, or a timber merchant who has bought the right to fell and extract timber on the land, even though he/she does not own the land: Russell v Hird and Mercer, (1983) 57 TC 127.

If the owner and another person both occupy the land, the owner is regarded as the exclusive occupier: O’Connaill v Z Ltd, 3 ITR 636.

EU payments for set-aside of land are designed to reimburse the farmer for income that would have accrued had he/she continued to use the land. Such payments are assessable as farming profits under Schedule D Case I (section 655). If a farmer in receipt of set aside payments for land plants trees on that land, the payments are not thereby recharacterised as receipts derived from the occupation of woodland. The payments still represent loss of income that would have accrued had tillage continued, and therefore are not exempt (Revenue Precedent IT91-3022, 16 July 1991).

Profits from the planting and harvesting of Christmas trees are exempt (Revenue Precedent IT96-3506, 23 January 1996). The UK Chancery Division have held that a Christmas tree plantation is not “woodland” because the trees were not capable of being used as timber: Jaggers v Ellis, [1997] STC 1417.

Revenue do not accept that profits from the sale of holly (foliage from holly bushes) are exempt. Presumably, a plantation of holly bushes is not regarded as “woodland” (Revenue Precedent IT93-3006, 24 February 1993).

Must profits from woodlands be declared in the tax return?

(3) Although profits from woodlands are exempt from income tax, such details must be included in the tax return.

Is a loss arising from the occupation of woodlands deductible?

(4) A loss arising from a woodlands is computed as if the exemption did not apply.

Section 233 Stud greyhound service fees

This section is now spent.

Section 234 Certain income derived from patent royalties

This section is now spent.

Section 235 Bodies established for promotion of athletic or amateur games or sports

Is income of an amateur sports body exempt?

(1) The income of an amateur sports body (an approved body of persons) is exempt from income tax.

For the exemption to apply, the body must be established solely to promote amateur sport.

A Revenue official who believes that the exemption is being used to cloak a fully chargeable activity may write to the body withdrawing the exemption.

These changes, which allow Revenue to withdraw relief, were introduced in response to the decision in O’Reilly and others v Revenue Commissioners, [1984] ILRM 406, Revenue Commissioners v ORMG, (1983) 3 ITR 138.

An amateur sports body entitled to exemption under section 235 may not claim exemption from DIRT. This is because the sporting body is not within the charge to corporation tax in respect of the interest. Therefore, such a body could not complete a declaration to the effect that the interest will be included in the company’s profits for the purposes of corporation tax (Revenue Precedent IT92-2034, 23 July 1992).

It is necessary to apply to Revenue to secure exemption: Tax Briefing 44.

What income of an amateur sports body is taxable?

(2) The exemption only applies to the part of the body’s income that is used to promote amateur sports. The balance of the body’s income is fully chargeable to income tax or corporation tax (as appropriate).

Example

X is a member-owned amateur hockey club that has been in existence for many years. The club’s fixed assets consist of a covered stand, two hockey pitches, a fully equipped gymnasium, a sauna, and a member’s bar.

Its turnover consists of rent from use of rooms, raffle profits, sale of gym memberships (use by the public on weekdays) and bar profits.

Once approval has been given, the club will be exempt from tax on its income.

If, as club management, you subsequently decide, for example, to run down the sporting activities and build a large extension (with nightclub) to the bar, Revenue may withdraw the exemption and tax the profits from such activities.

When does withdrawal of exemption take effect?

(3) A withdrawal of income tax exemption takes effect from the tax year in which the club began to exist for the purpose of securing a tax advantage, or 1984-85, whichever is the later.

A withdrawal of corporation tax exemption takes effect from the accounting period in which the club began to exist for the purpose of securing a tax advantage, or the company’s first accounting period beginning after 6 April 1984, whichever is the later.

Example

If a football club only plays football for one month a year, but has substantial turnover from a member’s bar and weekly discos, the exemption would be withdrawn.

Can a Revenue decision as to sports exemption be appealed?

(4) A Revenue decision as to withdrawal of exemption may be appealed to the Appeal Commissioners within 30 days of the notice of it.

Can Revenue delegate their powers in relation to sports bodies?

(5) Revenue functions in relation to amateur sports bodies may be delegated to an authorised Revenue officer.

Section 236 Loan of certain art objects

This section is now spent.

Section 237 Annual payments payable wholly out of taxed income

Is tax deductible from an annual payment paid out of taxed income?

(1) A person making an annual payment out of taxed income is chargeable to tax on that payment, and is entitled to retain standard rate income tax from the payment. The payee must allow the tax to be withheld, and the payer is treated as having paid the gross amount to the payee.

Under section 237, as the payer, you may deduct tax from the payment made, as the funds from which the payment is made are already subject to tax by Revenue. Tax is charged by reference to when the payment is due: Johnson v Johnson, [1946] P205.

An annual payment is a payment that is pure income profit in the hands of the recipient (see notes to section 18, Case III). The recipient generally incurs no expense in return for the annual payment: Re Hanbury (deceased), (1939) 38 TC 588. Bank or other interest is not an annual payment.

The payer must be legally obliged to make the payment, for example, under a deed of covenant (but only certain deed of covenant payments now qualify to be treated as annual payments: section 792).

The following payments have been held to be annual payments payable out of taxed income:

(a) A partnership pension: IRC v Hogarth, (1940) 23 TC 491.

(b) Profits paid to charity: R v Special Commissioners, ex parte Shaftesbury Homes, (1922) 8 TC 367.

(c) Payments to charities: IRC v Corporation of London (as Conservators of Epping Forest), (1953) 34 TC 293.

(d) Compensation payments: Renfrew Town Council v IRC, (1934) 19 TC 13.

(e) Rent charges to purchase land: IRC v Church Commissioners for England, [1976] STC 339.

(f) An annuity payable out of public revenue: Scoble v Secretary of State for India, (1903) 4 TC 478; 618; East India Railway Co v Secretary of State for India (No 1), (1905) 21 TLR 606; East India Railway Co v Secretary of State forIndia (No 2) 1924 40 TLR 241.

(g) An annuity split between capital and income: Goole Corporation v Aire and Calder Navigation Trustees, (1942) 21 ATC 156.

(h) Trustees’ remuneration: Baxendale v Murphy, (1924) 9 TC 76; Hearn v Morgan, (1945) 26 TC 478.

(i) Partnership goodwill: Mackintosh v IRC, (1928) 14 TC 15.

(j) Know-how royalties: Delage v Nugget Polish Co Ltd, (1905) 21 TLR 454.

(k) Accumulated trust income: Postlethwaite v IRC, (1963) 41 TC 224.

(l) Employee’s remuneration: Duke of Westminster v IRC, (1935) 19 TC 490; Asher v London Film Productions Ltd, (1943) 22 ATC 432.

The following payments have been held not to be annual payments (generally because some consideration was provided in return for the payment):

(a) Insurance premiums: Earl Howe v IRC, (1919) 7 TC 289.

(b) Remuneration: Jaworski v Institution of Polish Engineers in Great Britain Ltd, (1950) 29 ATC 385.

(c) Partnership goodwill: IRC v Ledgard, (1937) 21 TC 129.

(d) Personal expenses: Watkins v IRC, (1939) 22 TC 696.

(e) Payments to company: IRC v Mallaby-Deeley, (1938) 23 TC 153.

(f) Partnership profits: IRC v Hunter, (1955) 36 TC 181.

(g) Purchase of business: IRC v Ramsay, (1935) 20 TC 79; Campbell (Trustees of Davies’ Educational Trust) v IRC, (1968) 45 TC 427.

(h) Facilities to members: IRC v National Book League, (1957) 37 TC 455.

(i) Use of assets: Re Hanbury dec’d, (1939) 38 TC 588.

(j) Loans: IRC v Wesleyan and General Assurance Co Ltd, (1948) 30 TC 1.

(k) Facilities provided to members of a festival committee: Taw and Torridge Festival Society Ltd v IRC, (1959) 38 TC 603.

(l) Sale by way of royalties: Rank Xerox Ltd v Lane, [1979] STC 740.

(m) Training fees: Essex County Council v Ellam, [1989] STC 317.

(n) Contributions to charity which were repaid, so that the payer did not reduce his income: Moodie v CIR and Sinnett, [1993] 2 All ER 49.

Deduction of tax

If the payer does not deduct tax from the payment, Revenue may collect tax under-deducted from the recipient:Glamorgan County Quarter Sessions v Wilson, (1910) 5 TC 537; Grosvenor Place Estates Ltd v Roberts, (1960) 39 TC 433. See also Re Musgrave, Machell v Parry, (1916) 2 Ch 417; Turvey v Dentons, (1923) Ltd, (1952) 31 ATC 470.

If the failure to deduct tax is due to a mistake of law rather than fact, the under-deducted tax may not be deducted from later annual payments: Shrewsbury (Countess) v Shrewsbury, (1907) 23 TLR 224, unless the payments are in arrears:Taylor v Taylor, [1938] 1 KB 320.

A recipient who agrees to an incorrect deduction of tax may not later object: Gwyther v Boslymon Quarries Ltd, (1950) 29 ATC 1.

An annual payment cannot be made out of taxed income if, due to losses, there is no taxable income: Luipaard’s Vlei Estate and Gold Mining Co Ltd v IRC, (1930) 15 TC 573; A-G v Metropolitan Water Board, (1927) 13 TC 294; Trinidad Petroleum Development Co Ltd v IRC, (1936) 21 TC 1.

Payments made “free of tax”

If the deed of covenant or other document specifies that the annuity or annual payment is to be made “free of tax”, then for tax purposes the net payment to the recipient is to be grossed up at the standard rate: Hutchison v IRC, (1929) 15 TC 89; Spilsbury v Spofforth, (1937) 21 TC 247; IRC v Ferguson, (1969) 46 TC 1. Net tax paid by trustees, when grossed up, is itself chargeable to tax: Meeking v IRC, (1920) 7 TC 603; Shrewsbury and Talbot v IRC, (1936) 20 TC 538.

In this regard, “free of tax” means free of Irish tax, Re Frazer v Hughes, (1941) 20 ATC 73, unless otherwise indicated,Havelock v Grant, (1946) 27 TC 363.

Whether or not an annual payment is to be grossed up as free of tax depends on the precise wording used:Shrewsbury v Shrewsbury, (1906) 22 TLR 598; Farrer v Loveless, (1918) 34 TLR 356; IRC v Watson, (1942) 25 TC 25,Re Shrewsbury Estate Acts, (1923) 40 TLR 16; Re Buckle Williams v Marson (1894) 1 Ch 286.

See also, as regards higher rates of tax: Re Bates, Selmes v Bates, (1924) 4 ATC 518; Re Hulton, Hulton v Midland Bank Executor and Trustee Co Ltd, (1930) 9 ATC 570; Prentice’s Trustees v Prentice, (1934) 13 ATC 612. Higher rate tax to be included is calculated as a proportion of total income: Re Bowring, Wimble v Bowring, (1918) 34 TLR 575;Richmond‘s Trustees v Richmond, (1935) 14 ATC 489; Colledge v Horlick, (1938) 17 ATC 549, but see Baird’s Trustees v Baird, (1933) 12 ATC 407.

The income of an annuitant in receipt of a “tax-free” annuity is irrelevant. The net payment must be grossed up at the standard rate of tax: IRC v Cook, (1945) 26 TC 489.

The recipient of a tax-free annuity is meant to pay no tax on the income. If the recipient receives a tax repayment, he/she must pay over the tax repaid to the trustees: Re Pettit, Le Fevre v Pettit, (1922) 38 TLR 787; Re Maclennan; Few v Byrne, (1939) 18 ATC 121; Re Eves, Midland Bank Executor and Trustee Co Ltd v Eves, (1939) 18 ATC 401; Re Jubb, Neilson v King and Others, (1941) 20 ATC 297; Re Tatham, National Provincial Bank Ltd v Mackenzie, (1944) 23 ATC 283; Re Williams, Midland Bank Executor and Trustee Co Ltd v Williams, (1945) 24 ATC 199; Re Bates’ Will Trusts, Jenkins v Bates, (1945) 24 ATC 300; Re Arno, Healey v Arno, (1946) 25 ATC 412; Re Lyons, (1951) 30 ATC 377; Re Kincombe, (1936) 15 ATC 37; Re Batley, (1952) 31 ATC 410; IRC v Duncanson, (1949) 31 TC 257. But seeRe Jones, (1933) 12 ATC 595, or Rowan’s Trustees v Rowan, (1939) 18 ATC 378.

An annuity may in certain circumstances be apportioned over two tax years: IRC v Earl of Haddington, (1924) 8 TC 711.

Is a royalty an annual payment?

(2) Royalties and sums paid for the use of patent rights are annual payments. A person who pays a patent royalty out of taxed income is entitled to deduct standard rate tax for the year in which the payment becomes due.

In the following cases, patent royalty payments were held to be annual payments: Jones v IRC, (1919) 7 TC 310; IRC v British Salmson Aero Engines Ltd, (1938) 22 TC 29; International Combustion Ltd v IRC, (1932) 16 TC 532;Constantinesco v R, (1927) 11 TC 730. In Wild v Ionides, (1925) 9 TC 392, patent receipts were held not to be royalties.

Copyright royalties are not regarded as “annual payments” within section 237 (Revenue Precedent CTF189/DON, 28 August 1989).

Is rent an annual payment?

(3) Rent is not an annual payment, but see section 1041.

Section 238 Annual payments not payable out of taxed income

Is tax deductible from an annual payment that is not paid from taxed income?

(1)-(2) Where an annual payment is made out of income not charged to tax, the recipient is chargeable to tax on that payment and the payer must retain standard rate tax.

The payer must deduct tax, as the funds from which the payment is made is not easily made subject to tax by Revenue. Tax is charged by reference to when the payment is made.

The following have been held to be annual payments payable out of income not charged to tax:

(a) Annual payments, other than interest: Allchin v Corporation of South Shields, (1943) 25 TC 445; A-G v Metropolitan Water Board, (1927) 13 TC 294. See also Aeolian Co Ltd v IRC, (1936) 20 TC 547.

(b) Payments by trustees out of capital because the trust income was insufficient to pay beneficiary’s annuity:Brodie’s Trustees v IRC, (1933) 17 TC 432; Milne’s Executors v IRC, (1956) 37 TC 10; Trustees of Peirse-Duncombe Trust v IRC, (1940) 23 TC 199; Lindus and Hortin v IRC, (1933) 17 TC 442; Lord Michelham’s Trustees v IRC, (1930) 15 TC 737; Jackson’s Trustees v IRC, (1942) 25 TC 13; Cunard’s Trustees v IRC, (1946) 27 TC 122;John Morant Settlement Trustees v IRC, (1948) 30 TC 147. Excess payments were held to be capital in IRC v Lady Castlemaine, (1943) 25 TC 408. See also Rhokana Corporation Ltd v IRC, (1938) 21 TC 552.

(c) Payments disguised as loans: Esdaile v IRC, (1936) 20 TC 700; Williamson v Ough, (1936) 20 TC 194.

(d) Guarantee payments allowed as an expense Moss’ Empires Ltd v IRC, (1937) 21 TC 264.

(e) Annuities allowed as an expense: Gresham Life Assurance Society v Styles (1890) 2 TC 633; 3 TC 185.

(f) Patent expenses: Paterson Engineering Co Ltd v Duff, (1943) 25 TC 43.

(g) Purchase consideration payable by instalments: Dott v Brown, (1936) 15 ATC 147; Foley v Fletcher, (1858) 3 H and N 769, 7 WR 141; but see Chadwick v Pearl Life Insurance Co, (1905) 21 TLR 456; IRC v 36/49 Holdings Ltd, (1943) 25 TC 173.

The following have been held not to be annual payments payable out of income not charged to tax:

(a) Interest paid on funds in court: Colclough and others v Colclough and another, [1965] IR 668.

(b) Bank interest treated as a trading expense: Wilcock v Frigate Investments Ltd, [1982] STC 198.

Tax must be deducted from each instalment when paid; tax cannot be recouped from later payments: Tenbry Investments Ltd v Peugeot Talbot Motor Co Ltd, [1992] STC 791.

An annual payment cannot be made out of income not charged to tax if there is no income upon which to charge it: In re estate of Teresa Downing, 1 ITR 487.

Copyright royalties are not regarded as “annual payments” within section 238 (Revenue Precedent IT92-508, 16 February 1995).

Interest paid on an award made under The Arbitrator’s Act 1954 is not “interest of money” within section 238 (Revenue Precedent IT92-3104, 8 December 1992).

Film royalties are generally regarded as annual payments, since they are normally pure income profits (Revenue Precedent IT91-3560, 20 June 1991).

When is tax deductible from an annual payment due?

(3) Tax arising on an annual payment out of untaxed income must be paid to Revenue immediately.

In practice, tax is paid when your annual tax return is filed.

Can Revenue assess unpaid annual payment tax?

(4) Revenue can assess unpaid annual payment tax.

How is annual payment tax collected?

(5) The income tax rules for chargeable persons, assessments, appeals and collection apply to withholding tax on annual payments.

How does a company account for annual payment tax?

(6) Additional rules apply for annual payments made by Irish resident companies (section 239) and non-resident companies (section 241).

Is rent an annual payment?

(7) Rent is not an annual payment.

Section 239 Income tax on payments by resident companies

What is a relevant payment?

(1) A relevant payment means both an annual payment out of income which has not been charged to tax, and a deemed annual payment under section 438 (loans to participators).

The obligation to deduct tax from annual payments applies to companies as well as to individuals: Hafton Properties Ltd v McHugh, [1987] STC 16.

What is the deadline for filing an annual payments tax return?

(2)-(4) An Irish resident company that has made or received a relevant payment must, within nine months of the end of that period, make an annual payments return showing the amount of each payment, and the amount of tax withheld from each payment.

What is the deadline for e-filing an annual payments tax return?

(4A) The deadline is the 23rd day of the ninth month following the end of the accounting period.

When is annual payments tax due?

(5) The net income tax on the annual payments included in the return is due within six months of the accounting period to which the return relates, even though the return is due within nine months of that period.

Inspectors retain the right to assess tax due in the absence of a return.

The tax, which is strictly due on the 21st day of the sixth month, is paid by self-assessment. Each company pays its own liability, without the need for the inspector to make an assessment of any tax due.

Example

Company accounts for the year to 31 December 2012 show:

Gross Tax deducted Net
Payments made: Royalties 5,000 1,000 4000
Payments received: 1,000 200 800

You must pay to the Collector-General, on or before 21 June 2013, the net income tax due (€800, i.e., €1,000 – €200) as part of your preliminary tax payment.

Can Revenue estimate unpaid annual payments tax?

(6) Where a return is filed, inspectors retain the right to estimate and assess any income tax underpaid. Interest on underpaid tax accrues from the date on which the tax should have been paid.

Can tax on payments received be offset against tax on payments made?

(7) Tax on payments received can be offset against tax on payments made.

Must credit be given for tax on payments received before collection proceedings start?

(8) Tax on a company’s annual payments is not to be collected until the company has been given full credit for tax on annual payments received. However, if tax is in the process of being collected, a late claim for offset of tax on annual payments received will not be allowed to interrupt the tax collection process.

Can annual payments tax be offset against corporation tax?

(9) Once the tax on annual payments received has been offset, the tax (on annual payments made) against which it has been offset is treated as paid. That tax cannot also be used to reduce the corporation tax on the company’s profits (see (12)).

What is the pay and file date for tax on a payment made outside an accounts period?

(10) If an annual payment is made on a date not within an accounting period, the annual payment return must be made (and the tax must be paid) within six months of the payment date.

Is annual payments tax treated as corporation tax for collection purposes?

(11) The net income tax owed by a company on its annual payments (excess of income tax on annual payments made over income tax on annual payments received) is regarded for tax collection purposes as corporation tax for the accounting period in which the payment falls.

Can Revenue enforce collection of unpaid annual payments tax?

(12) Although the various offsets above are available, Revenue retain the power to enforce collection of any unpaid income tax.

Can Revenue make regulations relating to annual payments?

(13) The Revenue Commissioners may modify the rules for accounting for income tax on annual payments for different companies and different circumstances. To do this, they may make regulations relating to annual payments returns, assessments, and appeals. Such regulations must be laid before and passed by Dáil Éireann.

No such regulations have been made.

Section 240 Provisions as to tax under section 239

How is tax on an annual payment made outside an accounts period collected?

(1)-(2) The income tax assessment, appeal, collection and recovery rules apply to income tax on annual payments made on a date not within an accounting period (section 239(10)).

Is interest chargeable on late annual payments tax?

(3) Interest is charged at 0.0274% for each day income tax on an annual payment remains unpaid.

Such interest is not itself an annual payment from which income tax must be withheld by the payer at the standard rate. It is a debt due to the Minister for Finance, for the benefit of the Central Fund, and is payable to the Revenue Commissioners.

In any court proceedings to collect unpaid interest, a certificate signed by the Collector-General stating that an amount is due may be given in evidence and such a certificate is evidence, until the contrary is proved, that the amount is so due.

Is late annual payments tax also subject to interest as unpaid income tax?

(4) No. Interest is not to be charged under section 1080 on tax within this section which has not been paid, or has been paid late.

This prevents a double interest charge.

How is the write-off of a loan from a close company to a participator treated?

(5) If a loan from a close company to a participator is forgiven, the company must treat the amount forgiven as an annual payment and account for income tax on the amount (section 438). If the loan is later repaid, the company is entitled to be repaid any tax (but not interest on such tax) it has already paid.

Example

Company accounts show:

Loan balance owed to company by X (director/shareholder) 5,000

The company forgives the loan and writes off the balance.

The forgiving of the loan balance is treated as an annual payment made to X from which tax must be withheld.

The company must pay to the Collector-General the net income tax due (€1,000) as part of its preliminary tax payment.

Section 241 Income tax on payments by non-resident companies

Is a foreign company required to file an annual payments tax return?

(1) A non-resident company trading through an Irish branch must make a return in respect of any annual payments made or received in an accounting period.

The excess of income tax on annual payments made over income tax on annual payments received may be regarded for tax collection purposes as corporation tax for the accounting period in which the payment falls. This means it is payable by the self assessment return date, i.e., within six months of the accounting period to which the return relates, even though the return is due within nine months of that period.

Example

A UK company trades through a branch in Ireland.

For the year to 31 December 2012, accounts show:

Gross Tax deducted Net
Payments made: Royalties 5,000 1,000 4,000
Payments received: 1,000 200 800

The company must pay to the Collector-General, on or before 21 June 2012 the net income tax due (€800, i.e., €1,000 – €200) as part of its preliminary tax payment.

When is annual payments tax owed by a foreign company due?

(2) The company must file a return of payments it has made, and the tax it has deducted from such payments.

The income tax is due and payable on a self-assessment basis as if it were corporation tax due for the accounting period in which the payment was made.

Section 242 Annual payments for non-taxable consideration

What is an artificial annual payment?

(1) This section counters anti-avoidance through the use of “reverse annuity schemes”. Under such a scheme, a financial institution would give a person a capital sum and that person would repay that amount by making several annual payments to the “lender”.

An artificial annual payment is one charged under Case III which is made for a capital sum of money (or money’s worth), and is not:

(a) interest,

(b) a “normal” purchased annuity, or

(c) a payment made for releasing an interest in settled property in favour of a person having a subsequent interest.

How is an artificial annual payment treated?

(2) An artificial annual payment (that gives the results shown in the following example) is not regarded as a (deductible) charge against total income. Income tax must not be withheld from such payments.

Section 242A Tax treatment of certain royalties

What is a relevant territory?

(1) A relevant territory is an EU Member State, or a country with which Ireland has, or is about to have, a tax treaty.

Are royalty payments exempt from withholding tax?

(2) A royalty payment is exempt from withholding tax if:

(a) it is made by a company in the course of its trade or business,

(b) the receiving company is not resident in the Republic of Ireland (ROI), and is resident for tax purposes in arelevant territory (see (1)) which taxes inbound royalties, and

(c) it is made for bona fide commercial reasons and not as part of a tax avoidance scheme.

How does the withholding tax exemption apply?

(3) The person paying the royalty need not deduct income tax.

Is the foreign recipient of a royalty payments subject to corporation tax?

(4) Provided it does not trade through a branch or agency in ROI, a company is not chargeable to corporation tax, or income tax, on royalties it receives if:

(a) it is not resident in ROI, and is resident for tax purposes in a relevant territory (see (1)) which taxes inbound royalties, and

(b) the payment is made for bona fide commercial reasons and not as part of a tax avoidance scheme.

Section 243 Allowance of charges on income

What are charges on income?

(1) Charges on income means:

(a) yearly interest, annual payments, including rents payable from premises chargeable under Schedule D Case I(b) (section 104) and royalties (section 237(2)),

(b) loan interest payable to a bank or stockbroker carrying on business in an EU Member State.

The term does not include a distribution of the company or any amount deductible against profits as a business expense.

An annual payment is a payment that is pure income profit in the hands of the recipient. The recipient generally incurs no expense in return for the annual payment: Re Hanbury (deceased), (1939) 38 TC 588.

Is building society interest a charge?

(1A) Because “bank” now includes “building society”, interest paid on or after 30 March 2001 to a building society may qualify as a charge against the paying company’s total profits for corporation tax purposes.

Are charges deductible?

(2) The total charges on income paid by a company from its profits brought into charge to tax in an accounting period may be deducted from company total profits for that period, after allowing other corporation tax reliefs (but not group relief).

Example

A company had the following income for the year ended 31 December 2012. In the same period, it paid €25,000 (gross) in patent royalties to X Ltd. The net payment to X Ltd was €25,000 – €5,000 income tax withheld = €20,000.

Non-manufacturing trading income (Case I) 100,000
Total profits 100,000
less charges 25,000
Income after charges 75,000
Corporation tax
75,000 at 12.5% 9,375
Add income tax on charges (€25,000 X 20%) 5,000
Total tax liability 14,375
Are pre-trading charges deductible?

(3) Pre-trading charges are deductible as if they had been incurred on the first day of trading.

Pre-trading charges cannot be claimed under any other expenditure heading for tax purposes.

Is interest paid to a non-resident deductible?

(4)-(5) In general, interest paid to a non-resident is not deductible as a charge unless:

(a) the payer withholds and accounts for income tax on the interest payment,

(b) the payment is made from foreign source income (Case III) included in total income,

(c) the payment is made to a company resident in another EU State under the terms of the EU Savings Directive.

Interest paid to a non-resident may be deductible as a charge if:

(i) the payer has been authorised by Revenue to pay the interest gross,

(ii) the interest is paid:

(I) on an advance from a bank carrying on banking business in the State (section 246(3)(a)),

(II) by a commercial bank in the State in the ordinary course of its business (section 246(3)(b)),

(III) by a company or a collective investment undertaking to a company resident in another EU State or a tax treaty country but not if the interest is paid in connection with a trade carried on by the foreign company through in Irish branch (section 246(3)(h)),

(iii) the interest is paid to a non-resident in respect of a quoted Eurobond (section 64(2)).

Example

A company made the following interest payments during its accounting period ended 31 December 2008:

Payee Gross Tax withheld
W Inc (US-based, not trading in Ireland, unrelated) 25,000 Nil
X Ltd (bank carrying on banking business in the State) 35,000 Nil
Y, based in Chile (holder of quoted Eurobond) 10,000 Nil
Z (Argentinian 100% subsidiary of W Inc) 10,000 2,000

Consequences:

The payment to W Inc may be paid gross, as W Inc is based in a country that has a tax treaty with Ireland (the USA) and it has no establishment in the State.

The payment to X Ltd may be paid gross as X Ltd is a bank carrying on bona fide banking business in the State.

The payment to Y Ltd may be paid gross as the payment is to a non-resident holder of a quoted Eurobond.

The payment Z is subject to withholding tax as Argentina does not have a tax treaty with Ireland. However, you may be able to obtain agreement from Revenue to make the payment gross on the basis that Z is a 100% subsidiary of W Inc.

When is an annual payment not deductible?

(6) An annual payment is not deductible as a charge against total income if:

(a) It is charged to capital (apart from certain royalty payments which must be charged to capital in accordance with IFRS) or the paying company does not ultimately bear the cost of the payment.

(b) It is not made for “valuable and sufficient consideration”.

An annual payment in the nature of a deductible covenant made by a company (for example, a business gift to a university) is regarded as being for valuable and sufficient consideration.

Charges incurred by a non-resident company trading through a branch in the State are only deductible if incurred wholly and exclusively for the purposes of the local branch trade.

(a) See Chancery Lane Safe Deposit and Offices Co Ltd v IRC, (1965) 43 TC 83; Central London Railway Co v IRC, (1936) 20 TC 102 and Fitzleet Estates Ltd v Cherry, [1977] STC 95.

(b) For example, if a company pays a €5,000 royalty for the right to use software for which other companies must pay €20,000, the royalty, although for valuable consideration (€5,000), may not be for sufficient consideration (€20,000). See Ball v National and Grindley’s Bank Ltd, (1971) 47 TC 287.

Mining royalties were allowed when paid in Broughton and Plas Power Coal Co Ltd v Kirkpatrick (1884) 2 TC 69 andIRC v Cranford Ironstone Co Ltd, (1942) 29 TC 113.

Is annual interest deductible?

(7) Short interest (i.e., interest on a loan repayable within one year of its being taken out) is not regarded as a charge against a company’s total income.

This is because interest is generally deductible as a business expense in computing the company’s trading income. See Wilcock v Frigate Investments Ltd, [1982] STC 198.

Is interest on a loan to buy shares in another company deductible?

(8) Interest is regarded as a charge against total income if the money was borrowed to buy shares in another company, and all the necessary conditions are fulfilled.

Can deductibility as a charge be withdrawn?

(9) If a person borrows to buy shares in another company, obtains a deduction as a charge against total income for the interest on such borrowings, then subsequently recovers capital from the other company, the interest deduction may be withdrawn.

Section 243A Restriction of relevant charges on income

What are relevant trading charges?

(1) This section ensures that a company charged at different rates including the higher rate (25%) claiming a deduction under section 243 of charges from total profits, and paying charges out of income not charged at the higher rate, can only get a deduction for those charges against that (non-higher rate) income: Tax Briefing 44.

A company’s relevant trading income is its trading income for an accounting period which is not chargeable at the higher (25%) rate.

A company’s relevant trading charges on income are the charges which relate to its non-higher rate income, i.e., the charges which relate to its relevant trading income.

Can relevant trading charges be deducted from total income?

(2) A company may not take a deduction against total profits for charges which relate to its non-higher rate income (i.e., for its relevant trading charges on income). Such charges are allowable only against non-higher rate taxed income (see (3) below).

What can relevant trading charges be used against?

(3) Although disallowed under (2) as a deduction against total profits, relevant trading charges on income are allowable against:

(a) income from non-life insurance, reinsurance, and from life business, provided the income in question is attributed to the company’s shareholders (section 21A(4)),

(b) non-higher rate taxed income, and

(c) income to which section 21A(3) does not apply by virtue of section 21B,

net of any losses attributable to such income (section 396A).

Example

A company which has both trading and rental income, had the following profits and interest payments for the year ending 31 December 2012:

Trading income Rental income Total profits
Tax rate 12.5% 25%
1,000 55,000 56,000
Interest on five year business loan (5,000)

With no “ring-fencing”, the company could deduct €5,000 from total profits (which includes 25%-taxed rental profits).

The ring-fencing ensures that it only gets a deduction for €1,000, i.e., for relevant trading charges on income against non-higher rate taxed income, i.e., relevant trading income. The balance of €4,000 is carried forward against relevant future trading income.

Section 243B Relief for certain charges on income on a value basis

What is relief on a value basis?

(1) Finance Act 2001 section 90 introduced three new sections: section 243A which deals with restriction of relief for charges, section 396A which deals with restriction of loss relief, and section 420A which deals with group relief.

The net effect of these sections is to ensure that a loss (or excess charges) in an activity the profits of which are taxed at the 12.5% rate cannot be off set against profits taxed at 25% rate (rental income, etc.) The loss (or excess charges) can only be used (with any excess being carried forward against similar profits) against profits taxed at the same rate. In effect, a 12.5% loss is “ring-fenced” against 12.5%-taxed profits. Similarly, excess charges are “ring-fenced” against profits from that activity.

Finance Act 2002 section 54 modifies the effect of section 243A, section 396A and section 420A, by introducing three supplementary sections: section 243B, section 396B and section 420B. In each instance, the effect of the supplementary section is to ensure that where a taxpayer has a loss (or excess charges) in a 12.5%-taxed activity, relief can be given on a value basis.

The relief is given by reducing the relevant corporation tax, i.e., the tax that would be payable before taking into account relief for charges.

Can excess relevant trading charges be relieved on a value basis?

(2) Where the amount of charges paid exceeds non-higher rate profits (i.e. profits taxed at 12.5%), relief is available on a value basis.

How is relief on a value basis given?

(3) Relief is given on a value basis as follows:

To the extent to which the excess consists of “standard rate charges” (i.e., charges which relate to a 12.5% taxed activity), the relevant corporation tax is reduced by a figure obtained by multiplying the standard rate charges (C) by the standard rate of corporation tax, i.e., R/100, where R is 12.5.

Example

A company with trading and rental income, had the following profits and interest payments for the year ending 31 December 2012:

Trading income Rental income Total profits
Tax rate 12.5% 25%
1,000 55,000 56,000
Interest on five year business loan (5,000)

The relevant corporation tax is €1,000 x 12.5% + €55,000 x 25% = €13,875.

The excess is €4,000, because only €1,000 can be used against the 12.5% taxed profits.

Relief can be claimed on a value basis for €4,000 x 12.5% = €500 against your relevant corporation tax.

This reduces the relevant corporation tax from €13,875 to €13,250.

As regards the amount to be carried forward, see (4).

Can excess relevant trading charges be carried forward?

(4) This subsection shows how the amount of relief to be carried forward is calculated where relief for excess charges was allowed on a value basis:

Where relief was given for “standard rate charges”, the amount treated as received is an amount equal to the reduction in relevant corporation tax (T) grossed up by the standard rate of corporation tax (100/R) where R is 12.5%.

Example

Continuing with the facts of the previous example.

Relief was given on a value basis for €4,000 x 12.5% = €500.

The relevant amount is therefore €500 x (100/12.5) = €4,000.

Therefore, no further relief is available for carry forward.

Section 244 Relief for interest paid on certain home loans

What is home loan interest relief?

(1) An individual may be entitled to a standard rate tax credit in respect of home loan interest (qualifying interest) paid in the year.

A home loan (qualifying loan) is a loan used to buy or improve a qualifying residence:

(a) the individual’s home (your sole or main residence),

(b) the home of his/her former or legally separated spouse, or

(c) the home of a dependent relative (section 466(1)).

The cost of the home includes its garden. In other words, the loan interest deduction is not restricted to the cost of the building.

Apart from the exceptions mentioned in (1A)(b), home loan interest relief ceases from 1 January 2012.

For a first time borrower, the maximum home loan interest (relievable interest) for each of the first seven tax years of the loan is:

(a) €20,000 in the case of a married couple or a widowed individual.

(b) €10,000 in the case of a single individual.

If the qualifying interest paid is less than the appropriate limit, the relievable interest is the actual interest paid.

For non-first time borrowers, the maximum home loan interest (relievable interest) is:

(a) €6,000 in the case of a married couple or a widowed individual.

(b) €3,000 in the case of a single individual.

If the qualifying interest paid in the tax year is less than €6,000 (married couple/widowed individual), or €3,000 (single individual), the relievable interest is the actual interest paid.

In Frost v Feltham, [1981] STC 115, the UK High Court held that a tied tenant who was obliged to occupy the public house he managed was entitled to claim that his house in Wales was his main residence. Although he rarely visited the house in Wales, the court held that it was his intention to reside there. See also Moore v Thompson, [1986] STC 170.

See also: Tax Relief on Qualifying Home Loans / BIK on Preferential Loans: Tax Briefing Issue 77 – 2009

Example

You took out a five year term loan of €10,000 and the entire amount was used for qualifying purposes. In year 3, when the balance of the loan was €6,000, the loan was replaced by a new loan of €8,000 and repayment of the new loan of €8,000 is over four years. €1,000 of the further borrowings is used for qualifying purposes and the other €1,000 is used for other purposes. Relief is allowed in respect of:

€6,000 + €1,000
€8,000

i.e., 7/8ths of the interest paid each year on the new €8,000 loan.

Example

You took out a three year term loan of €3,000 and the entire amount was used for non-qualifying purposes. In year 1, when the balance of the loan was €2,000, the loan was replaced by a new loan of €10,000 repayable over 5 years. All of the further borrowing, €8,000, is used for qualifying purposes. Relief may be allowed on:

 €8,000 
€10,000

i.e., 4/5ths of the interest paid each year on the new €10,000 loan.

Example

You had an original mortgage of €40,000 on a main residence.

A few years later, when the balance on the mortgage stood at €35,000, the residence was re-mortgaged for €60,000 and €15,000 of the additional €25,000 was used to purchase a car and €10,000 on replacement windows/central heating for the main residence.

Relief for interest paid (subject to the usual limits/restrictions and standard rating, as appropriate) on the re-mortgage of €60,000 will be allowed to the extent of:

€35,000 + €10,000
€60,000

i.e., 3/4 throughout the term of the re-mortgage.

Source: Tax Briefing 34, December 1998 (updated)

When does home interest relief cease?

(1A) Since 1 May 2009, home loan interest relief only applies to the first seven years of a mortgage, or the remaining part of the first seven years in the case of a loan already in existence.

The annual interest limit (€6,000 in the case of a married couple, otherwise €3,000) is pro-rated before and after 1 May 2009, interest relief is only available up to 1 May 2009.

However, in the case of loans taken out between 1 January 2004 and 31 December 2012, this seven year rule does not apply. Such loans continue to obtain relief until 1 January 2018.

How is home loan interest relief calculated?

(2) The home loan interest tax credit is calculated by multiplying the relievable interest by the appropriate percentage.

The relievable interest ceiling for first time buyers is €20,000 in the case of a married couple/widowed person, and €10,000 for single persons. The appropriate percentage is:

(a) 25% for the first and second tax years,

(b) 22.5% for the third, fourth, and fifth tax years, and

(c) 20% (the standard rate) for the sixth and seventh years.

However, in the case of a first time buyer loan taken out between 1 January 2004 and 31 December 2012, the appropriate percentage is 30%.

For non-first time buyers the relievable interest ceiling is €6,000 in the case of a married couple/widowed person, and €3,000 for single persons. The appropriate percentage is 15%.

The maximum home loan interest relief is further limited to the amount which reduces your income tax liability to nil.

Home loan interest is taken into account when calculating whether your total income is below the appropriate small incomes exemption limit (sections 187, 188). Otherwise, it is not taken into account in calculating your total income.

Example

You and your spouse are jointly assessed to tax for the tax year 2012 in which you pay interest of €10,516 on your qualifying home loan.

This loan was taken out jointly on 1 February 2010, your first home loan. You are therefore treated as first time borrowers for the seven tax years 2010, 2011, 2012, 2013, 2014, 2015 and 2016.

The relievable interest and the tax credit to be allowed is:

Interest paid in year (= A) 10,516
Total interest limit (married joint) (= B) 20,000
Relievable interest (Lower of A and B) 10,516
Tax credit €10,516 x 20% 2,103

The relievable interest and tax credit for non-first time buyers is:

Interest paid in year (= A) 10,516
Total interest limit (married joint) (= B) 6,000
Relievable interest (Lower of A and B) 6,000
Tax credit €6,000 x 30% 1,800

Example

You are assessed as a single person. In 2010, you pay interest of €1,502 on a qualifying home loan taken out in 2006, but you first paid home loan interest in 2002 so that you are not treated as a first time borrower.

Your relievable interest and your tax credit is calculated:

Interest paid in year (= A) 1,502
Total interest limit (single) (= B) 3,000
Relievable interest (Lower of A and B) 1,502
Tax credit €1,502 x 15% 225

The relievable interest and tax credit for tax years 2012-2013 inclusive is:

Interest paid in year (= A) 1,502
Total interest limit (single) (= B) 3,000
Relievable interest (Lower of A and B) 1,502
Tax credit €1,502 x 10% 150
How is relief calculated if a first-time buyer marries a non-first time buyer?

(3) A first time buyer remains entitled to his/her share of that relief after marriage.

The additional relief, i.e., the difference between the relief calculated on the basis that both are first time borrowers and the relief calculated on the basis that neither are not first time borrowers, is divided by two and given to the first time buyer.

Does a disguised home loan qualify?

(4) Interest on loans which are disguised as home loans, but are not genuine home loans, is not deductible. This restriction applies where the “home” loan is used to:

(a) Buy a dwelling from a spouse. But this does not apply where a separated spouse buys the marital home from the other spouse.

(b) Buy a dwelling previously sold by the claimant. Again, this does not apply where a separated spouse buys the marital home from the other spouse.

(c) Buy a home from a relative. If the price paid is inflated, any excess will not qualify for home loan interest relief.

Example

You are a single individual aged 55 who has no mortgage. Your house is worth €90,000.

You take out a “home improvement” loan for €20,000.

You pay your brother €25,000 to build an extension which really costs €10,000. Your brother gives back €15,000 to you which you use to buy a car.

You are only entitled to home loan interest relief on €10,000 of the €25,000 borrowed.

Can interest relief be claimed on a new home and an unsold former home?

(5) When you acquire a new home (sole or main residence) but you do not immediately sell your own home, you can continue to obtain home loan interest for interest paid on an outstanding loan on your old home for up to one year after the date you acquire the new home, provided that you have taken and continues to take all reasonable steps to sell the old home.

This rule enables the individual to obtain interest relief for both the old loan (for up to one year) and on a loan to acquire the new residence (but subject to the interest limits and the possibility of additional “bridging loan” relief, see section 245). In the absence of this rule, no relief would be available on the continuing loan on the old home after the date the new home acquired becomes the individual’s sole or main residence.

Example

You are in the process of selling your home and you put a deposit on a new home on 1 July 2012.

Your existing house takes time to sell and it has a loan of €45,000 outstanding.

You move into your new home on 23 September 2012. Your old home is not sold until 31 January 2013.

Since all reasonable steps are being taken to sell your old home, You are entitled to continued relief for the interest on the old loan for the 12 month period ending 31 August 2013. However, as you have sold the old home on 31 January 2013, no further relief is available for interest on the old loan after 31 January 2013.

For the way in which the interest relief is given on the old loan and the new loan taken out to finance the purchase of the new home, see the Example to section 245.

How is home loan interest relief affected by the death of a spouse?

(6) Home loan interest paid by a widow/civil partner (or dependent relative) of a deceased person who continues to live in the home shared with the deceased is eligible for relief if the deceased would have been entitled to the relief had he/she continued to live.

Section 244A Application of section 244 (relief for interest paid on certain home loans)

What is tax relief at source (TRS)?

(1) This section provides the framework for tax relief at source for qualifying mortgage interest, i.e., interest payable by an individual on a qualifying mortgage loan in respect of a qualifying dwelling (a qualifying residence located in the State).

Tax relief at source (TRS) for mortgage interest: Tax Briefing 44.

How does TRS operate?

(2) A person who pays qualifying mortgage interest to a qualifying lender (see (3)) is entitled to withhold tax from the payment.

The qualifying lender must accept the interest payment net of tax, and may, in accordance with regulations, recover from Revenue the tax that was withheld from the payment.

What lenders are authorised for TRS?

(3) The financial institutions (qualifying lenders) that are authorised to allow mortgage interest relief at source are:

(a) any commercial bank authorised to operate as a bank in the State,

(b) a building society,

(c) a trustee savings bank,

(d) ACC Bank plc,

(e) a local authority,

(f) a mortgage lending body which, under the law of another EU State, corresponds to a commercial bank or building society in Ireland,

(g) a body which applies to Revenue for registration as a qualifying lender and which Revenue are satisfied fulfils the requirements for registration.

Must Revenue keep a register of TRS lenders?

(4) Revenue must keep a register of all qualifying lenders.

If Revenue are satisfied that a person applying for registration as a qualifying lender is entitled to be registered, they must register the applicant.

If Revenue are satisfied that a lender is no longer entitled to be registered, they may cancel the registration from a date specified in that notice.

A decision of the Revenue Commissioners in relation to a qualifying lender’s registration, or the cancellation of its registration, may be appealed within 30 days of the date of the decision.

Can Revenue make regulations relating to TRS?

(5) Revenue are obliged make regulations dealing with the administration of mortgage interest relief at source. These regulations may provide:

(i) that a claim by a qualifying lender must be made at the time and in the manner set out in the regulations,

(ii) that a claim may be made where a payment is due but not made,

(iii) that qualifying lenders must make monthly returns containing details of:

(I) each borrower who pays qualifying mortgage interest,

(II) the qualifying mortgage interest paid or due by the borrower in the tax year,

(III) the tax deductible by the individual in respect of the qualifying mortgage interest,

(IV) the estimated qualifying mortgage interest payable by the borrower for the tax year,

(V) the total qualifying mortgage loans outstanding to the lender at the date of the return,

(VI) the total amount claimed by the lender for the month to which the return relates,

(VII) qualifying mortgage loans repaid in full during the month, and (VIII) any other matters specified,

(iv) that qualifying lenders must transmit to Revenue, on a monthly basis, details relating to qualifying mortgage loans and individuals with such loans,

(v) rules governing the obligations and entitlements of borrowers under the tax relief at source scheme,

(vi) rules governing the obligations and entitlements of lenders under the tax relief at source scheme,

(vii) rules allowing certain loans to be disqualified from the tax relief at source scheme,

(viii) rules allowing excessive relief to be adjusted,

(ix) rules dealing with the situation where a lender disposes of its loan book.

Any regulations made under this section in relation to interest relief at source must be laid before and passed by Dáil Éireann.

Can Revenue make assessments to recover unpaid TRS?

(6) An inspector of taxes can make any assessments or adjustments necessary to recover any unpaid or underpaid tax where Revenue make an excessive payment to a lender.

Can Revenue require a lender to provide information on a borrower?

(7) A Revenue officer may request a qualifying lender to provide him/her with the information necessary to determine whether a taxpayer is entitled to home loan interest. The lender must supply the information within 30 days of the request.

Section 245 Relief for certain bridging loans

Can home loan interest relief be claimed on a bridging loan?

(1) Home loan relief can be claimed on a bridging loan, i.e., a loan the proceeds of which are used to pay the cost of purchasing the new home and/or the costs of selling the old home.

The relief, a standard rate tax credit on the relievable interest, is given in respect of the interest payable for the period of one year after the date the bridging loan is made. This bridging loan relief is given in addition to any normal home loan interest relief under section 244 for other home loan interest.

In calculating relievable interest, the same total interest limits, i.e., €6,000 for married and widowed and €3,000 for single, apply as for the normal home loan interest relief (section 244).

Provided any loan to finance the new home is treated as a bridging loan and qualifies for the additional relief for the period of one year after the date it was taken out.

Also, a new loan to repay the original bridging loan is itself a bridging loan for section 245 relief may be, but only until the end of the 12 months from the taking out of the original bridging loan.

Example

01.05.2012: You are a widower who has an outstanding home loan of €90,000 in respect of yours private residence which you acquired as a first time buyer in 2005.

As the first five years have expired, you are therefore a non-first time buyer for tax year 2012.

01.06.2012: You advertise your home for sale. You obtain loan finance of €210,000 towards new residence.

01.09.2012: You use €210,000 to buy a new residence, and move into your new residence.

30.11.2012: You sell your old residence.

Interest paid on €90,000 loan for 2012: €5,362.

Interest paid on €210,000 loan for 2012: €4,200.

You therefore qualify for interest relief on the “old” loan for the three month period 1 September 2012 to 30 November 2012, even though you have moved into your new residence.

1 January 2012 to 31 August 2012 (8/11) x €5,362 = 3,900
1 September 2012 to 30 November 2012 4,200
8,100
Bridging loan interest
1 September 2012 to 30 November 2012 (3/11) x €5,362 = 1,462

Therefore, you are entitled to a tax credit under section 244 for the lower of €6,000 or €8,100, at the standard rate. This gives you a tax credit of €1,200 which will be given at source (section 244A).

You are also entitled to a tax credit under section 245 for the lower of €6,000 or €1,462, at the standard rate. This gives you a tax credit of €292 which you will claim when filing your tax return.

Does a bridging loan qualify if it is used for any other purpose?

(2) If a bridging loan is used for any other purpose before being used as bridging finance, the loan does not qualify for interest relief.

Section 246 Interest payments by companies and to non-residents

When is tax deductible from an interest payment?

(1)-(2) Interest paid:

(a) by a company (other than in a trustee capacity) to a foreign resident, or

(b) by any other person to a foreign resident,

is subject to deduction of tax at source.

Example

01.12.2012: Your company paid €5,000 interest to X, a private individual not carrying on a banking business, in respect of a loan advanced by X to the company.

Your accounts for the year ended 31 December 2012 show:

Gross payment €5,000, less tax deducted €1,000, net payment €4,000

You must pay to the Collector-General, on or before 28 June 2013, the net income tax due (€1,000) as part of your preliminary tax payment.

31.12.2012: You paid, as a private individual, €5,000 interest to Y Inc, a US corporation that does not trade through a branch or agency in the State.

You must withhold interest (at 20%) from the amount of the payment, and account for the interest so withheld when filing your income tax return for the tax year 2012 (due date: 31 October 2013).

When can interest be paid gross?

(3) The withholding does not apply to:

(a) interest paid to a building society or commercial bank in the State,

(b) interest paid by a building society or commercial bank in the State in the ordinary course of its business,

(bb) interest paid by finance and lending companies other than licensed banks (see (5) below) and by a treasury company to another group company resident in the State,

(bbb) interest paid, in the Republic of Ireland, to an investment undertaking,

(c) interest paid to a non-resident in respect of a relevant security issued by a by a company or collective investment undertaking which is or was based in Shannon/IFSC,

(cc) interest paid in the State to a securitisation company,

(ccc) interest paid by a securitisation company to a person who is tax resident on another EU State or a tax treaty country (a relevant territory) unless such interest is paid to a company in connection with the trade carried on by that company through a branch or agency in the State,

(d) interest authorised by the Revenue Commissioners to be paid gross,

(e) interest on authorised government securities,

(f) interest paid gross by an industrial and provident society to its members,

(fa) interest paid to an exempt approved pension scheme,

(g) interest paid by a close company to a director that is treated as a distribution,

(h) interest (not within (a)-(g)) paid by a company or an investment undertaking (i.e., a relevant person) to a company resident in another EU State or a tax treaty country (i.e., a relevant territory) in accordance with the law of that State or country, provided the interest is subject to tax in that country, but not if the interest is paid in connection with a trade carried on by that company through branch or agency in the State.

An investment undertaking means:

(a) An authorised unit trust scheme (within the meaning of the Units Trust Act 1990).

(b) Any other undertaking for collective investment in transferable securities (UCITS) that has been authorised under the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 1989 (SI 78/1989).

(c) A limited partnership, whose principal business is investing funds in property, that has been authorised by the Central Bank to carry on such business.

(d) An authorised investment company (within Companies Act 1990 Pt XIII) that

(i) has not had its authorisation revoked, and

(ii) has been designated as an investment company that may raise money by selling its shares to the public, or all of the investors of which are collective investors.

A collective investor means a life assurance company, pension fund or other investor who invests in an authorised investment company (within Companies Act 1990 Pt XIII) primarily for the benefit of 50 or more persons who contribute to the investment. None of the contributors may contribute more than 5% of the investment, and the majority of the contributors must be saving/investing rather than seeking risk protection.

Can a finance company pay interest gross?

(5) A finance company (i.e., one which lends money and the interest income of which is taxed as a trading receipt) need not deduct standard rate income tax provided it has:

(a) notified the inspector to whom you send your self-assessment return,

(b) notified the payee that you meet the conditions,

(c) notified the payee of your tax reference number.

Section 246A Interest in respect of wholesale debt instruments

What is a wholesale debt instrument?

(1) A relevant person means the person by or through whom a payment in respect of a wholesale debt instrument(i.e., a certificate of deposit or commercial paper, as appropriate) is made.

A certificate of deposit is an instrument related to money, in physical or electronic form, which:

(a) was issued by a financial institution,

(b) recognises an obligation to pay a stated amount to bearer or to order, with or without interest,

(c) the right to receive such amount is transferable (in the case of physical instruments by delivery of the instrument with or without endorsement), and

(d) has been deposited with the issuer or some other person.

Commercial paper means a debt instrument relating to money, in physical or electronic form, which:

(a) is issued by a company (financial institution or other),

(b) recognises an obligation to pay a stated amount,

(c) carries a right to interest or is issued at a premium, and

(d) matures within two years.

An approved denomination means a wholesale debt instrument denomination of not less than:

(a) €500,000 in the case of a euro-denominated instrument,

(b) $500,000 in the case of a US-dollar denominated instrument,

(c) the equivalent of €500,000 in the case of an instrument denominated in a currency other than € or US$.

In this regard, the euro equivalent of of a non-€ or $ denominated instrument is determined by the rate of exchange prevailing:

(a) in the case of instruments issued under a programme, the time the programme under which the instrument is to be issued is first publicised,

(b) in the case of other instruments, on the date of issue of the instrument.

A financial institution means:

(a) a bank licensed under the Central Bank Act 1971,

(b) an institution that has been relieved of the obligation to hold such a licence (the Post Office Savings Bank, Trustee Savings Banks, ACC Bank plc, the Industrial Credit Corporation, building societies, industrial and provident societies, friendly societies, credit unions and investment trust companies), or

(c) a European credit institution which has been authorised by the Central Bank to carry on banking and financial business in Ireland.

What is a recognised clearing system?

(2) A recognised clearing system means one listed above, and includes any other security-clearing system which Revenue have designated as recognised clearing system.

Revenue may by order designate one or more security-clearing system as a recognised clearing system. Such an order may contain any necessary transitional measures and may be varied or revoked by a subsequent order.

Is tax deductible from wholesale debt instrument interest?

(3) In general, interest paid by a company to an Irish resident, or by any person to a non-resident, is treated as an annual payment made out of income not charged to tax. Therefore, the payer must withold tax from the payment, pay that tax to Revenue and make the payment net of tax (section 246(2)).

Interest paid by a bank in respect of a relevant deposit is subject to DIRT (section 256).

These rules does not apply in relation to a wholesale debt instrument (see (1)), if:

(a) the payer or the person through whom the payment is made is not resident in the State and the payment is not made via a non-resident company’s branch or agency in the State, or

(b) the payer or the person through whom the payment is made is resident in the State or the payment is not made via a non-resident company’s branch or agency in the State, and

(i) the wholesale debt instrument is of an approved denomination and is held in a recognised clearing system(see (1)),

(ii) the person entitled to the interest is resident in the State and has provided his tax reference number to therelevant person (see (1)), or

(iii) the person entitled to the interest is not resident in the State and has made the appropriate declaration (see (5)).

What reporting rules apply in relation to wholesale debt instrument interest?

(4) Where a relevant person (see (1)) makes a payment in respect of a wholesale debt instrument:

(a) which is of an approved denomination and is held in a recognised clearing system (see (1)), or

(b) the person entitled to the interest is resident in the State and has provided his tax reference number to therelevant person (see (1)),

the following reporting requirements also apply:

(a) If the payer or the person through whom the payment is made is resident in the State or the payment is not made via a non-resident company’s branch or agency in the State, the payer must, if requested to do so by an inspector, file a Form 8B within the time specified stating for each recipient of interest the amount of interest and the recipient’s name and address (section 891).

(b) The payer is liable to file a third party information return (i.e., is regarded as a relevant person within section 894).

(c) The payer must include the interest recipient’s tax reference number on the Form 8B.

The person must also, if requested to do so by the inspector, provide written details of any payment made in respect of a wholesale debt instrument, together with details of the person’s name, address and tax reference number if such details have not already been included on the Form 8B.

What information must a non-residence declaration provide?

(5) The non-residence declaration to be made by the relevant person (see (1)) must:

(a) be made and signed by the interest recipient (the declarer),

(b) be made on the official Revenue form,

(c) declare that at the time of the declaration, the person beneficially entitled to the interest is not resident in the State,

(d) state the full name, residential address, and country of residence of the person beneficially entitled to the interest,

(e) include an undertaking by the declarer that if the condition mentioned at (d) is breached, the relevant person will be notified immediately,

(f) contain any other information the Revenue Commissioners may reasonably require.

Can wholesale debt instrument interest be paid gross to a foreign resident?

(6) A relevant person may continue to pay interest in respect of a wholesale debt instrument without deduction of tax if satisfied that the recipient is a resident of the State who has provided his/her tax reference number, or is a person not resident in the State who has made the appropriate declaration (see (5)).

For how long must non-residence declarations be kept?

(7) Non-residence declarations must be kept for six years, or three years after the latest interest payment was made, whichever is the longer.

An inspector is entitled to view (and take extracts from or copies of) non-residence declarations.

Section 247 Relief to companies on loans applied in acquiring interest in other companies

Does a loan to invest in another company qualify for interest relief?

(1)-(2) A company (the investing company) is entitled to unrestricted interest relief on money borrowed to invest in:

(a) a trading company,

(b) a company whose income is mainly Irish rental income,

(ba) a connected company which is a trading company, a rental company or a holding company of a trading company, or

(c) a holding company which holds shares in a trading or property rental income company.

“Investing” includes buying ordinary shares, lending money, or paying off an existing loan that was used to buy shares or loan money to that company (the target company).

When does a loan to invest in another company qualify?

(2A) Interest relief does not apply unless the investee company (or a connected company) uses the funds:

(a) in the case of a trading company, for the purposes of its trade,

(b) in the case of a rental company, to buy, improve or repair a rental property,

(c) in the case of a holding company, to hold stocks, shares and securities.

Must the investor own shares in the investee company?

(3) For the relief to be allowed for any interest payment, the investor must, at the time of that payment have a material interest in the target company (or a connected company), i.e., it must beneficially own or be able to control more than5% of the ordinary share capital.

It is also necessary that the investor company and the target company (or a connected company) must have had at least one common director during the period between the date the proceeds of the loan to the investing company was invested and the date of the interest payment.

Further, if during the period between the date the loan was invested and the date of the interest payment, the investor withdraws any capital from the target company but does not use the capital repaid to reduce the loan outstanding, the interest payment to be relieved must be reduced by the part of that interest which is attributable to the amount of capital repaid.

A person controls a company if he/she has or can obtain control of the company’s affairs, or is entitled to more than half of the company’s shares, voting power, distributable income, or assets in the event of a winding up (section 432).

Trading company includes a company that intends to acquire a business: Lord v Tustain, Lord v Chapple, [1993] STC 755.

It is not necessary that the investee income company be resident in the State or be within the charge to Irish corporation tax (Revenue Precedent CTF89/3006, 3 August 1990).

Example

A company obtained a loan of €550,000 of which it applied €350,000 to acquire 21% of the ordinary share capital of X Ltd (a trading company) and lend €200,000 to Y Ltd, a property rental company in which X Ltd holds 60% of the ordinary shares.

These investments are made on 1 April 2010.

The investing company’s 21% interest is clearly a material interest in X Ltd and, as it “controls” 12.6% of Y Ltd (21% of 60%) through X Ltd, it also has a material interest in Y Ltd. The investing company is therefore entitled to the unrestricted relief under section 247 as follows:

In AP ending 30 November 2010
€550,000 x 8% x 6/12ths (April to September 2010) 22,000
In AP ending 30 November 2011
€550,000 x 8% x 6/12ths (October 2010 to March 2011) 22,000
€550,000 x 8% x 6/12ths (April 2011 to September 2011) 22,000
44,000

The investor company does not receive any capital repayments from either X Ltd or Y Ltd between 1 March 2010 and 30 November 2011.

All the above interest payments therefore qualify in full for the relief under section 247, to be given for the above amounts in each of the two accounting periods.

How quickly must the borrowed money be invested?

(4) The investor company must invest the loan advance immediately or within a reasonable time. If the loan advance is used for some other purpose before being invested in the target company, no interest relief will be given. However, the placing of a loan advance on temporary deposit with a bank or building society does not prevent relief being given.

When is interest on a loan to another company disallowed?

(4A)(a) The relief in (2) is disapplied if the investing company uses the funds to acquire shares in, or lend to another company to acquire shares of, a connected company.

(b) The restriction in (a) also applies where there are “back to back” loan arrangements, where a person connected with the investor company lends to, or places a deposit with, a person (the first-mentioned person) who is not connected with the investor company. In such a case, the loan is treated as having been made by the connected person.

(c) The restriction in (a) is disapplied, i.e., relief is allowed, where:

(i) the loan (the original loan) is used to acquire new issue share capital or to lend on to a company acquiring such share capital,

(ii) the newly issued share capital is used by the investee company to increase its capital for the purposes of its trade.

There must be no circular flow of money back to the original lender. If the investor company can achieve effective repayment of the loan in this manner, relief is disallowed.

(d) Relief may also allowed (see (e)) if the investor company has matching income (relevant income), for example interest or dividends chargeable to corporation tax, and such income would not have arisen but for the use of the loan.

(e) The restriction in (2) is also relaxed where the investing company has relevant interest in excess of relevant income. In such a case, the excess can be used to reduce other relevant income of connected companies. The other conditions are:

(i) the interest must not otherwise be deductible,

(ii) the investing company and the connected company must jointly elect to use the excess relevant income,

(iii) the total interest relieved against relevant income of companies connected with the investing company may not exceed the interest not used by the investing company.

(f) This rule deals with “back to back loans”, i.e., where a scheme exists to allow a person (the first-mentioned person) not connected with the investing company to lend to a company (the borrower) that is so connected. In such a case, the interest payable by the first-mentioned person is tax-deductible to the investing company (or a connected company).

(g) A company’s relevant income is treated as increased or decreased by gains or losses arising on foreign exchange or currency forward contracts.

(h) In relation to (c), but only in relation to a separate loan used wholly and exclusively for the purposes of a trade, it should not be presumed that a circular flow (effective repayment of the original loan) exists solely by virtue of the fact that share capital is used to pay off the original lender.

Can the investee uses the funds to buy intangible assets?

(4B) This rule applies where borrowed money is used to subscribe for shares, or lend to, another company which spends the money on intangible assets qualifying for capital allowances (section 291A).

In such a case, the investor is entitled to interest relief on the excess of the interest paid over the amount received (in the form of interest and dividends) from the investee company in the accounting period in question, provided such interest does not exceed the amount that would have been paid by the investee company if it had itself borrowed the money to buy the intangible assets.

Can disallowed interest relief be carried forward?

(4C) Interest relief is disallowed if the interest paid exceeds the amount that would have been paid by the investee company had it borrowed itself (see (4B)). However, the investor company can carry forward the excess amount and treat it as relevant interest paid in the following accounting period (and later periods if it is not used in the following period).

What if the accounting periods of the investor and the investee company do not match?

(4D) It may happen that a company’s accounting period and the corresponding accounting period of the investee company do not match. In such a case, in order to determine whether relief is to be restricted (see (4B)), relevant interest is apportioned on a time basis.

Is interest on a loan to acquire assets of a connected company disallowed?

(4E) Interest relief is disallowed where the investor company:

(a) uses a loan from a connected company to acquire assets from (another) connected company;

(b) uses the loan to acquire a trade from foreign/exempt company (one outside the charge to CT); in this case, the interest deduction is limited to the chargeable profits of the acquired trade.

The profits of the acquired trade must not exceed what they would be if that trade were carried on by an independent company acting on an arm’s length basis.

Interest relief is restricted in the following cases:

(i) Where the accounting periods of the investor and the investee coincide, the investee’s trading profits are taken to be its Case I profits for that period;

(ii) where the accounting periods do not coincide, the restriction is based on the proportion (A/B) which the overlap period (A) bears to the length of the investee’s accounting period (B).

Funds received by a person (the first-mentioned person) unconnected with the investing company, from a person connected with that company, are treated as having been received by the investing company from a connected person.

Is interest on a loan to a foreign finance company disallowed?

(4F) If an Irish investing company lends to a foreign investee for its trade, the investor’s interest relief must not exceed the interest arising to that investee.

A similar restriction applies where the Irish investing company:

(a) lends to another Irish company which then lends to the foreign investee;

(b) borrows from a foreign bank and lends to a foreign investee which lends on the money to another foreign company or series of companies.

Example

Irish company (IC) borrows €1m and gives a €1m interest-free loan to a Luxembourg finance company (LF).

Though no interest has been paid, under Luxembourg law LF receives a deduction for interest deemed to have been paid on the loan.

Since the interest on the loan to the investing company (IC) exceeds the interest paid by the investee (LF), interest relief (as a charge) to IC is disallowed.

Example

Same facts, but IC1 lends to IC2 which then lends to LF. Relief is restricted.

Example

Same facts, but IC lends to LF which lends to US company (US1) which on-lends to another US company (US2). Relief is restricted.

Note: In these examples, for relief to apply, IC must have a material interest (5% – see subs (1)) in the investee (LF).

Is interest on a loan to another company a relevant trading charge?

(4G) The interest on the loan is a treated as a charge and the investor only gets a deduction against its non-higher rate income (see section 243A).

Is interest on a loan to another company a charge?

(5) The interest paid is treated as a charge, rather than a business expense, and may therefore be deducted in computing the borrower’s total income for the tax year in which the interest was paid.

The treatment of interest as a charge may not be claimed by a foreign company’s branch or agency in the State (section 25(2)(a)).

Example

Continuing from the company in the example under (1)-(3), the company has the following income for each of its accounting periods ending 30 November 2010 and 30 November 2011:

AP 2010 AP 2011
Trading income
Loan interest received from Y Ltd 76,000 119,000
€200,000 x 8.7% x 8/12ths (March to November 2010) 11,600
€200,000 x 8.7% (year to November 2011) 17,400
Case III and IV income
Total income chargeable to CT 25,200 17,250
112,800 153,650

(Also distributions received from Irish companies as franked investment income)

The relief for the interest payments on the loan of €550,000, as shown in the previous example, is given by deduction from your total income as follows:

AP 2010 AP 2011
Total income chargeable to CT
Deduct: 112,800 153,650
Interest paid on section 247 loan
Final income chargeable to CT 22,000 44,000
90,800 109,650

Can interest treated as a charge also be claimed as an expense?

(6) Interest so treated as a charge is not also deductible as a trading or other expense for tax purposes.

Section 248 Relief to individuals on loans applied in acquiring interest in companies

This section no longer has effect.

Section 248A Restriction of relief in respect of loans applied in acquiring interest in companies and partnerships

What is a rented residential premises?

(1) In the context of (2), premises means leased land or buildings in the State.

A rented residential premises is a building or part of a building used or suitable for use as a residence and which has a landlord, i.e., a person entitled to rent from the premises (section 96(1)).

The term chargeable period is used to describe both an individual’s tax year and a company’s accounting period (section 321(2)).

Does a loan to a property letting company qualify?

(2) This rule applies where money is borrowed by a company to invest in another company (section 247), or by an individual to invest in a company (section 248) or partnership (section 253).

In such cases, interest relief is denied to the borrower in so far as the company or partnership in which the money is invested uses the money to buy, improve or repair a premises which is leased as a residential premises. The interest relief is similarly denied in so far as the borrowed money is used by the company or partnership to pay off a loan used by it to buy, improve or repair a rented residential premises.This denial of the interest relief to the borrower does not apply where the proceeds of the loan were deduction under section 247, 248 or 253 for interest after 7 May 1998 even though the company or partnership in which the money was invested has used some or all of the money in buying, improving or repairing rented residential accommodation.

This anti-avoidance section counteracts attempts to circumvent the restriction on interest relief on let residential premises (section 96(2A)-(2E)). If money borrowed to invest in a company or partnership is subsequently used by the company or partnership on let residential property, no interest relief is given to the borrower who lent the money to the company or partnership.

When did the restrictions for property letting companies cease?

(3) The interest restrictions in (2) do not apply from 1 January 2002.

Example

You obtained a loan of €125,000 which you applied on 1 April in a given tax year in purchasing 10% of the ordinary share capital of X Ltd, a property rental company. You were appointed managing director of X Ltd on the same day.

X Ltd uses the €125,000 invested by you (along with certain other funds) in refurbishing a 3 storey building in Cork. You pay interest at 8.5% on your loan.

When the refurbishment is completed on 30 June in the same year, the ground floor is rented to a jeweller for use as his/her shop, the second storey is retained by X Ltd for use its own offices and the top storey is rented as a luxury residential apartment.

X Ltd’s total cost of the refurbishment, and the contribution made to it by your investment, are assumed to be properly attributable to the three parts of the building as follows:

Total cost Your money
%
Ground floor (let to a trade) 35 43,750
Second storey (used for X Ltd’s own business) 25 31,250
Top storey (residential letting) 40 50,000
100 125,000

You pay the interest at 8.5% on the loan applied to invest X Ltd on 31 March each year. Your interest deduction is computed as follows:

Interest paid on section 248 loan: €125,000 x 8.5% 10,625

You are therefore entitled to an unrestricted interest deduction of €10,625 for the year tax year in question.

Does a loan to buy a residence from a spouse qualify?

(4) The restrictions in (2) do apply in this case.

Does a loan to buy a residence from an ex-spouse qualify?

(5) The reapplication of the interest restriction in (4) to cases where a premises is bought from your spouse or civil partner does not apply if, as a couple:

(a) you are separated by court order or by deed of separation, or

(b) you have been divorced and your divorce is recognised under Irish law or the equivalent law of a foreign jurisdiction.

Section 249 Rules relating to recovery of capital and replacement loans

Does interest relief apply if there is a recovery of capital?

(1) A specified loan means any loan or advance made before 6 February 2003, other than a loan in respect of which the interest is tax-deductible to the borrower. The relevant period is the two year period that ends on the date the loan proceeds are applied.

Where an investor company recovers capital other than a specified loan from the investee company during therelevant period, it is deemed to have repaid the loan to the extent of the amount of capital recovered. It is no longer entitled to interest relief on the capital recovered, unless the recovered capital is applied:

(a) before the loan was made in repaying another such loan,

(b) by way of investment in a trading, rental or holding company.

What is a recovery of capital?

(2) A recovery of capital from the investee company is deemed to have occurred where the investor company:

(a) sell some or all of the shares bought with the borrowed funds,

(b) receive a repayment of the loan from the investee company (or a connected company), or

(c) receive money for the sale of a debt owed by the investee company (or a connected company).

A recovery of capital is deemed to take place from an investee holding company where the holding company recovers capital from its 50% subsidiary and does not apply the amount recovered in:

(a) repaying a loan or part of a loan made to it by the investing company,

(b) buying back any of its ordinary share capital from the investing company,

(c) investing in, or lending to, a trading company, rental company or holding company of a trading or rental company,

(d) repaying a loan to a trading company, rental company or holding company of a trading or rental company.

The holding company is deemed to have recovered capital from its subsidiary where it:

(a) sells some or all of the shares bought with the borrowed funds,

(b) receives a repayment of the loan (other than a specified loan – see (1)) from the subsidiary, or

(c) receives money for the sale of a debt owed by the subsidiary.

The recovery of capital rules also apply where the investment or loan to the holding company is made jointly by several investor companies. In such a case the loan is apportioned among the investor companies in proportion to their respective investments in, or lendings to, the holding company. Nevertheless, the investor companies may jointly agree an alternative apportionment between themselves, and notify the inspector in writing accordingly.

A sale or assignment of a debt made other than at arm’s length is deemed to have been made at market value.

This means that where shares are disposed of at less than market value, the investor is deemed to have recovered from the company the market value of the shares.

Note: From 21 January 2011, the investor may elect that these recovery of capital rules do not apply to share-for-share transactions (section 584).

Does a replacement loan constitute a recovery of capital?

(3) If an old loan is replaced by a new loan, the investor company is entitled to interest relief on the new loan as if the old loan and the new loan were one. The recovery of capital rules also apply as if the old loan and the new loan were one loan.

Example

Take the facts of the example to section 247(1)-(3) in which a company applied a loan of €550,000 in acquiring ordinary shares in X Ltd (350,000) and in lending to Y Ltd.

On 1 May 2011, P Ltd sells a 5% part of the ordinary shares in X Ltd (out of your 21% holding) for €120,000 (a recovery of capital).

You use €70,000 of these proceeds to repay €70,000 of your original loan, bringing the loan balance down to €480,000 from 1 May 2011. It uses the other €50,000 recovery of the proceeds to go towards your next dividend. Although this €50,000 has not been applied towards the repayment of the loan, it must be treated as if it had been so applied.

The amount to be allowed under section 247 from 1 May 2011 must therefore be restricted to interest on €430,000 even though the outstanding loan balance is €480,000. The interest to be allowed as a charge on income under section 247 for the accounting period ending 30 November 2010 is calculated:

Interest paid on 31 March 2011
€550,000 x 8% x 6/12ths (October 2010 to March 2011) 22,000
Interest paid on 30 Sept 2011
€550,000 x 8% x 1/12th (April 2011) 3,667
€430,000 x 8% x 5/12ths (May to September 2011) 14,333
Interest as a charge on income 40,000

Section 250 Extension of relief under section 248 to certain individuals in relation to loans applied in acquiring interest in certain companies

Does a loan to invest in a company qualify for interest relief?

(1)-(2) An individual is a full-time director (or employee), if he/she is a director or employee who devotes substantially the whole of his/her time to the company’s service. An individual is a part-time director (or employee) if he/she is not required to do this.

An individual is regarded as a full-time director or employee of a company if he/she is a full-time director or employee of a 90% subsidiary of that company.

An individual is entitled to interest relief on money borrowed to invest in a trading company, a rental income company, or holding company (with shares in a trading or rental income company). An individual may invest in the company by buying shares, by lending to the company, or by paying off an existing loan that was used to buy shares or loan money to the company (section 248).

This relief also extends to:

(a) full-time and part-time directors and full-time and part-time employees of a trading company or rental income company who invest in that company,

(b) full-time directors and full-time employees of a private holding company who invest in that company,

even if the individual is not work for the greater part of his time in the company or does not (after investing) own at least 5% of the company’s ordinary share capital.

In Palmer v Moloney, [1999] STC 890, a taxpayer who worked 42.5 hours per week for a company and 7.5 hours per week as a sole trader was held to be a “full-time” employee of the company.

What is the interest relief limit on a loan to invest in a company?

(3) Interest relief under this section is limited to €3,050 per person where the loan proceeds are invested in a public (i.e., a non-private) company.

See section 252(3) which disallows interest relief on loans applied after 29 January 1992 to acquire shares in a quoted company.

Can interest relief on a loan to invest in a company be withdrawn?

(4) If after obtaining this interest relief, the investor (or a connected person) subsequently gets a loan other than in the ordinary course of business, the relief is withdrawn.

What persons are connected for interest relief purposes?

(5) In deciding whether persons are connected:

(a) An individual is connected with his/her spouse, relatives, relatives’ spouses and spouse’s relatives (section 10).

(b) A lender (other than a bank) is connected with any person to whom it has lent money.

Other than in the ordinary course of business (see (4)) covers a loan:

(a) advanced on terms which are not reasonable when compared with arm’s length loans,

(b) which, although meeting the arm’s length criteria at the time of the advance, subsequently has its terms amended so that if the amended terms had applied at the time of the advance, the loan would not be regarded as an arm’s length loan,

(c) the interest on which is waived,

(d) the interest on which is not paid within 12 months of the date it becomes payable,

(e) for which any of the repayment instalments is not repaid within 12 months of the scheduled repayment date.

A loan includes the incurring of a debt (other than a trade debt) or the assignment of a debt.

A company other than a private company (i.e., a public company) is deemed to be a trading or rental company if it is a holding company and is resident in the State.

A public company that is a holding company resident in the State is deemed to be a trading or rental company. If the company is also a trading company relief is allowed.

Section 250A Restriction of relief to individuals in respect of loans applied in acquiring interest in companies

Is interest relief allowed on a loan to a company containing a property acquired from another company?

(1) This is an anti-avoidance section which restricts the availability of interest relief on loans under section 248 andsection 250 (specified provisions).

It does this by denying relief on the specified amount, i.e., that part of an eligible loan used

(a) by the company to which the money is lent to acquire a specified building,

(b) by the borrower to pay off an earlier eligible loan,

(c) by the borrower to acquire an interest in a company 75% of the income of which consists of rent from specified buildings.

A specified building is a premises which qualifies for capital allowance purposes as an industrial building or deemed industrial building (section 268), a third level educational premises (section 843), or a child care facility (section 843A), and the relevant interest in which has been acquired by another company.

Example

Where a building in respect of which a company has claimed capital allowances is sold to individual investors, the investors can set the capital allowances related to the building solely against their rental income from the building concerned.

X Ltd owns an industrial building with remaining capital allowances of €800,000.

The individual investors borrow to acquire the building from X Ltd.

X Ltd has a clawback of allowances at 25%.

The investors claim the allowances at 41%.

Section 409E counteracts the mismatch by ring-fencing the investor allowances against the rental income from the particular building.

To get around this, the investors decide to invest in a company (Y Ltd) which acquires the building. They then claim interest relief on the money borrowed to invest in Y Ltd.

The new anti-avoidance rule ensures that the interest relief is restricted to the amount extracted from the company by way of dividend or arm’s length interest.

How is interest relief restricted?

(2) Interest relief is restricted to your return from the company (see (4)).

What is a return from a company?

(3) A return from a company is:

(a) in the case of a direct investment in, or loan to, a company: the distributions (before dividend withholding tax) or interest received by way of return on that investment or loan, or

(b) where the loan is used to repay an earlier loan that was used to make a direct investment in, or loan to, a company: the distributions (before DWT) or interest received by way of return on that earlier investment or loan.

Is relief apportioned where part of the loan qualifies?

(4) Apportionment of interest must be made, where required, in the same proportion as the specified amount bears to the amount of the eligible loan.

Section 251 Restriction of relief to individuals on loans applied in acquiring shares in companies where a claim for “BES relief” or “film relief” is made in respect of amount subscribed for shares

Is interest relief allowed on a loan to invest in a BES/EIIS company?

Interest relief on money borrowed to invest in a trading company, a rental income company, or a holding company with shares in a trading or rental income company (sections 248, 250) is not allowed if:

(a) a claim is made under the employment investment and incentive scheme (Part 16) in respect of the amount subscribed for the shares, or

(b) a claim is made for film relief (section 481) in respect of the amount subscribed for the shares.

Example

05.11.2008: An individual takes out a five year loan of €20,000 and uses the money to buy 20,000 €1 ordinary shares in X Ltd, a qualifying BES company (section 496).

The shares were issued and €20,000 BES relief was obtained.

The individual may not claim a deduction under section 248 for the interest paid on the loan.

Note

Interest relief might theoretically be allowable if the individual claimed BES relief for an amount other than the amount subscribed for the shares. For example, if BES relief was only claimed for 19,999 shares (even though the individual subscribed for 20,000 shares).

Section 252 Restriction of relief to individuals on loans applied in acquiring interest in companies which become quoted companies

Is interest relief allowed on a loan to an employer company which goes public?

(1) The interest relief (sections 248, 250) given to a director/employee who invests in his employer company is restricted (see (2)) if the company becomes a quoted company, i.e., a company whose shares are listed on a recognised stock exchange.

The specified date means means 1 January.

Is interest relief restricted when the employer company goes public?

(2) Where the investor company is a quoted company at the specified date, only 70% of the relief that would otherwise have been given is given for the tax year beginning with the specified date.

Only 40% of the relief that would otherwise have been given is given for the next tax year.

No relief is given for any subsequent tax year.

Is interest relief allowed on a loan to invest in a public company?

(3) No interest relief is given on a loan to acquire shares in a quoted company.

Section 253 Relief to individuals on loans applied in acquiring interest in partnerships

Does a loan to invest in a partnership qualify for interest relief?

(1)-(2) Unrestricted interest relief is available on money borrowed to invest in a partnership.

The investment may take the form of buying a share in the partnership, lending money to the partnership, or by paying off an existing loan that was used to invest in a partnership.

For the relief to be allowed:

(a) you must personally have acted as a partner in the partnership during the whole of the period from the date you invested the loan proceeds in the partnership and the date of the final interest payment, and

(b) you must not have withdrawn any capital from the partnership during that period (other than any capital withdrawn which has been used to reduce the loan balance you owe).

Does interest relief apply if there is a recovery of capital?

(3) If a borrower recovers capital from the partnership, he/she is deemed to have repaid the loan to the extent of the amount recovered.

What is a recovery of capital?

(4) An individual is deemed to have recovered capital from the partnership if:

(a) he/she sells his/her interest in the partnership,

(b) the partnership repays the loan, or

(c) the partnership owes him/her money and he/she receive money for the sale of that debt.

Does a replacement loan constitute a recovery of capital?

(5) If an old loan is replaced by a new loan, the individual is entitled to interest relief on the new loan as if the old loan and the new loan were one. The recovery of capital rules also apply as if the old loan and the new loan were one loan.

How quickly must the borrowed money be invested?

(6) The individual must invest the loan advance immediately or within a reasonable time. If the loan advance is used for some other purpose before being invested in the partnership, no interest relief is given. However, the placing of a loan advance on temporary deposit with a bank or building society does not prevent relief being given.

How is interest relief given on a loan to invest in a partnership?

(7) The interest paid is allowed as a charge against total income for the tax year in which it is paid.

Interest so treated as a charge is not also deductible as a business trading expense.

How is this relief being phased out?

(8) The amount of interest allowable shall not exceed:

(a) 75% for 2014

(b) 50% for 2015

(c) 25% for 2016

(d) No relief will be available for 2017 or later years.

Can new loans qualify for relief?

(9) New loans provided after 15 October 2013 will not qualify for relief.

Are there any exceptions?

(10) Loans to farming partnerships will continue to obtain full relief.

Are replacement loans affected?

(11) Where a new loan replaces or refinances a pre-15 October 3013 loan and does not exceed the outstanding balance paid off and is not for a longer term than remained on the original loan subsection 9 will not apply.

Section 254 Interest on borrowings to replace capital withdrawn in certain circumstances from a business

Is interest relief allowed on replacement capital?

Interest on replacement capital, i.e., money borrowed to replace capital withdrawn from the business over the five years preceding the replacement date, is not deductible as a business expense in the borrower’s tax computation.

Section 255 Arrangements for payment of interest less tax or of fixed net amount

Is interest paid to a bank an expense or a charge?

(1)-(2) Loan agreements made before 6 August 1974 frequently provided for deduction of tax from the interest payment by the borrower. As regards these or later agreements, the words “less tax” are to be ignored. This means that after 6 August 1974, interest on bank loans may be paid gross, without deduction of tax at source.

From 6 August 1974, interest paid to a bank in the State is not regarded as an annual payment from which tax must be deducted at source by the borrower.

Section 256 Interpretation (Chapter 4)

What is deposit interest rentention tax (DIRT)?

(1) Deposit interest retention tax (appropriate tax, or DIRT), is a withholding tax applied by financial institutions to deposit interest, i.e., interest on a relevant deposit. The tax is deductible at the rate of 41%.

The financial institutions (relevant deposit takers) that must deduct DIRT at source are: any commercial bank authorised to operate as a bank in the State, a building society, a trustee savings bank, the Industrial Credit Corporation plc, and the Post Office Savings Bank.

Credit unions must also deduct DIRT. Credit union account holders, however, may opt to keep their existing regular share account/deposit account or open a special share account or special term share account. The interest earned by aspecial term account is subject to DIRT, but:

(a) in the case of a three year special term account, i.e., a medium term account, the first €480 is exempt, and

(b) in the case of a five year special term account, i.e., a long term account, the first €635 is exempt.

Friendly societies and industrial and provident societies that do not need a banking licence to operate in the State may pay interest gross, without deduction of DIRT.

DIRT does not apply to:

(a) Interest other than deposit interest. This covers intra-bank interest which the commercial banks pay to each other, and interest owned by: the National Treasury Management Agency (or the State acting through that Agency), the National Development Finance Agency, the Central Bank of Ireland, The Minister for Social Protection, the Investor Compensation Company Ltd, or Icarom plc.

(b) Interest on quoted bonds issued by a commercial bank.

(c) Foreign interest. This covers interest arising on foreign branch accounts of a bank resident in the State for corporation tax purposes.

(d) Interest arising on foreign branch accounts of a bank which is not resident in the State for corporation tax purposes.

(e) Interest on foreign currency deposits made by an individual before 1 June 1991, and by any other person before 1 January 1993.

(f) Interest payable to a company. This covers interest owned by an Irish resident company, or a foreign company trading through an Irish branch.

Interest payable to a pension scheme. This covers interest owned by a Revenue approved pension fund.

In both cases, the tax reference number must be provided by the company auditor and fund administrator, respectively (section 265).

(g) Interest payable to non-residents. The appropriate declaration form must be completed and signed by the person to whom the interest is payable (section 263).

(h) Interest payable to a charity. This covers interest payable to a Revenue approved charity (section 207). The appropriate charity reference number (CHY) must be provided by the charity administrator (section 266).

(i) Interest payable to an individual who is (or whose spouse is) aged 65 or over, whose income does not exceed the age exemption limit (section 188(2)), and who has made the appropriate declaration (section 263A).

(j) Interest payable to a person who is permanently incapacitated (section 267(1)(b)).

(k) Interest owned by a PRSA provider.

Who is exempt from DIRT?

(1A) A deposit is excluded from the definition of “relevant deposit” in (1), and is therefore not subject to DIRT, if:

(a) The account holder is aged 65 or over, and his/her total income for the tax year is below the exemption limit (section 188(2)), and

(b) he/she has completed the relevant declaration (section 263A).

Who else is exempt form DIRT?

(1B) A deposit is excluded from the definition of “relevant deposit” in (1), and is therefore not subject to DIRT in the case of:

(a) an individual who is permanently mentally or physically incapacitated (section 267(1)(b)), or the interest accrues to the benefit of a special trust for a permanently incapacitated individual (section 189A(2)),

(b) the account holder has completed the relevant declaration (section 263B),

(c) Revenue have notified the financial institution that the deposit is not subject to DIRT (section 263C), and

(d) the account holder is not already exempt under (1A).

If a deposit ceases to qualify for exemption Revenue must notify the financial institution and they must treat the deposit as no longer exempt, i.e., subject to DIRT.

How is DIRT deducted?

(2) DIRT is deductible from the gross interest credited to the account. The tax is therefore deductible once it has been accrued, even if it has not been paid.

Section 257 Deduction of tax from relevant interest

How does a bank collect DIRT?

(1) A bank must deduct DIRT at the standard rate of income tax from interest credited to ordinary deposit accounts.

DIRT must be deducted at the standard rate plus 3% from accounts to which interest is credited less frequently than annually.

The account holder must allow DIRT to be deducted. The bank is treated as if it had paid the full gross interest to the account holder.

Example

X Bank Ltd, resident in the State, credits the undermentioned interest on the stated deposits in the tax year ending 31 December 2012:

Interest (gross) Frequency
Deposit account of Mr A (resident) 740 twice yearly
Investment account of Mr A (resident) 5,000 after five years
Deposit of Ms B (non-resident) 2,322 monthly
Deposit of Mr C (non-resident) 1,500 yearly
Deposit of D Ltd (non-resident) 25,680 yearly

Ms B has given X Bank Ltd the required non-resident’s certificate (section 263) in respect of her deposit which thereby ceases to be a relevant deposit so that no withholding is required.

Similarly, D Ltd has given the bank the required company’s certificate (section 265) so that no withholding tax is made, but non-resident C has not given the non-resident’s certificate so that his deposit remains a relevant deposit subject to withholding tax.

X Bank Ltd therefore deducts DIRT from the interest as follows:
A’s ordinary deposit account: €740 x 30% (standard rate) 222
A’s investment account: €5,000 x 33% (30% plus 3%) 1,650
C’s deposit €1,500 x 30% (standard rate) 450

What interest is subject to DIRT?

(2) DIRT applies to all interest paid by a bank on deposits other than intra bank type interest, foreign interest, and interest payable to companies, pension funds, non-residents, charities, pensioners, and incapacitated persons until the appropriate declaration has been completed by the account holder.

Is interest subject to DIRT also treated as an annual payment?

(3) Interest that is subject to DIRT is not an annual payment (section 246).

This prevents a double deduction of tax.

Section 258 Returns and collection of appropriate tax

When is a bank’s DIRT return due?

(1)-(2) A bank must complete a DIRT return and file it with the Collector-General within 15 days of the end of the tax year (i.e., by 15 January). The DIRT return must show the total deposit interest paid by the bank and the DIRT on that interest.

When is DIRT payable?

(3) The DIRT shown due on the DIRT return is to be self-assessed and paid by each bank on or before the due date for the return. There is no need for an inspector to estimate and assess tax due, unless the tax has not been paid by the due date.

Must a bank make interim payments of DIRT?

(4) Each bank must pay DIRT in three interim payments within 21 days of 31 March, 30 June and 30 September.

If the interim payment exceeds the DIRT due for the entire tax year, the excess is carried forward for set off against the interim payment (or the full payment) for DIRT in the next tax year.

Must a bank pay DIRT on interest not credited to an account?

(4A) In certain cases, the exact amount of interest payable by a financial institution on a deposit cannot be ascertained until the investment period is complete. The interest is then credited to the account.

In such cases, for DIRT purposes the interest is deemed to accrue on a day to day basis – even if it has not been credited (or fully credited) to the account during the year in which the interest accrued.

Such interest is treated as if it had been credited to the account on 31 December, i.e., the last day of the calendar tax year, and the financial institution must account for the DIRT as if it had been credited on that date.

Example

You place €100,000 on deposit with a bank. No interest is credited in years one to four. On the last day of year five, the bank credits €25,000 interest to the account.

From a DIRT point of view, you are treated as having received €5,000 in each of the years one to five, and the bank must account for DIRT in each of those years even though the interest has not been credited.

Must a bank pay DIRT on interest credited once a year?

(4B) In general (unlike the case mentioned in (4A) where interest is paid at the end of the investment), the financial institution will credit the interest earned by an investor to his/her account at the end of each year, or more frequently.

In such cases, the financial institution must deduct the DIRT from the interest payable and pay such DIRT to Revenue. The financial institution will then get a credit for the DIRT paid to Revenue against its overall DIRT liability for the tax year in question.

When is interim DIRT payable?

(5) The interim payment is also self-assessed and payable by each bank on or before the due date. There is no need for an inspector to estimate and assess tax due, unless the tax has not been paid by the due date.

The DIRT return (which must show the total interest payable to account holders for the interim period, and the interim tax payable) is due even if the bank has not credited any interest to the accounts of deposit holders.

Can an inspector estimate DIRT underpaid?

(6) Inspectors retain the right to estimate and assess any DIRT underpaid. Interest on tax underpaid for an interim period accrues from the interim payment date.

Can the inspector amend a DIRT assessment?

(7) An inspector of taxes can make any assessments, adjustments or set offs necessary to recover any unpaid or underpaid DIRT.

When is DIRT on an assessment due?

(8) If there is no appeal against the assessment, tax assessed or estimated by an inspector is due within one month of the date of the notice of assessment.

That due date does not displace any earlier payment date. Any tax found, on appeal, to have been overpaid, must be repaid.

Can Revenue enforce collection of unpaid DIRT?

(9) Interest is charged at 0.0274% for each day that DIRT remains unpaid.

The tax collection procedures (Part 42) are available to the Collector-General to enforce payment of any unpaid retention tax and interest.

Such interest is not an annual payment from which income tax must be withheld by the payer at the standard rate. It is a debt due to the Minister for Finance, for the benefit of the Central Fund, and is payable to the Revenue Commissioners.

In any court proceedings to collect unpaid interest on DIRT, a certificate signed by the Collector-General stating that an amount is due may be given in evidence and such a certificate is evidence, until the contrary is proved, that the amount is so due.

The tax appeal procedures (Part 40) are available to a financial institution that disputes any amount of DIRT due. The taxpayer is entitled to appeal to the Appeal Commissioners on any matter relating to DIRT. The Appeal Commissioners must hear and determine such an appeal in the same manner as an appeal against an income tax assessment. There is a further right of appeal to the Circuit Court, and, on a point of law, to the High Court.

The obligation to pay preliminary tax (section 951) does not apply to DIRT.

Must a DIRT return be made on the appropriate form?

(10) The DIRT return must be made on the appropriate Revenue return form. The taxpayer must sign a declaration that the return is correct and complete.

Section 259 Alternative amount on account of appropriate tax

Is DIRT due on interest not credited to an account?

(1) A DIRT liability attaches to the day-to-day interest creditable to an account, irrespective of when that interest is credited to the account. In other words, an account is treated as credited with interest even if the interest has not been credited.

This anti-avoidance section removes the incentive for banks to gain a cash flow advantage by delaying the general crediting date for deposit interest, and thus delaying the payment date for DIRT.

For example, if a bank credited (in advance) six months’ interest to its account holders before 6 April 1986 (introduction date for DIRT), no interim retention tax payment would have arisen in October 1986.

How is interim DIRT calculated?

(2)-(4) In cases covered by the section, where the DIRT payable for a tax year was less than if all interest had been credited in accordance with (2), the payment on account for the following and subsequent years is calculated using the formula:

A – (B – C)

where-

A is the DIRT which would be payable if all interest accrued for the year ended 30 September in the tax year had been paid,

B is the correct amount of DIRT payable for the immediately preceding year, and

C is the lesser of B and the amount paid on account in respect of the preceding year.

Put simply, the interim payments must add up to the tax on 12 months’ interest.

In addition, each interim payment must keep pace with the tax that would be due in respect of that instalment on a rolling annualisd basis (one third of A – (B – C)).

Section 260 Provisions supplemental to sections 258 and 259

Is annual DIRT due on a performance-linked investment?

(1) Interest (specified interest) is not credited on an ongoing basis to certain accounts (specified deposits) because the interest rate, which is linked to stock exchange performance, cannot be definitively calculated until the end of the investment period (for example, five years).

If the bank does not accrue such interest in its accounts years before the final year (when the interest is paid), then no DIRT would be payable for those earlier years because no day-to-day interest would have accrued.

How is DIRT calculated on a performance-linked investment?

(2) A DIRT liability attaches to the day-to-day deemed interest on such accounts, irrespective of when that interest is accrued or credited to the account. In other words, interest is treated as having been accrued and credited to an account even if the interest has not been accrued or credited.

Can DIRT paid be reviewed at the end of the investment period?

(3) When the investment period is over, and the interest is definitively calculated, the DIRT liability attaching to the earlier deemed accrued interest payments can be offset against the DIRT properly attaching to the entire interest payment.

How is interim DIRT calculated on a performance-linked investment?

(4) Some banks calculate their October interim payment of DIRT by reference to the interest accruing since the date the specified deposit was made, not 1 January (as required by section 258) or 5 October (as required by section 259).

This method may also be used to calculate the appropriate DIRT attaching to interest on long-term savings products dealt with by this section.

Section 261 Taxation of relevant interest, etc

Is DIRT taxed under Case IV?

It is not a distribution (section 130) for the purposes of corporation tax.

DIRT is not to be repaid to any person (who is not a company) other than:

(a) a person aged 65 or over (section 267),

(b) a person who is unable to look after him/herself due to permanent physical or mental incapacitation (section 267),

(c) a Revenue approved charity (section 207).

Interest that has been subjected to DIRT is regarded as Case IV income of the account holder. That income is chargeable at 41% even where the taxpayer is taxable at the lower rate on other income.

the tax satisfies the account-holder’s income tax liability. This is achieved by widening the exemption limit, where appropriate, by the amount of the interest. Although the account-holder has no further liability to income tax (at the higher rate) on the interest, he/she must include the gross interest in his/her return of income due to the possibility of USC liability.

This rule applies to a non-incapacitated individual aged under 65 (i.e., not an elderly or incapacitated person withinsection 267(3), who may obtain a repayment of DIRT). In the case of such an individual, the appropriate exemption limit (section 188) or amount of income taxed at the standard rate band (section 15) is increased by the amount of interest received.

A recipient of interest subject to DIRT must include the gross payment in his/her tax return as income chargeable under Case IV. He/she is entitled to a tax credit for the amount withheld (section 59).

DIRT deducted from interest received by a company chargeable to corporation tax may be set-off against its liability to corporation tax and any balance not set-off may be repaid: Inspector Manual 41.0.6.

Section 261A Taxation of interest on special term accounts

Is special term account interest subject to DIRT?

(1) In the case of accounts opened before 16 October 2013 special term account interest is not subject to DIRT.

Is medium term account interest subject to DIRT?

(2) Where a financial institution pays interest to the holder of a medium term account, the first €480 of such interest is exempt and only interest earned in excess of €480 is taxed.

Is long term account interest subject to DIRT?

(3) Where a financial institution pays interest to the holder of a long term account, the first €635 of such interest is exempt and only interest earned in excess of €635 is taxed.

Can a medium term account be converted to a long term account?

(4) The holder may subsequently elect to convert a medium term account to a long term account.

Does a converted medium term account get an increased exemption?

(5) Where a medium term account is converted to a long term account, the increased exemption applicable to the long term account applies from the tax year following the tax year in which the election was made.

Is interest earned by a special term account exempt?

(6) Interest below the threshold is exempt; interest above the threshold is subject to DIRT. Such income is not included in total income for tax purposes, i.e., the DIRT deducted satisfies the account-holder’s liability.

When does a special term account cease to qualify?

(7) If any of the conditions listed in section 264A(1) are breached, the account no longer qualifies as a special term account, with the following consequences:

(a) from the date the account ceases to qualify, all interest accruing to the account is subject to DIRT,

(b) interest already earned by the account (past interest) is also subject to DIRT if it has not already been charged, and

(i) the financial institution must apply DIRT to the past interest as if it had been paid on the date the account ceased to qualify,

(ii) if the past interest has already been withdrawn from the account, the financial institution must deduct from the balance in the account an amount equivalent to the DIRT that would have been deducted from the interest, and the account holder must allow such deduction.

The financial institution is treated as if it had paid the full gross interest to the holder, and is therefore acquitted of the debt to the account holder.

What are the consequences if an account ceases to qualify?

(8) Where an account no longer qualifies as a special term account, DIRT deducted at source does not fully satisfy the liability of the account holder.

Does a time limit apply to special term accounts?

(9) An account that was opened for a medium term ceases to be a special term account 3 years after the day it was opened.

An account that was opened as a long term account or an account that was opened as a medium term account but was converted to a long term account ceases to be a special term account 5 years after the day it was opened.

Section 261B Taxation of specified interest

What is specified interest?

(1) Specified interest is interest which is not subject to DIRT because:

(a) the person entitled to the interest (or his/her spouse) is aged 65 or over and his/her income is below the age exemption limit (section 256(1A)), or

(b) the person entitled to the interest is permanently incapacitated (section 256(1B)).

The interest in question must not already have been included as relevant interest which widens the individual’s exemption limit or standard rate band (section 261(c)(i)(II)).

How is taxable income affected by specified interest?

(2) For any particular tax year, the part of an individual’s taxable income which is chargeable at the standard rate is to be increased by the amount of specified interest. This ensures that DIRT is only charged at the standard rate.

Is specified interest subject to withholding tax?

(3) IWithholding tax (section 246) does not apply as regards specified interest (see (1)).

Section 262 Statement furnished by relevant deposit taker

What details must a bank provide a customer in relation to DIRT deducted?

A financial institution must automatically issue each account holder with a statement showing the gross interest paid, the DIRT deducted, the net interest paid, and the payment date.

Section 263 Declarations relating to deposits of non-residents

What is a non-residence declaration?

(1) A non-resident’s declaration must:

(a) be signed by the account holder (the person to whom the interest is payable),

(b) be made on the official Revenue form,

(c) declare that the account holder (or if the account holder is a trustee, the beneficial owner of the interest) is non-resident,

(d) list the name, principal place of residence, and country of residence of each non-resident beneficial owner,

(e) include an undertaking that if any non-resident owner becomes resident, the bank will be notified immediately,

(f) contain any other information the Revenue Commissioners may reasonably require.

How long must a bank retain non-residence declarations?

(2) A bank must keep its original non-residence declarations for six years, or three years after the account is closed or the owner becomes resident, whichever is the longer.

A bank must allow an inspector to view (and take extracts from or copies of) its non-residence declarations.

Section 263A Declarations to a relevant deposit taker relating to deposits of certain persons

How does a person aged 65 or over get exemption from DIRT?

(1) A person aged 65 or over whose income is below the exemption limit (section 188(2)) is entitled to be paid interest gross, i.e., DIRT-free. Such an account holder must complete a written declaration and give it to the financial institution (relevant deposit taker).

The declaration must:

(a) be made by the individual (the declarer) to whom the interest is payable and be signed,

(b) be made on the Revenue-prescribed form,

(c) declare that, at the date of the declaration, the account holder (or his/her spouse/civil partner) is aged 65 or over and is exempt from income tax because his/her income is below the exemption limit (section 188(2)),

(d) contain his/her name, address, date of birth and PPS number,

(e) contain an undertaking that he/she will notify the financial institution if he/she no longer meets the exemption conditions,

(f) contain any other information that Revenue may reasonably require.

How long must a bank retain its DIRT exemption declarations?

(2) A financial institution must keep its declarations for six years, or three years after the account is closed or the owner ceases to qualify for exemption, whichever is the longer.

A financial institution must allow an inspector to view (and take extracts from or copies of) its declarations.

Section 263B Declarations to the Revenue Commissioners relating to deposits of certain persons

How does an incapacitated person get exemption from DIRT?

A permanently incapacitated individual (section 267(1)(b)), or the trustee of a trust for such a person (section 189A(2)), is entitled to be paid interest gross, i.e., DIRT-free. The account holder must complete a written declaration and give it to the financial institution (relevant deposit taker).

The declaration must:

(a) be made and signed by the account holder,

(b) be made on the Revenue-prescribed form,

(c) declare that, at the date of the declaration, the account holder is permanently incapacitated (section 267(1)(b)), or the trustee of the trust for such an individual (section 189A(2)),

(d) contain the account holder’s your name, address, PPS number, the financial institution’s name and address, and the account number or membership number for the deposit,

(e) contain an undertaking to notify the financial institution if the account holder no longer meets the exemption conditions,

(f) contain any other information that Revenue may reasonably require.

Section 263C Notifications by the Revenue Commissioners relating to deposits of certain persons

Must Revenue notify a bank not to deduct DIRT from an incapacitated person?

(1) This section relates to interest payable in respect of a deposit held by a permanently incapacitated individual, or the trustee of such an individual (section 256(1)). In such cases, Revenue must notify the financial institution that the deposit is not subject to DIRT.

That notification must:

(a) be in writing from Revenue to the financial institution (relevant deposit taker) confirming that the account is not subject to DIRT unless Revenue cancel the notification,

(b) contain the name, address, and PPS number of the individual (or the trustee(s) of the individual) beneficially entitled to the deposit,

(c) contain any other information that Revenue may reasonably require.

Can Revenue cancel a DIRT exemption notice?

(2) Revenue may at any time cancel the notification in (1) by written notice to the financial institution and the person beneficially entitled to the interest. Once Revenue do so, DIRT must be deducted from interest applied to the deposit.

Section 264 Conditions and declarations relating to special savings accounts

This section is now spent.

Section 264A Conditions and declarations relating to special term accounts

What is a special term account?

(1) A special term account (section 256(1)) is one that meets the following conditions:

(a) the account must be designated by the financial institution as a medium term account or a long term account, as appropriate,

(b) the account must be denominated in Irish punts (or euro),

(c) the account must not be connected with any other account of the account holder or any other person,

(d) all money in the account must be held on the same terms,

(e) the rate of interest payable on the account cannot be fixed for more than 12 months,

(f) the interest payable on the account must not be linked to any stock exchange performance,

(g) the account holder must be aged 16 or over,

(h) nominee accounts are not allowed (the account must be in the name of the person beneficially entitled to the interest),

(i) each account must be held in by not more than two individuals,

(j)-(k) an individual may not hold more than one account or joint account, but a married couple may hold two joint accounts in their names.

(l) apart from the exceptions mentioned in (m) and (n), the maximum that may be deposited in an account in any one month is €635,

(m) an individual may transfer the balance from another account held with the same financial institution as the opening balance of a special term account,

(n) an individual may make a once-off deposit of not more than €7,620 once during the lifetime of the account,

(o) unless it is withdrawn within 12 months of being credited to the account, interest earned may not be withdrawn during the lifetime of the account,

(p) except where the account holder, or one of the joint holders, dies a deposit may not be withdrawn within:

(i) three years of the date it was made, in the case of a medium term account, and

(ii) five years of the date it was made, in the case of a special term account,

(q) an account holder aged 60 years or over may make only one withdrawal from the account if the account was opened when the individual was under 60 years of age.

What declaration must be made by a special term account holder?

(2) The special term account declaration to be made by the account holder must:

(a)-(b) be made and signed by the account holder (the declarer),

(c) be made on the official Revenue form,

(d) declare that at the time of the declaration, the account holder is aged 16 or over, is beneficially entitled to the interest, and does not have more than one joint account (except in the case of a married couple who must not have more than two joint accounts),

(e) state the full name and address of the account holder,

(f) include an undertaking that if any condition mentioned at (d) is breached, the financial institution will be notified immediately,

(g) contain any other information the Revenue Commissioners may reasonably require.

How long must a bank retain declarations by special term account holders?

(3) A financial institution must keep its declarations for six years, or three years after the account is closed, whichever is the longer.

A financial institution must allow an inspector to view (and take extracts from or copies of) its declarations.

Section 264B Returns of special term accounts by relevant deposit takers

Who is the appropriate inspector for special term accounts?

(1) The appropriate inspector is:

(a) the inspector who last requested a relevant deposit taker return from the company,

(b) if there is no such inspector, the Revenue-nominated inspector of returns (section 950).

What information must a bank provide Revenue regarding special term accounts?

(2) Every deposit taker must make a return, before 31 March in each tax year, stating:

(a) the name and address of each account holder who opened a special term account in the previous tax year,

(b) whether the account is a medium term account or a long term account,

(c) the date on which the account was opened.

What penalty applies for failure to make a special term accounts return?

(3) The penalty for failure to file a return (section 1052), as increased, where appropriate in the case of a body of persons (section 1054) applies a person who fails to file a return under this section.

Section 265 [Deposits of companies and pension schemes]

Must a bank provide Revenue with details of interest paid DIRT-free to companies?

The return to be filed with Revenue by a financial institution in respect of interest paid without deduction of DIRT to a company or pension scheme must state:

(a) the company’s tax reference number, or

(b) in the case of a pension scheme which does not have a tax reference number, the tax reference of the employer to whom the pension scheme relates.

Section 265A Deposits of certain persons

Must a bank keep records of interest paid without DIRT?

A financial institution must, on request by the inspector, make a return to Revenue of interest paid without deduction of DIRT. Where such interest is paid gross because the account holder is aged 65 or over, or permanently incapacitated, the return must also include:

(a) the account holder’s PPS number, or

(b) where the account holder is not an individual, its tax reference number.

Section 266 [Deposits of charities]

Must a bank provide Revenue with details of interest paid DIRT-free to a charity?

The return to be filed with Revenue by a financial institution in respect of interest paid without deduction of DIRT to a charity must state the charity’s tax exemption (CHY) number.

Section 266A Repayments of appropriate tax to first-time purchasers

What definitions apply to this section?

(1) Completion value means the price that a vendor might reasonably expect to obtain for the new dwelling.

First-time purchaser means an individual who has not previously purchased or built, alone or with others, a dwelling.

relevant completion means the completion of dwellings between 14 October 2014 and 31 December 2017 that were self-built by one or more persons and are constructed on property conveyed to the first-time purchasers on or before 31 December 20.

relevant completion date means the date a dwelling becomes suitable for occupation.

Relevant purchase means the conveyance of a dwelling, between 14 October 2014 and 31 December 2017, into the names of one or more first-time purchasers.

Relevant savings means savings equal to a maximum of 20% of the cost of purchase or completion of a dwelling.

Relevant savings interest means interest earned on relevant savings in the 48 months preceding the purchase or. completion of the dwelling

What relief is given under this section?

(2) DIRT on relevant savings interest will, on being claimed, be repaid to first-time purchasers.

Section 267 Repayment of appropriate tax in certain cases

Who can reclaim DIRT?

(1) DIRT may, on a claim being made, be repaid to a relevant person, i.e., a person aged 65 or over, or a person incapable of looking after himself due to permanent physical or mental incapacity.

A person suffering from depression and/or M.E. is regarded as permanently incapacitated where there is medical evidence to show the condition is permanent. (Revenue Precedent IT97-2537, 19 June 1995).

Can DIRT be repaid to a charity?

(2) DIRT may also be repaid to a Revenue approved exempt charity (section 207), and to a special trust for permanently incapacitated individuals (section 189A).

When is a person aged 65 or over entitled to reclaim DIRT?

(3) If the total income (including deposit interest) of a relevant person aged 65 or over in a tax year (a relevant year) is within the income exemption limit (section 187), that person can reclaim DIRT paid on interest earned.

Section 267A Interpretation (Chapter 5)

Are credit unions obliged to deduct DIRT?

(1) Credit unions are treated as relevant deposit takers (section 267C) and must deduct DIRT (appropriate tax) from deposit interest paid to account holders. However credit union account holders may opt to keep their existing regular share account, convert it to a special share account, or open a special term share account.

A special share account is one in respect of which the holder has agreed with the credit union that the earnings balance in the account (i.e., the dividend earned by the credit union shares) is subject to DIRT.

The dividend earned by a special term share account will be subject to standard rate DIRT, but (section 267C):

(a) in the case of a three year special term share account opened before 16 October 2013, i.e., a medium term share account, for the first €480 is exempt, and

(b) in the case of a five year special term share account opened before 16 October 2013, i.e., a long term share account, the first €635 is exempt.

The exemption only applies if all of the conditions (section 267D(1)) have been met, and a declaration has been made in respect of the account (section 267D(2)).

When is a credit union dividend treated as paid?

(2) For the purposes of DIRT in relation to credit union accounts, the crediting of a dividend payment to a credit union member’s account is treated as the payment of a dividend.

Section 267AA Taxation of dividends on regular share accounts

Are credit union dividends subject to DIRT?

The value of shares in a regular share account is to be treated as a relevant deposit and a dividend paid in respect of those shares is to be treated as interest and subject to DIRT and the rules relating to DIRT.

Section 267B Election to open a special share account or a special term share account

What accounts can a credit union member have?

(1) A member (or prospective member) of a credit union may elect in writing:

(a) to open a special share account,

(b) in the case of an individual, to open a special term share account.

Does DIRT apply to a special share account?

(2) When a person opens a special share account, the credit union must designate the account as a special share account and treat:

(a) the value of the shares held in the account at any time as the account balance for DIRT purposes, and

(b) the dividend earned by those shares as equivalent to interest which is subject to DIRT.

Does DIRT apply to a special term account?

(3) Where a person opens a special term share account, the credit union must designate the account as a special term share account and treat:

(a) the value of the shares held in the account at any time as the account balance for DIRT purposes, and

(b) the dividend earned by those shares as equivalent to interest which is subject to DIRT.

Section 267C Taxation of dividends on special term share accounts

What is the exemption limit for a medium term share account?

(1) Where a credit union pays interest to the holder of a medium term account, the first €480 of such interest is exempt and only interest earned in excess of €480 is taxed.

What is the exemption limit for a long term share account?

(2) Where a credit union pays interest to the holder of a long term account, the first €635 of such interest is exempt and only interest earned in excess of €635 is taxed.

Can a medium term account be converted to a long term account?

(3) A person who opens a medium term account may subsequently elect to convert that account to a long term account.

Does the higher exemption limit apply to a converted medium term account?

(4) Where a person converts a medium term account to a long term account, the increased exemption applicable to the long term account applies from the tax year following the tax year in which the election was made.

Does DIRT apply if the conditions are breached?

(5) If any of the conditions listed in section 267D(1) are breached, the account no longer qualifies as a special term share account, with the following consequences:

(a) from the date the account ceases to qualify, dividends accruing to it are treated as interest subject to DIRT,

(b) dividends already earned by the account (past interest) are also subject to DIRT if it has not already been charged, and

(i) the credit union must apply DIRT to the past interest as if it had been paid on the date the account ceased to qualify,

(ii) if the past dividends have already been withdrawn from the account, the credit union must deduct from the balance in the account an amount equivalent to the DIRT that would have been deducted from interest, and the account holder must allow such deduction.

The credit union is treated as if it had paid the full gross interest to the holder, and is therefore acquitted of the debt to the account holder.

Does a time limit apply to special term accounts?

(9) An account that was opened for a medium term ceases to be a special term account 3 years after the day it was opened.

An account that was opened as a long term account or an account that was opened as a medium term account but was converted to a long term account ceases to be a special term account 5 years after the day it was opened.

Section 267D Conditions and declarations relating to special term share accounts

What is a special term share account?

(1) To qualify as a special term account (section 256(1)), the account must meet the following conditions:

(a) the account must be designated by the credit union as a medium term account or a long term account, as appropriate,

(b) the account must be denominated in Irish punts (or euro),

(c) the account must not be connected with any other account of the account holder or any other person,

(d) all shares in the account must be held on the same terms,

(e) the rate of interest payable on the account cannot be fixed for more than 12 months,

(f) the interest payable on the account must not be linked to any stock exchange performance,

(g) the account holder must be aged 16 or over,

(h) nominee accounts are not allowed (the account must be in the name of the person beneficially entitled to the interest),

(i) each account must be held in by not more than two individuals,

(j)-(k) an individual may not hold more than one account or joint account, but a married couple may hold two joint accounts in their names.

(l) apart from the exceptions mentioned in (m) and (n), the maximum that may be deposited in an account in any one month is €635,

(m) an individual may transfer the balance from another account held with the same credit union as the opening balance of a special term account,

(n) an individual may make a once-off deposit of not more than €7,620 once during the lifetime of the account,

(o) unless it is withdrawn within 12 months of being credited to the account, interest earned may not be withdrawn during the lifetime of the account,

(p) except where the account holder, or one of the joint holders, dies a deposit may not be withdrawn within:

(i) three years of the date it was made, in the case of a medium term account, and

(ii) five years of the date it was made, in the case of a special term account,

(q) an account holder aged 60 years or over may make only one withdrawal from the account if the account was opened when the individual was under 60 years of age.

Must a special term share account holder make a declaration?

(2) The account holder must make a declaration which should:

(a)-(b) be signed by the declarer,

(c) be made on the official Revenue form,

(d) declare that at the time of the declaration, the holder is aged 16 or over, is beneficially entitled to the interest, and does not have more than one joint account (except in the case of a married couple who must not have more than two joint accounts),

(e) provide his/her full name and address,

(f) include an undertaking that if any condition mentioned at (d) is breached, the credit union will be notified immediately,

(g) contain any other information that Revenue may reasonably require (for example, the account number and a statement as to the capacity of the declarer (agent, trustee)).

How long must a credit union retain special term share account declarations?

(3) A credit union must keep its declarations for six years, or three years after the account is closed, whichever is the longer.

A credit union must allow an inspector to view (and take extracts from or copies of) its declarations.

Section 267E Returns of special term share accounts by credit unions

Who is the appropriate inspector for special term share accounts?

(1) The appropriate inspector is:

(a) the inspector who last requested a relevant deposit taker return from the company,

(b) if there is no such inspector, the Revenue-nominated inspector of returns (section 950).

What information must a credit union provide Revenue regarding special term share accounts?

(2) Every credit union must make a return, before 31 March in each tax year, stating:

(a) the name and address of each account holder who opened a special term account in the previous tax year,

(b) whether the account is a medium term account or a long term account,

(c) the date on which the account was opened.

What penalty applies for failure to make a special term share account return?

(3) The penalty for failure to file a return (section 1052), as increased, where appropriate in the case of a body of persons (section 1054) applies a person who fails to file a return under this section.

Section 267G Interpretation (Chapter 6)

Is withholding tax deductible from payments to EU associates?

(1) This Chapter (sections 267G to 267K) implements Council Directive 2003/49/EC (the Directive). It eliminates withholding tax on a payment of interest or royalties from a company of a Member State to a company in another EU State. To avail of the exemption, the companies must meet the conditions in (2).

What is an EU associate?

(2) Two companies are regarded as associated if, for an uninterrupted period of at least two years:

(a) one controls not less than 25% of the voting power of the other, or

(b) a third company controls not less than 25% of the voting power of each.

A permanent establishment of a company in a Member State (i.e., a branch) is treated as beneficially owning interest or royalties if:

(a) the asset giving rise to the interest consists of property or rights used or held by the branch,

(b) the interest or royalty income are treated as income of the branch subject to withholding tax.

Section 267H Application (Chapter 6)

When are interest and royalties payments exempt from withholding tax?

(1) The exemption (section 267I) applies to withholding tax on payments of interest or royalties:

(a) made by an Irish resident company or the branch of a foreign company (but only if the payment would have been tax-deductible to the branch),

(b) to or for

(i) a company which is resident in another EU Member State and which beneficially owns the interest or royalties,

(ii) a branch which is located in another EU Member State and which beneficially owns the interest or royalties, and through which a company (resident in an EU State other than Ireland) trades.

In addition, the company mentioned in (a) must be a 25% associate (see section 267G(2)) of the company mentioned in (b).

What interest and royalties payments are not exempt?

(2) The exemption provided by this Chapter (section 267I) does not apply to:

(a) interest or royalties paid to a company which holds the debt or royalty rights on behalf of a branch through which it trades in the State or a non-EU territory,

(b) interest where there is no provision for the repayment of principal or where the repayment is due more than 50 years after the creation of the debt, or

(c) royalties in excess of what would have been agreed between independent parties acting at arms’ length.

Section 267I Exemptions from tax and withholding tax

Does withholding tax apply to interest and royalty payments between EU associates?

(1) Withholding tax need not be deducted from interest or royalty payments that meet the conditions in this Chapter.

Are EU companies subject to Irish tax on interest and royalty payments?

(2) An EU company receiving Irish source interest or royalties is not liable to tax on such income unless it is paid in connection with the company’s Irish branch.

Section 267J Credit for foreign tax

Is credit available for withholding tax on payments from Greece, Portugal or Spain?

(1) To the extent that a credit would not otherwise be allowed, an Irish resident company is entitled to a credit in respect of withholding tax deducted from:

(a) interest or royalties paid by a 25% associate in Greece or Portugal,

(b) royalties paid by a 25% associate in Spain.

Is credit for withholding tax the same as a tax treaty credit?

(2) Where a company is entitled to a withholding tax credit, the rules in Schedule 24 apply so that the credit is treated as if it were a credit under a double tax treaty.

Is credit for withholding tax subject to a tax treaty?

(3) The withholding tax credit applies without prejudice to treaty relief.

Section 267K Miscellaneous

When are interest and royalty payments not exempt?

(1) The exemption in respect of withholding tax between 25% associates in EU States only applies to bona fide interest and royalty payments. It does not apply where the payments are made as part of a tax avoidance scheme.

What should a company do if it no longer qualifies for exemption?

(2) This rule applies where a company receives an interest or royalty payment free free of withholding tax (for example, on the basis of being a 25% associate of the paying company), and the company no longer meets the conditions for exemption (for example, it is no longer a 25% associate). In such a case the recipient company must immediately inform the paying company that it no longer meets the condition for exemption.

Section 267L Application of this Chapter to certain payments made to companies in Switzerland

Does the interest and royalty exemption apply to Swiss companies?

(1) This section extends the benefit of the EU Interest and Royalties Directive (the EU Savings Directive) to companies resident in Switzerland, and also to Swiss branches of a company based in another EU State.

How is the exemption extended to Swiss companies?

(2) The withholding tax exemption applies only to companies of the type listed in the agreement with Switzerland. No tax credit (section 267J) is given, as tax credit only applies in the context of Greece, Portugal and Spain.

What interest and royalty payments are not exempt?

(3) The withholding tax exemption only applies to bona fide interest and royalty payments – it does not apply where the payments are made as part of a tax avoidance scheme. If the 25% holding requirement ceases to be met, the recipient must inform the payer without delay so that tax may be deducted.

Section 267M Tax rate applicable to certain deposit interest received by individuals

Is foreign deposit interest subject to tax?

(1) For bank interest, i.e., interest that would be subject to DIRT if payable in Ireland, the rate of tax depends on whether the interest arises:

(a) in another EU State (specified interest), or

(b) outside the EU (foreign deposit interest).

What tax rate applies to foreign deposit interest?

In the case of EU-sourced deposit interest (specified interest) the part of the individual’s taxable income equal to the interest is taxed at 41%.

In the case of non-EU sourced deposit interest (foreign deposit interest) the interest paid or credited on or after 8 February 2012 is charged to tax at the individual’s marginal rate (the standard rate, or the higher rate depending on the individual’s total income).

Section 267N Interpretation

Islamic Finance: Tax Briefing Issue 78 – 2009

What is Islamic finance?

(1) This Part sets out rules for the tax treatment of Islamic finance transactions – a deposit transaction, a credit transaction and an investment transaction. Collectively, these are referred to as specified financial transactions.

Under Islamic law, the receipt of interest (“money for nothing”) is regarded as usury, and is illegal. However, the receipt of an investment return as a result of business risk is acceptable.

A deposit transaction arises when a person deposits money with a bank, and the bank in turn invests that money and credits the return it receives to the account of the depositor.

A credit transaction arises when a finance undertaking:

(a) acquires an asset with the intention of disposing of that asset to a borrower at a profit,

(b) acquires as asset and disposes of it to a borrower at a profit, with the borrower making a disposal of the asset for not less than 95% of the price paid by the finance undertaking for the asset,

(c) acquires an asset jointly with the borrower, and the borrower gradually (over an agreed period equivalent to the term of a loan) buys out the finance company’s interest.

In each case, with the profit made by the finance undertaking (credit return) being broadly equivalent to interest on a loan.

An investment transaction arises when a person receives an investment return on an investment certificate, i.e. a security issued by a company to the public (but not to a connected person) which entitles the investor to a share in the company’s profits or losses, in proportion to the number and value of certificates owned, and which is treated (in accordance with generally accepted accounting practice) as a financial liability of the issuing company.

What is “consideration” in Islamic finance?

(2) The consideration paid or payable by a borrower means the aggregate of all payments. In the case of a borrower entitled to reclaim VAT, it is the VAT-exclusive amount. It does not include fees, charges or similar payments levied by a finance undertaking.

Section 267O Treatment of credit return

What is a credit return?

(1) A credit return is treated for tax purposes in the same manner as interest.

Does a credit return qualify for capital allowance purposes?

(2) A credit return is not regarded as expenditure for capital allowance purposes.

Does a credit return qualify as expenditure for CGT purposes?

(3) A credit return is not regarded as expenditure for CGT purposes.

Section 267P Treatment of credit transaction

Does the preferential loan legislation apply to Islamic finance transactions?

(1) The preferential loan legislation (section 122) also applies to Islamic finance credit transactions.

How are acquisitions and disposals of assets by a finance undertaking treated?

(2) Acquisitions and disposals of assets by a finance undertaking (for the purpose of an Islamic finance transaction – aspecified finance transaction) are treated as made in the course of its trade.

Can a disposal of an asset give rise to a CGT loss?

(3) A credit transaction includes a situation where the borrower acquires and immediately disposes of an asset to another person for a consideration which is at least 95% of the consideration paid by the finance undertaking on acquiring the asset (section 267N).

Any loss arising does not qualify for CGT purposes.

Can a finance undertaking obtain a capital allowance on an asset?

(4) Expenditure by a finance undertaking in relation to a credit transaction does not qualify for capital allowance purposes.

Can a borrower obtain a capital allowance on an asset?

(5) Only expenditure by a borrower under an arrangement whereby the borrower and the finance undertaking jointly acquire an asset qualifies for capital allowance purposes.

Does a disposal to a finance undertaking give rise to a balancing adjustment?

(6) The acquisition of an interest in an asset by a finance undertaking from a borrower who retains an interest in that asset is treated as a credit transaction. However, the disposal of the asset by the borrower to the financial undertaking does not give rise to a balancing charge or allowance.

Does a borrower’s excess price for an asset qualify for capital allowances?

(7) This subsection applies where the borrower acquires an asset on terms such that the finance undertaking’s interest in the asset passes immediately (or by the end of a specified period) to the borrower for a price exceeding the price paid for the asset by the undertaking.

In such circumstances, the acquisition expenditure does not count for capital allowance purposes.

Is the consideration paid by the borrower tax deductible?

(8) Only the credit return is deductible for tax purposes.

Section 267Q Treatment of deposit return

Is a deposit return subject to DIRT?

A deposit return is treated as if it were relevant interest and is subject to deposit interest retention tax (DIRT). The financial undertaking (deposit taker) cannot escape DIRT on the basis that it is in “partnership” with the depositor.

Section 267R Treatment of investment return

How is an investment return treated for tax purposes?

An investment return is treated as if it were interest on a security.

Section 267S Treatment of certificate owner

Does an investment certificate owner have an interest in the company?

(1) The owner of an investment certificate is treated as having no beneficial interest in the qualifying company.

Does an investment certificate owner partake in the qualifying company’s income and gains?

(2) Income and gains attributable to the qualifying company’s assets are treated as the qualifying company’s income and gains and are subject to corporation tax in its hands.

Does an investment certificate owner qualify for capital allowances?

(3) The owner of an investment certificate is not entitled to claim capital allowances in respect of the underlying assets.

Section 267T Reporting

Are Islamic financiers obliged to make returns in relation to DIRT etc?

The Revenue powers (in Part 38) apply to a deposit return, a credit return and an investment return as if the return was an interest payment.

Section 267U Application

Can either party to a finance transaction elect for Islamic finance treatment?

(1) Islamic finance treatment applies where a party to the transaction (not just the finance undertaking) and who is within the charge to tax makes a written election to the inspector for such treatment.

How is an election for Islamic finance treatment made?

(2) The election must be made on the proper Revenue form. It may be made in respect of one transaction or a series of transactions.

What happens when an election for Islamic finance is made?

(3) Where an election for Islamic finance is made, the electing party must notify any other party that Islamic finance treatment applies to the transaction.

Section 267V Transactions to avoid tax

When does Islamic finance treatment not apply?

The Islamic finance treatment only applies in respect of transactions undertaken for bona fide commercial reasons. It does not apply to transactions undertaken to avoid tax.

Section 268 Meaning of “industrial building or structure”

What is an industrial building?

(1) An industrial building or structure is a building or structure in use for one or more of the following purposes:

(a) a trade carried on in a mill factory or similar premises or a mineral analysis laboratory,

(b) a dock undertaking (see (2) below),

(c) growing fruit or vegetables (market gardening greenhouses etc),

(d) hotel-keeping (see (3) below),

(e) intensive production of cattle sheep pigs poultry or eggs (but not as part of a farming trade),

(f) as an airport runway or apron,

(g) as a registered nursing home,

(h) as a building or structure (other than a runway or apron mentioned in (f)) used in airport operations or airport management,

(i) as a convalescent home caring for acutely ill patients which has been certified by the health board as meeting the appropriate guidelines under the legislation dealing with nursing homes,

(j) subject to approval by the EU as a qualifying hospital (see (1A) and (2A) below),

(k) subject to approval by the EU as a qualifying sports injury clinic (see (1B) and (2B) below),

(l) as a qualifying mental health centre,

(m) as a specialist palliative care unit,

(n) a hangar for the maintenance of commercial aircraft or for the dismantling of such aircraft for salvaging or recycling parts or materials.

A building or structure used for the recreation or welfare of the employees in any of the trades or undertakings mentioned in (a)-(f) above also qualifies as an industrial building or structure. This applies for capital expenditure incurred after 5 April 1969.

The building or structure need not be directly involved in a manufacturing process. A storage warehouse used by a manufacturer would normally qualify for an industrial building allowance.

(a) Or similar premises

This includes:

(i) Machine-controlled cold stores: Ellerker v Union Cold Storage Co Ltd (1938) 22 TC 195.

(ii) Grain elevators: IRC v Leith Harbour and Docks Commissioners (1941) 24 TC 118. Revenue accept that a building in which grain is subjected to a process of drying is similar to a mill (Revenue Precedent IT96-3502 10 January 1996).

(iii) The drawing office of an engineering company: IRC v Lambhill Ironworks Ltd (1950) 31 TC 393.

(iv) Facilities at a salmon hatchery (Revenue Precedent 10407/31/92 6 January 1992).

(v) A sawmill provided treatment is carried out in the mill and machinery is involved (Revenue Precedent 319.8 18 November 1987).

(vi) An abbatoir unless ancillary to a retail outlet (Revenue Precedent 319.10(2) 21 September 1987).

It does not include a plant hire depot used for cleaning and repairing equipment: Vibroplant Ltd v Holland [1982] STC 164.

(c) Growing fruit or vegetables

This includes buildings used to house heating plant but does not include storage sheds.

(d) Hotel-keeping

There is no requirement that a building be registered as a hotel with Bord Fáilte for it to be regarded as a building in use for the purpose of hotel-keeping (Revenue Precedent IT97-3009 27 January 1997). Revenue accept that a caravan park which has been approved by Bord Fáilte and included in its register of approved caravan parks may be regarded as a holiday camp for industrial building allowance purposes. A copy of Bord Fáilte’s letter granting approval should be obtained from the taxpayer in the course of a Revenue audit. (Inspector Manual 9.1.1).

The following are not regarded as buildings or structures in use for the purpose of hotel-keeping:

(i) Hostels and other budget accommodation facilities having common rooms dormitories self-catering kitchens and other self-use facilities (Revenue Precedent GD96047b 8 December 1994; Appeal Commissioners Decision 10 AC 2000).

(ii) Golf courses (Revenue Precedent GD93021 10 May 1991; Appeal Commissioners Decision 12 AC 2000).

The Appeal Commissioners have also held that an “aparthotel” i.e. a block of apartments together with shops cleaning apartments laundry security advertising expenditure long-term letting and short-term lettings was not a hotel: 8 AC 2000.

(e) Intensive production of cattle, sheep, etc.

This allowance does not include ordinary farm buildings used to house animals.

(h) Airport operations

The allowance is given in respect of a building or structure used in airport operations (for example a terminal building) or airport management (for example offices of the airport authority).

What is not an industrial building?

(1A) A property does not qualify for capital allowances if the relevant interest in the property is held by you as a claimant where you are:

(a) a company,

(b) the trustees of a trust,

(c) an individual involved in the management of qualifying hospital, or

(d) a property developer (or person connected with such developer) who incurred the capital expenditure on the construction of the hospital.

This rule also applies where the property is held jointly by you or any of the persons in (a)-(d) with any other person.

What is not a qualifying sports clinic?

(1B) A property is not regarded as a qualifying sports clinic within (1)(k) if the relevant interest in the property is held by:

(a) a company,

(b) the trustees of a trust,

(c) an individual involved in the management of qualifying sports clinic,

(d) a property developer (or person connected with such developer) who incurred the capital expenditure on the construction of the sports clinic.

This rule also applies where the property is held jointly by any of the persons in (a)-(d) with any other person.

What is a qualifying mental health centre?

(1C) A qualifing mental health centre is one that meets the following conditions:

(a) it is approved under the Mental Health Act 2001,

(b) it can provide day patients and out-patients services and has 20 in patient beds,

(c) it provides the following information to the Health Service Executive (HSE):

(i) the amount of the construction/refurbishment expenditure,

(ii) details of the investor (number and nature) investing in the building,

(iii) the amount invested by each investor,

(iv) the structures being put in place to facilitate investment in the building,

together with any other conformation the Minister for Finance may need to evaluate cost/benefits of this tax relief to the Exchequer,

(d) it undertakes the HSE:

(i) to make available annually no less than 20% of its capacity to public patients who have been awaiting treatment,

(ii) that its fees will not exceed 90% of the amount that would be charged to a person with private medical insurance,

and

(e) the HSE, in consultation with the Department of Health and Children with the consent of the Minister for Finance, must certify in writing annually, for the 15 year period beginning when the centre was first used that it meets the conditions in (a), (b), (c), and (d); and does not include private consultants’ rooms or offices.

What is not a qualifying mental health centre?

(1D) The allowance does not apply if the relevant interest in the property on which the expenditure was incurred is held solely or jointly by:

(a) a company,

(b) trustees,

(c) an employee or director of the mental health centre, or

(d) a property developer.

What is not a palliative care unit?

(1E) Relief is disallowed if the relevant interest in a palliative care unit is held by:

(a) a company,

(b) trustees,

(c) a manager, employee or director of the unit, or

(d) a property developer who incurred the construction expenditure on the unit.

Is an aircraft hangar always an industrial building?

(1F) No. Where expenditure on an aircraft hangar is incurred by a property developer or a person connected with a property developer where either retains the “relevant interest” the expenditure is not specified capital expenditure for the purpose of capital allowances. See section 272(3)(k) – specified capital expenditure gets a 15% annual allowance.

What is a dock undertaking?

(2) A harbour pier or jetty at which vessels can load or unload passengers or merchandise qualifies for industrial building allowance as a dock undertaking.

Dock undertaking also includes storage sheds used by shipping agents: Patrick Monahan (Drogheda) Ltd v O’Connell3 ITR 661.

The occupants of bareboat charters may be regarded as passengers and boarding these vessels comes within the test to “ship or unship”. The jetty itself is not used primarily for recreation as it is used to gain access to the boats. Therefore a jetty on the Shannon used for charter cruises is within the meaning of industrial building or structure. (Revenue Precedent 10 November 1998).

What is a qualifying hospital?

(2A) Expenditure on the construction or refurbishment of a building to be used as a private hospital (a qualifying hospital) may qualify for capital allowances. The allowances will come into effect if EU approval is granted and the Minister appoints a day.

A qualifying hospital is one that meets the following conditions:

(a) it is a private hospital,

(c) it is not run on a “seasonal” basis i.e. it normally provides medical and surgical services every day of the year,

(d) it is capable of providing out-patient services and not less than 70 in-patient beds for overnight accommodation OR day-case and outpatient medical and surgical services with not less than 40 beds for such services,

(e) it has an operating theatre and related diagnostic and therapeutic facilities,

(f) it has facilities to provide not less than five of the following services:

(i) accident and emergency,

(ii) cardiology and vascular,

(iii) eye ear nose and throat,

(iv) gastroenterology,

(v) geriatrics,

(vi) haematology,

(vii) maternity,

(vii) medical,

(ix) neurology

(x) oncology,

(xi) orthopaedic,

(xii) respiratory,

(xiii) rheumatology,

(xiv) paediatric, and

(xv) Mental health services.

(fa) as regards a building first used on or after 1 February 2007, provides the following information to the Health Service Executive:

(i) the amount of the construction/refurbishment expenditure,

(ii) the investors (number and nature) investing in the building,

(iii) the amount invested by each investor,

(iv) the structures being put in place to facilitate investment in the building,

together with any other information the Minister for Finance may need to evaluate cost/benefits of this tax relief to the Exchequer,

(g) it undertakes to the local health board to make 20% of its bed capacity available for public patients and to provide public patients with a discount of at least 10% by reference to the fees charged to private patients,

(h) the local health board in consultation with the Department of Health and Children with consent of the Department of Finance must certify in writing annually for each year of the 10 year writing down period ( 15 years where the building is first used on or after 1 February 2007) that the hospital meets the conditions in (a), (c), (d), (e), (f), (fa), and (g).

Any part of the hospital that consist exclusively of rooms used for patient treatment qualifies for capital allowances but any part of the hospital that used as consultant’s rooms or offices does not qualify for capital allowances.

What is a qualifying sports injuries clinic?

(2B) A qualifying sports injuries clinic is a medical clinic that meets the following conditions:

(a) it does not provide health care services to public patients except in the circumstances mentioned in (e) below,

(b) its main business is to diagnose allocate and treat physical injuries sustained by sportspersons using medical or surgical specialists,

(c) it can provide day patient in-patient and out-patient medical or surgical services and it has not less than 20 beds to accommodate in-patients,

(d) it has an operating theatre together with related diagnostic and therapeutic facilities,

(e) It undertakes to the local health board to make 20% of its capacity available to public patients and to provide public patients with a discount of at least 10% by reference to fees charged to private patients,

(f) the local health board in consultation with the Department of Health and Children and with the consent of the Department of Finance must certify in writing annually for each year of the 10 year writing down period that the clinic meets the conditions in (a) to (e).

Any part of the clinic that consist exclusively of rooms used for patient treatment qualifies for capital allowances but any part of the hospital that is used as consultant’s rooms or offices does not qualify for capital allowances.

What is a qualifying specialist palliative care unit?

(2BA) From a date to be appointed by the Minister for Finance, the cost of constructing/ refurbishing a qualifyingspecial palliative care unit may qualify for a capital allowance of six years at 15% and 10% in the seventh year.

In this regard, palliative care means active total care of patients with incurable illnesses or diseases.

A qualifying specialist palliative care unit is a hospital or hospice which meets the following conditions:

(a) palliative care is its main activity,

(b) prior to its design/construction, is approved by the HSE as being in accordance with the national development plan for palliative care,

(c) can provide day-patient and out-patient care, has a minimum of 8 in-patient beds,

(d) provides the HSE with the following information:

(i) the cost of construction/refurbishment

(ii) the amount of such expenditure which has been grant-aided or subsided,

(iii) the number and nature of investors,

(iv) the amount to be invested by each investor,

(v) the investment structure,

and any other information the Minister for Finance may require to evaluate the cut/benefits of such units,

(e) gives the HSE an undertaking:

(i) to make available not less than 20% of its capacity on an annual basis to the HSE for the care of pallic patients,

(ii) that the fees charged to public patients will be not more than those charged to private patients,

(f) the HSE gives an annual written certificate during the first 15 years of use that the unit meets the conditions in (a)-(e).

Do consultant rooms in a palliative care unit qualify?

(2BB) The unit includes patient treatment rooms. It does not include consultants’ rooms or offices, nor does it include any part of the unit where a majority of the patients are being treated for acute illnesses.

Does a guesthouse qualify as a hotel?

(2C) Properly registered guesthouses are deemed to be “hotels” for capital allowances purposes in relation to construction or refurbishment expenditure incurred on or after 3 February 2005. The allowance is therefore 4% per annum over 25 years.

Does a caravan site qualify as a hotel?

(2D) From 1 January 2008, construction/refurbishment expenditure on buildings/structures within registered caravan/camping sites qualifies for 4% annual allowances.

Does a holiday camp or holiday cottage qualify as a hotel?

(3) Expenditure prior to 31 July 2006 (see (13)) on a registered holiday camp may qualify for an industrial building allowance as hotel-keeping.

Letting of land or buildings is not a trade and is taxable under Schedule D Case V: Webb v Conelee Properties Ltd[1982] STC 913. See also Páircéir v EM (1971) 2 ITR 596.

Therefore Revenue do not generally accept that income from Bord Fáilte-registered holiday cottages is chargeable under Case I. The Case under which the income is to be charged is to be determined by the circumstances of each case (Revenue Precedents IT90-3103 3 July 1990 and IT95-3544 6 June 1996).

The Appeal Commissioners have held that income from an “aparthotel” i.e. a block of apartments together with shops cleaning apartments laundry security advertising expenditure long-term letting and short-term lettings was chargeable under Case I as letting of rooms and not under Case V. In a later case with similar facts where less services were provided the Appeal Commissioners held that the income was chargeable under Case V: 8 AC 2000.

There is no requirement that a holiday camp be registered as a holiday camp with Bord Fáilte. The Tourist Traffic Act 1939 section 37 states:

“It shall not be lawful to describe or hold out or permit any person to describe or hold out any premises as a holiday camp unless such premises are registered in the Register of Holiday Camps and such proprietor is registered as the registered proprietor of the holiday camp”.

Therefore it is illegal to hold out a premises as a holiday camp unless it is registered with Bord Fáilte. The fact that it is not registered does not mean that it is not a holiday camp – just that it cannot be held out as such (Revenue PrecedentIT95-3025 22 November 1995).

Revenue accept that a caravan park registered with Bord Fáilte qualifies for an industrial building allowance (Revenue Precedent 10407/105/87 18 March 1987).

An individual incurs expenditure on the construction of a holiday cottage and leases it to an operator. If the operator rather than the individual registers the cottage in the Register Of Holiday Cottages maintained by Bord Failte the building may be regarded as an industrial building within the meaning of section 268 (Revenue Precedent 10 October 2000).

Capital allowances cannot be claimed on the office comprised in the premises which registered by Bord Failte under the Registration and Renewal of Holiday Cottages regulations. Only the building used as a holiday cottage qualifies for allowances and not the office (Revenue Precedent 11 June 1999).

What is a qualifying residential unit?

(3A) A qualifying residential unit is a house that meets the following conditions:

(a) it is built on the site of (or a site which is adjacent to) a registered nursing home,

(b) it is single storey building or (from 4 February 2004 a multi-storey building with a fire safety certificate in place before construction begins):

(i) built to meet the needs of disabled persons (in particular persons confined in wheelchairs),

(ii) which contains (or the units in which contain) one or two bedrooms a kitchen living room bathroom and a nurse call system linked to the registered nursing home,

(c) it is part of a development that contains at least 10 residential units (20 before 4 February 2004):

(i) which contains a day care centre,

(ii) which managed by the registered nursing home and has on site caretaker,

(iii) provides back up medical care from the registered nursing home to the residents of the units,

(iv) where at least 20% of the units are made available to person eligible for rent subsidy from the local health board,

(v) where the rent charged to persons in receipt of rent subsidy is at least 10% less than the rent that would be charged to persons not in receipt of rent subsidy,

(d) it is let to:

(i) a person (and, where applicable, that person’s spouse/civil partner):

(I) who is not connected (see section 10) with the landlord,

(II) who has been selected as the occupant by the registered nursing home, and

(III) who has been certified by a registered medical practitioner as requiring such accommodation due to old age of infirmity, or

(ii) to a registered nursing home who lets it to the person in (i).

When did qualifying residential unit relief expire?

(3B) Apart from the exception mentioned in (3C), a qualifying residential unit is deemed for capital allowances purposes to be a registered nursing home in relation to expenditure incurred during 25 March 2002 to 30 April 2010.

Does grant-aided expenditure qualify for capital allowances?

(3C) The grant element of capital expenditure does not qualify for capital allowances.

Must some qualifying residential units be made available to the HSE?

(3D) This subsection applies where a company owns all of the residential units in a development. In such a case, the requirement that 20% of the units be available to the HSE, at a 10% discount on the normal rent, does not apply.

Must the HSE certify a qualifying residential unit?

(3E) A unit does not qualify unless it meets all of the following conditions:

(a) The person entitled to claim the capital allowances provides the HSE with the following information:

(i) the capital expenditure incurred on constructing or refurbishing the unit,

(ii) the number and nature of investors,

(iii) the investment by each investor,

(iv) the structure being used to facilitate the investment,

and any other information specified by the Minister for Finance that may help in evaluating the cost to the Exchequer of this relief.

(b) The HSE gives a written certificate stating that it is satisfied that the house and the development meet the conditions in (3A).

(c) The person entitled to claim the capital allowances provides a written annual report to the HSE before the end of each year of the 20 year writing down life of the unit, which:

(i) confirms that the unit and the development continue to meet the conditions in (3A), and

(ii) provides details of the level of occupation of the unit for the previous year, including the age of the occupants and if applicable the nature of their infirmity.

Does site preparation work qualify?

(4) Expenditure on construction type work such as site preparation tunnelling or levelling of land to prepare the land for the installation of machinery or plant thereon (for example for the installation of oil tanks for a refinery) is treated as expenditure on an industrial building or structure. The expenditure on acquiring and installing the machinery or plant remains expenditure on machinery or plant.

Can a foreign property qualify as an industrial building?

(5) For expenditure incurred on or after 23 April 1996, industrial building allowance is only given for buildings located in the State. In other words industrial building allowance will not be given for expenditure on a foreign hotel or factory.

Industrial building allowance continues to be given for foreign buildings if:

(a) the buyer had agreed in writing on or before 23 April 1996 to buy the site (or an option on the site),

(b) the buyer had contracted in writing on or before 1 July 1996 to construct the building,

(c) construction of the building began before 1 July 1996 and was finished before 30 September 1998,

and the trade carried on in the building is taxed in the State.

For example, a bakery with separate retail shops would qualify for industrial building allowance for the bakery, but not for the retail outlets.

Are there limitations to the relief for aviation services facilities?

(5A) Yes. The expenditure will not be regarded as specified capital expenditure if it exceeds €5,000,000 where the person concerned is a company or €1,250,000 where the person is an individual. Revenue must be provided with the name, address and tax number of the claimant, the address of the building or structure and details of the expenditure incurred.

Can Revenue disclose information to others?

(5B) Nothwithstanding their obligations to secrecy Revenue may disclose the foregoing information in order to ensure that the project complies with the European Commission guidelines. In effect this means that the information can be given to relevant Commission officials.

Is there a cap on the amount of relief that can be obtained?

(5C) Yes. The maximum relief is €625,000. The expenditure on which relief can be claimed is determined by the formula which reflects that individuals are taxed at a higher rate than companies. If expenditure is incurred by both individuals and companies they can agree how the claim is to be apportioned.

Must an industrial building be used for the trade?

(6) An industrial building allowance is given only for the “factory” (manufacturing) part of the trade.

What does not qualify as an industrial building?

(7) A building does not qualify as an industrial building if any part of it is used as:

(a) a dwelling house (other than an approved holiday cottage (see (3) above),

(b) a retail shop,

(c) a showroom, or

(d) an office.

However the “10% rule” in (8) allows expenditure on the non-qualifying part to qualify if it is not more than 10% of the total expenditure.

Note

(a) An employee’s house was not regarded as an industrial building in IRC v National Coal Board (1957) 37 TC 264.

(d) A data processing centre used to process large volumes of cheques was regarded as an office (and not an industrial building) in: Girobank plc v Clarke [1998] STC 182.

The Appeal Commissioners have held that an “aparthotel” i.e. a block of apartments together with shops cleaning apartments laundry security advertising expenditure long-term letting and short-term lettings was not in use as a dwellinghouse: 8 AC 2000.

Can part of a building qualify?

(8) If part of a building qualifies as an industrial building or structure and another part of the building does not qualify the entire building qualifies provided the construction cost of the non-qualifying part does not exceed 10% of the total construction cost.

If the non-qualifying (office) part of the entire structure does not exceed 10% of the total cost of the structure the entire structure may still qualify: Abbott Laboratories Ltd v Carmody (1968) 44 TC 569. In that case a separate administration building attached to the factory by a covered passageway and heated by the same heating system did not qualify as it was not regarded as part of the same structure.

When must expenditure be incurred?

(9) To qualify for industrial building allowance:

(a) capital expenditure on a mineral analysis laboratory must be incurred on or after 25 January 1994,

(b) capital expenditure on a building for the intensive production of cattle sheep or pigs must be incurred on or after 6 April 1971,

(c) capital expenditure on an airport runway or apron must be incurred on or after 24 April 1992.

(d) capital expenditure by the Dublin Airport Authority on an airport building or structure must be incurred on or after the vesting day (see (10)) and capital expenditure by any other body on an airport building or structure must be incurred on or after 27 March 1998,

(e) capital expenditure on a qualifying mental health centre must be incurred on or after the date on which Finance Act 2006 section 36 comes into effect (by Ministerial Order),

(f) capital expenditure on a qualifying specialist palliative care unit must be incurred on or after 13 March 2008 (date of passing of Finance Act 2008),

(k)(i) Specified.capital expenditure must be incurred between 13 October 2015 and 13 October 2020

 (ii) Other capital expenditure must be incurred on or after 13 October 2015.

What is the “vesting day” for airports?

(10) The vesting day is the day on which Dublin Airport Shannon Airport and Cork Airport become formally vested in the Dublin Airport Authority.

Do grant-aided hotels qualify?

(11) A hotel is not regarded as an industrial building for capital allowances purposes if any part of the cost is grant-aided.

Do grant-aided aviation facilities qualify?

(11A) Aviation facilities are not regarded as industrial buildings if any part of the cost is grant-aided.

Is expenditure on hotels subject to EU regional aid rules?

(12) Construction or refurbishment expenditure incurred on or after 6 April 2001 on a hotel does not qualify unless the work first commenced on or after that date and Bord Fáilte certifies in writing:

(a) in response to an application that the applicant has provided information that can determine whether the applicant is a small or medium-sized enterprise within EU Regulation 70/2001 of 12 January 2001,

(b) that the expenditure meets EU Guidelines on National Regional Aid,

(c) that in the case of expenditure on a large project details of which are required to be notified to the EU under the Multisectoral Framework on Regional Aid for Large Investment Projects the EU has given its approval for capital allowances to the Minister for Finance,

(d) that the applicant has undertaken to provide the Minister for Finance or any other necessary Government Minister with any other information necessary regarding EU reporting requirements on State aid.

Can hotel expenditure be limited by the EU?

(12A) A hotel certified by the National Tourism Development Authority qualifies from the time is is first used as a hotel, on the basis of the construction expenditure incurred.

But if the EU certifies a lower amount, the allowance is given in respect of that lower amount.

Must a hotel be registered with Bord Fáilte?

(14) Expenditure incurred on construction or refurbishment of a “hotel” on or after 3 February 2005 does not qualify for capital allowances unless the hotel is properly registered in accordance with the Tourist Trafiic Acts.

When is the deadline for a qualifying sports injuries clinic?

(16) The deadline for qualifying sports injury clinics is extended to 31 July 2008 where work to the value of not less than 15% of the overall construction cost has been carried out before 31 December 2006.

What is the deadline for nursing homes etc?

(17) The expenditure deadline is extended in relation to capital expenditure incurred on nursing homes, convalescent homes, qualifying hospitals and qualifying mental health centres:

(a) in the case of a development which is exempted under the planning laws, where not less than 30% of the total construction costs are incurred before 31 December 2009, or

(b) where full (not outline) and valid planning permission has been been made and received before 31 December 2009.

Section 269 Meaning of “the relevant interest”

What is “the relevant interest”?

(1) The relevant interest in an industrial building or structure describes the type of legal title of the person who paid for the building work. Broadly, it means the type of legal interest held by you where you are the person who incurred the construction costs at the time you incurred those costs. It may be a freehold interest or a leasehold interest, but only the person who incurred the expenditure (i.e., the person who holds the relevant interest), or his/her successor in title, may obtain the industrial building annual allowance.

Example

You are a lessee of a factory who incurs expenditure on refurbishing the factory.

You are entitled to the industrial building allowance on the refurbishment expenditure (section 276) provided that you sublet the refurbished building to another occupier, and the building continues to be used for an industrial purpose.

Who can claim the allowances on an industrial building?

It is not essential that the building be in use as an industrial building by the person claiming the allowance. Thus, as a landlord, you may be entitled to an allowance in respect of a building which is used for industrial purposes by your tenant (except that the free depreciation allowance may not be claimed by you).

See Woods (Insp of Taxes) v R M Mallen (Engineering) Ltd, (1969) 45 TC 619.

What happens if a person has two or more interests in a building?

(2) Where you incur the expenditure on the building and you have two or more interests in the building at the time you incur the expenditure, the interest which is reversionary on all the others is the relevant interest.

Example

You are a trader who subleases land from X, who in turn holds a lease from Y, the freeholder.

If your sublease is about to expire shortly, you would be reluctant to incur expenditure on putting up a new building; if you were able to buy the freehold reversion from Y, you could then incur the expenditure in the knowledge that the land and building would revert to you when X’s lease expired.

In such circumstances, you would own two interests in the land at the time you incurred the capital expenditure on the new building: your own sub-tenancy and the freehold reversion acquired from Y. In such a case, the larger interest (i.e., the freehold) is taken to be the relevant interest for the purposes of industrial building allowance.

Does the granting of a lease from a relevant interest cease that interest?

(3) A (freehold) relevant interest does not cease to be the relevant interest if you grant a lease to which it is subject.

If a (leasehold) relevant interest merges into the freehold (or a superior lease), that freehold or superior lease becomes the relevant interest.

Example

A trader built a factory on leased land in 2000, when there were 15 years of the lease to run. The trader is entitled to 25 annual allowances of 4%.

In 2005, with 10 years of the lease still to run, the trader acquires the freehold. This event does not trigger a balancing allowance. Instead, the freehold interest becomes the relevant interest, and the trader continues to receive annual allowances until the expenditure is written off.

Section 270 Meaning of “expenditure on construction of building or structure”

What is refurbishment?

(1) Refurbishment means reconstruction, repair or renewal of the building, including the provision of water, heating or sewerage facilities during the restoration work.

Refurbishment also includes maintenance which is in the nature of restoration.

Does site cost qualify?

(2) The following expenditure does not qualify for industrial building allowance:

(a) the cost of the site or rights over the land,

(b) expenditure on machinery or plant,

(c) expenditure which may qualify for mining allowance (section 658) or scientific research allowance (section 765(1)).

Capital expenditure on the provision of plant or machinery which is to be an integral part of an industrial building or a commercial building: Inspector Manual 9.1.5.

How is expenditure apportioned?

(3) Where there are several buildings on a single industrial complex, the expenditure on the entire complex is to be apportioned in determining the non-qualifying expenditure. This also applies to a part of a single building which is so treated.

This gives statutory effect to the decision in O’Conaill v Waterford Glass Ltd, 3 ITR 365.

When does the restriction for accelerated allowances take effect?

(4) This subsection outlines the (renewal area) capital allowances which are restricted to 75% (in 2007) and 50% (to 31 July 2008) of what the allowance would otherwise have been:

(a) a hotel,

(b) a qualifying sports injury clinic,

(c) a qualifying multi-storey car park,

(d) an industrial building or commercial premises in a qualifying urban area,

(e) an industrial building or commercial premises in a qualifying rural area,

(f) a qualifying park and ride facility or a qualifying commercial premises in a park and ride area,

(g) an industrial building or commercial premises in a town renewal area,

(h) a qualifying third level education premises,

(i) a qualifying residential unit built on the site of a registered nursing home.

What is the effect of the restriction on accelerated allowances?

(5) The capital allowances listed in (4) are reduced:

(a) for 2007, to 75% of the amount that would otherwise have been allowable, and

(b) for 2008, to 50% of the amount that would otherwise have been allowable.

Does the accelerated allowances restriction apply to a purchaser of a new building?

(6) Section 279 allows you where you are a purchaser of an unused industrial building, to claim the allowance as if you had incurred the expenditure on its construction. The allowance is given in respect of “the net price paid”. This subsection adjusts the formula to ensure your allowance is reduced down to 75% (in 2007) or 50% (to 31 July 2008) as appropriate.

When is the deadline extended to 31 July 2008?

(7)(a) This subsection deals wih the extension of the allowance to 31 July 2008, provided a certain percentage of the expenditure was incurred before 31 December 2006. The allowances in question are:

(i) hotel,

(ii) industrial building or commercial premises in a qualifying urban area,

(iii) industrial building or commercial premises in a qualifying renewal area,

(iv) industrial building or commercial premises in a town renewal area.

(b) As the claimant, you will not be treated as having incurred the expenditure before the deadline unless the relevant local authority gives you, before 31 March 2007, a certificate stating that work to the value of not less than 15% of the construction cost was carried out before 31 December 2006.

The builder must apply for the certificate before 31 January 2007, and the local authority must take account of the Departmet Guidelines when deciding to issue a certificate.

(c) The allowance for 2007 and 2008 must not exceed the amount certified by the relevant local authority.

(d) This subsection takes priority to (5) and (6). In other words, if relief is to be allowed for 2007 or 2008, 15% of the construction cost must be incurred before the deadline. Only after this condition is met can the question of the reduction to 75%, or 50% as appropriate, be considered.

(e) A seller of a building which satisfies the 15% test must provide the purchaser with a copy of the certificate issued by the relevant local authority.

What is the deadline for qualifying residential units?

(8) This subsection deals with capital allowances available for residential units attached to a qualifying nursing home, in relation to expenditure incurred on or after 1 May 2007. In such a case, the final deadline for qualifying expenditure is 30 April 2010 (not 31 July 2008).

For a company, 75% of the expenditure incurred during 1 May 2007 to 30 April 2010 qualifies for relief. For an individual, 50% of the expenditure incurred during 1 May 2007 to 30 April 2010 qualifies for relief.

Section 271 Industrial building allowances

What is an industrial building allowance?

(1)-(2) A trader who incurs expenditure on the construction (or refurbishment) of an industrial building for use in his/her trade may be entitled to an industrial building (initial) allowance for the appropriate chargeable period: the chargeable period in which the expenditure was incurred.

The allowance may also be claimed by a lessor who:

(a) leases the industrial building to a trader under a relevant lease (i.e., a lease to which the relevant interest is reversionary),

(b) leases the building to an industrial development agency (IDA, SFADCo, Údarás na Gaeltachta) which in turn subleases the building to a trader.

In this context, appropriate chargeable period means the chargeable period in which the building is first put to use by the trader occupying the building under a relevant lease.

Is industrial building allowance expired?

(3) For expenditure incurred on or after 1 April 1992, industrial building initial allowance is only given in the following exceptional cases:

(a) Shannon and IFSC companies are entitled to industrial building initial allowances for expenditure incurred up to, but not after, 24 January 1999 for the purpose of the Shannon or IFSC activity. This is subject to the following restrictions:

(i) where the capital expenditure is incurred on or after 6 May 1993, no initial allowance is given to a lessor unless the lessor lets the building to the lessee in the course of the lessor’s Shannon or IFSC activity (for earlier expenditure the allowance was available to the lessor if the lessee carried on a Shannon or IFSC activity), and

(ii) in the case of a building provided on or after 23 April 1996 for use in a company’s trading operations, no initial allowance is given unless the building is used for the company’s own Shannon or IFSC activity (not for Shannon or IFSC activities in general).

(b) The building is provided for a project that has been approved for grant aid by an industrial development agency during the period 1 January 1986 to 31 December 1988, and the expenditure is incurred before 31 December 1996.

(c) The building is provided for a project that has been approved for grant aid by an industrial development agency during the period 1 January 1989 to 31 December 1990, and the expenditure is incurred before 31 December 1997 (or 31 December 2002 in the case of IDA listed projects that still qualify for section 130 financing).

The deadline of 31 December 1997 is extended to 30 June 1998 in cases where the expenditure could not be incurred before 31 December 1997 due to legal proceedings that were the subject of a High Court order made before 1 January 1998.

By way of exception, initial allowances under the industrial building allowance rules of this section continue to be available for capital expenditure incurred in a qualifying period on the construction (or refurbishment) of certain qualifying buildings in renewal incentive areas (Part 10).

What are the rates of industrial building allowance?

(4) The rates of industrial building initial allowance in the exceptional cases mentioned in (3) are:

Rate
Mill, factory or similar premises 50%
Mineral analysis laboratory 50%
Dock undertaking 50%
Market gardening 20%
Intensive production of cattle, sheep, etc 20%
Hotel-keeping (including holiday cottages) 10%
Airport runway or apron 10%

Can industrial building allowance and annual allowance be claimed in the same year?

(5) For projects mentioned in (3)(c), an industrial building initial allowance and an industrial building annual allowance cannot both be claimed for the same chargeable period, and free depreciation (section 273) may not be claimed for any later period.

In what chargeable period is the initial allowance given?

(6) A person entitled to the initial allowance may incur the construction expenditure in a chargeable period but the building may not be put into use until the next chargeable period. If the building is intended for a qualifying industrial use, the initial allowance may be claimed in the first chargeable period, provided that trading has not commenced. If when the building is put into use in the next chargeable period, its first use is as a non-industrial use, the initial allowance given for the earlier period is withdrawn.

Section 272 Writing-down allowances

What is an industrial building writing down allowance?

(1)-(2) A trader who incurs expenditure on the construction (or refurbishment) of an industrial building and who retains the relevant interest (section 269) in the building is entitled to an annual (or writing down) allowance for each tax year basis period (income tax) or accounting period (corporation tax), provided that the building continues to be used in the trade as an industrial building.

A lessor who incurs the expenditure and who retains the relevant interest is similarly entitled to the annual allowances provided the building continues to be used by the lessee as an industrial building.

Where another trader or lessor has acquired the relevant interest in an industrial building on which the construction (or refurbishment) expenditure was incurred, that other person becomes entitled to the annual allowances for subsequent chargeable periods so long as he/she retains the relevant interest in the building.

In the case of an individual, the relevant interest must be held at the end of the basis period for the tax year for which the annual allowance is claimed.

In the case of a company, the relevant interest must be held at the end of the accounting period for which the annual allowance is claimed.

No industrial building allowance is given for expenditure incurred before 30 September 1956.

Normally, the basis period for an income tax year in the case of a trader is the period of account for the 12 months ending in that tax year (section 65). For a lessor, the basis period for each tax year is that year itself.

What are the rates of industrial building writing down allowance?

(3) The annual writing down allowances and writing down lives for the various categories of industrial buildings are:

Expenditure from Annual allowance Writing down life
Mill, factory etc 30.09.1956 2% 50 years
16.01.1975 4% 25 years
Mineral analysis laboratory 25.01.1984 4% 25 years
Dock undertaking 16.01.1975 4% 25 years
Airport runway or apron 24.04.1992 4% 25 years
Market gardening 01.04.1975 10% 10 years
Intensive production of cattle, etc 01.04.1971 10% 10 years
Hotel-keeping (excluding holiday cottages) before 27.01.1994 10% 10 years
after 27.01.1994 to 03.12.2002 15% 7 years
after 04.12.2002 4% 25 years
Hotel-keeping (holiday cottages) 31.07.2008 10% 10 years
Airport building or structure 27.03.1998 4% 25 years
Registered nursing home 03.12.1997 15% 15 years
Convalescent home 02.12.1998 4% 25 years
Private hospital 15.05.2002 15% 7 years
Qualifying sports injury clinic 15.05.2002 15% 7 years
Palliative care units 01.05.2007 15% 20 years
Aircraft hangars (specified expenditure) 13.10.2015 15% 7 years
Aircraft hangars (other expenditure) 13.10.2015 4% 25 years

Industrial building (initial) allowance (section 271) and free depreciation (section 273) are no longer generally available except in very exceptional IDA list cases and for properties in renewal incentive areas (Part 10).

Airport building or structure: for example, terminal buildings. See section 268(1F) for definition of specified expenditure.

The 15% hotel write-off rate and seven year writing down life apply where the construction expenditure is incurred on or after 27 January 1994. For construction expenditure before that date, the hotel write-off rate is 10%, and the writing down life is 10 years.

Example

Expenditure of €100,000 is incurred on the construction or refurbishment (section 276) of a mill, factory, dock undertaking, mineral analysis laboratory, airport runway, airport building or structure.

An owner-occupier or lessor can claim 4% annual allowance (€4,000), for 25 years, i.e., until the maximum allowable expenditure (€100,000) has been fully allowed.

What allowances are available to airport buildings?

(3A) This rule applies to a building or structure used in airport operations or airport management. The building or structure must not be a runway or apron (section 268(1)(f)) machinery or plant (section 284)).

The capital allowance value (A) of the airport building or structure (section 268(1)(g)) is deemed for tax purposes to have been written down:

(a) in the case of the Dublin Airport Authority, on the vesting day (section 268(10)),

(b) in the case of any other airport operator, on 27 March 1998 (date of passing of Finance Act 1998),

by the total industrial building annual allowances (B) that would have been given if the building or structure had previously qualified under this provision and the allowance had been claimed and allowed.

For the Dublin Airport Authority the tax value of its terminal buildings etc as at the vesting day is to be taken as written down by deemed allowances that applied to runways or aprons.

For any other airport operator the tax value of its terminal buildings etc as at 27 March 1998 (date of passing of Finance Act 1998) is to be taken as written down by deemed allowances that applied to runways or aprons.

What allowances are available on airport runways or aprons?

(3B) The capital allowance value (A) of airport runways or aprons (section 268(1)(f)) vested in the Dublin Airport Authority on the vesting day (section 268(10)), is deemed for tax purposes to have been written down by the total industrial building annual allowances (B) that would have been given had such allowances been claimed and allowed.

For the Dublin Airport Authority, the tax value of its runways or aprons as at the vesting day is to be taken as written down by deemed allowances.

What happens if an industrial building is sold?

(4) If an industrial building which is sold before the end of its writing down life remains an industrial building, the purchaser is entitled to annual allowances to write off the residue of expenditure (section 277) over the remaining writing down life (see Table in (3)) of the building. For this to apply, the purchaser must have acquired the relevant interest in the building (section 269).

The residue of expenditure is the original cost of construction (or refurbishment) of the building as reduced by all writing down allowances (and any initial allowance or free depreciation) to the date of the sale plus any balancing charge or minus any balancing allowance made on or given to the seller on the sale (section 277).

The purchaser can you write off the residue of expenditure acquired evenly and at a flat rate over the remainder of the writing down life of the building. This means that the annual allowance for each tax year from the date of sale is arrived at by dividing the residue of expenditure by the number of years (including any fraction of a year) in the period from the date of the sale to the end of the writing down life.

The writing down lives are summarised in the Table in (3).

Can a purchaser claim the residue of expenditure?

(5) If the residue of expenditure exceeds the purchase price, only the purchase price may be written off over the remaining tax life of the building. This may be relevant if any grant is received towards the cost of the purchase. In this case, the purchase price is treated as being net of the grant received.

Is the allowance limited to the cost of the asset?

(6) The total writing-down allowances given for an asset cannot exceed the expenditure on that asset.

Can a hotel be converted to a nursing home?

(7) This rule applies where a hotel building (section 268(1)(d))ceases to be used as a hotel and is converted for use as a registered nursing home (section 268(1)(g)). If the building is in use as a nursing home at the end of the chargeable period in which the change of use occurs, no balancing adjustment (section 274) will arise. Instead, the tax written down value of the hotel may be written off over subsequent accounting periods on the same basis as if the building had continued as a hotel.

What is the annual allowance for a hotel?

(8) From 4 December 2002, in general, expenditure on the construction or refurbishment of hotels is subject to a 4% annual allowance.

However, as a transitional measure, expenditure incurred on or before 31 December 2006 continues to qualify where a valid planning application has been made and acknowledged as having been received before the relevant deadline by the planning authority. If the construction relates to an exempted development, 5% of the construction work needs to have been carried out before 31 December 2004.

When does the 4% allowance take effect?

(9) The effective date for the 4% annual allowance (and 25 year writing down life) is moved to 31 July 2008 where a valid planning application has been made and work to the value of not less than 15% of the overall construction cost has been carried out on or before 31 December 2006.

Section 273 Acceleration of writing-down allowances in respect of certain expenditure on certain industrial buildings or structures

What is an accelerated industrial building allowance?

(1)-(2) Before 1 April 1988, an industrial building writing down allowance could be increased to any amount up to 100% of the qualifying expenditure.

Between 1 April 1988 and 1 April 1989, the allowance could be increased to 75% of the qualifying expenditure.

Between 1 April 1989 and 1 April 1991, the allowance could be increased to 50% of the qualifying expenditure.

Between 1 April 1991 and 1 April 1992, the allowance could be increased to 25% of the qualifying expenditure.

These increased annual allowances, also known as “free depreciation”, have been largely abolished for qualifying expenditure incurred on or after 1 April 1992. The exceptional circumstances in which they continue to be given are detailed in (3)-(7) below.

An increased writing down allowance for an industrial building is not available to a lessor. Expenditure only qualifies where incurred by the person who occupies the building for the purpose of his/her own trade.

When can an accelerated industrial building allowance be claimed?

(3)-(7) For expenditure incurred on or after 1 April 1992, provided the chargeable period ends before 6 April 1999, the industrial building writing down allowance may only be increased in the following exceptional cases:

(a) Shannon companies and IFSC companies for the purposes of the Shannon or IFSC activity. If the building is provided on or after 23 April 1996, this means for the company’s own use (not Shannon or IFSC activities in general).

(b) The building is provided for a project that has been approved for grant aid by an industrial development agency during the period 1 January 1986 to 31 December 1988, and the expenditure is incurred before 31 December 1996.

(c) The building is provided for a project that has been approved for grant aid by an industrial development agency during the period 1 January 1989 to 31 December 1990, and the expenditure is incurred before 31 December 1997 (or 31 December 2002 in the case of IDA listed projects that still qualify for section 130 financing). In this case the accelerated allowance is limited to 50% of the qualifying expenditure.

The deadline of 31 December 1997 is extended to 30 June 1998 in cases where the expenditure could not be incurred before 31 December 1997 due to legal proceedings that were the subject of a High Court order made before 1 January 1998.

(d) The building is a hotel, holiday camp or holiday cottage, and the contract to provide it was made before 31 December 1990, and the expenditure was incurred before 31 December 1995. Within six months of its completion, the building must be registered with the National Tourism Development Authority. In this case the accelerated allowance is limited to 50% of the qualifying expenditure.

Can accelerated and initial allowance be claimed for the same period?

(8) The accelerated allowance and initial allowance cannot both be claimed for the same period.

Section 274 Balancing allowances and balancing charges

What is a balancing adjustment?

(1) A balancing allowance (an additional capital allowance) or balancing charge (a reduction or withdrawal of capital allowances already given) usually arises where an industrial building for which an allowance has been given is sold or scrapped.

The purpose of the balancing allowance or charge (the balancing adjustment) is to ensure that as the trader or lessor, you receive the proper writing down allowances (and no more or no less) for the building in question.

The adjustment period is generally the same as the writing down life (section 272(3)) of the building or structure, but is longer (10 years instead of 7 years) in the case of a registered nursing home or convalescent home.

A balancing adjustment arises:

(a) where the relevant interest (freehold or leasehold, see section 269) in the building is sold,

(b) where the relevant interest, which is a leasehold interest, ends and the lessee does not acquire the freehold,

(c) where the building is demolished, or destroyed, or ceases altogether to be used, or

(d) where a long lease (a lease for more than 50 years) is created out of the relevant interest in consideration for a premium.

“Premium” in this context, in the case of consideration received on or after 26 March 1997, does not include the part of the premium which is taxed as rent.

Once the adjustment period has expired, no balancing allowance or charge can arise. In the case of a hotel building converted to a registered nursing home (section 272(7)), the nursing home takes the hotel’s 10 year writing down life.

The death of an individual is not a balancing event for the purposes of section 274 (Revenue Precedent IT96-3510 12 February 1996).

What is the annual allowance for a hotel?

(1)-(1A) From 4 December 2002, in general, expenditure on the construction or refurbishment of hotels has a 25 year writing down life (see (1)(b)(iii)(III)).

However, as a transitional measure, expenditure incurred on or before 31 December 2006 continues to qualify where you have made a valid planning application and which is acknowledged as having been received before the relevant deadline by the planning authority. If the construction relates to an exempted development, 5% of the construction work needs to have been carried out before 31 December 2004.

When does the 25 year life commence?

(1B) The effective date for the 25 year writing down life is moved to 31 July 2008 where a valid planning application has been made and work to the value of not less than 15% of the overall construction cost has been carried out on or before 31 December 2006.

Can the disposal of a leasehold give rise to a balancing allowance?

A balancing allowance will not be given where a leasehold interest is disposed of out of a freehold interest. The anti-avoidance measure is to stop the front-loading of allowances by creating a balancing allowance.

How is a balancing adjustment calculated?

(4) The balancing adjustment computation has the following format:

residue of expenditure (see section 277)

minus

sale, insurance or compensation moneys

equals

balancing allowance (or charge).

Where the balancing adjustment computation is required due to the creation of a long lease for a premium (section 274(1)(a)(iv) see (d) above) the amount of the premium is included in the computation as the sale insurance or compensation moneys.

Example

During the period May-July 2006, your company (holding the freehold interest) incurred €800,000 on the construction of a factory building for use in its manufacturing trade. The company’s accounts are made up annually to 31 December.

You cease your trade on 15 May 2008, but then granted a 99 year lease (a long lease) of the building to X Ltd for use in X Ltd’s manufacturing trade. X Ltd pays you a premium of €720,000 for the grant of the lease and agrees to pay a small rent.

However, having regard to the amount of the premium, the small rent is considered to be a commercial rent.

You (now as lessor) are required to compute a balancing allowance or charge on the granting of the long lease at the premium of €720,000. You are entitled to a balancing allowance for 2008 of €16,000 computed as follows:

Construction cost (2006) 800,000
Writing down allowances €800,000 x 4% x 2 64,000
Residue of expenditure 736,000
Premium received 720,000
Balancing allowance (2008) 16,000

Assuming that you continue to hold the relevant interest in the building and X Ltd continues to use the building for an industrial trade, you will continue to receive an annual allowance of €32,000 (€800,000 x 4%) for the next 23 years (2009-2030).

Does non-industrial use affect the balancing adjustment?

(5) Where during the period from the date of first use of an industrial building to the date of its sale or other balancing event (), there has been any period(s) of non-industrial use, the residue of expenditure is calculated after deducting a notional annual allowance for each year of non-industrial use ((4)), in addition to the annual allowances for the years of industrial use.

(5) Where during the period from the date of first use of an industrial building to the date of its sale or other balancing event (the relevant period), there has been any period(s) of non-industrial use, the residue of expenditure is calculated after deducting a notional annual allowance for each year of non-industrial use (section 277(4)), in addition to the annual allowances for the years of industrial use.

Non-industrial use is defined as use for which no annual allowance has been made. However, an annual allowance may have been prevented from being made for a chargeable period because the annual allowances had already been accelerated and claimed in an earlier chargeable period. To ensure that years of genuine industrial use are not treated as years of non-industrial use, an allowance that would have been given (had the whole original cost of the building not been written off) is deemed to be given.

The normal computation of the balancing adjustment (allowance or charge) must be varied by reducing the allowance or charge in the same proportion that the number of years of industrial use bears to the total number of years in the relevant period.

The same principles apply on a sale (or other balancing event) occurring after a previous sale of an industrial building, except that the relevant period is taken as being the period between the previous sale and the date of the subsequent balancing event.

The computation of the balancing allowance or charge in any of these types of cases is calculated as:

A x (B/C)

where-

A is the residue of expenditure (after actual and notional allowances)

less

sale, insurance or compensation moneys,

B is the number of years of industrial use, and

C is the total number of years in the relevant period.

Example

You are a trader whose accounting year ends on 31 December and who buys, during 1981, a factory building which was first used in November 1957, and is an industrial building at the time of the sale. The building has a writing down life of 50 years.

The residue after the sale, after taking into account a balancing charge on the seller is £60,000 and accordingly you expect to write off, for tax purposes, £60,000 divided by 30 remaining years – annual allowances of £2,000 for 1982-83 to tax year 2011.

Assume that you do not continue to hold the building until 2011 and you sell it in 2001 for £12,000 while it is still in use for industrial purposes.

Assume also that you had diverted the building to non-industrial use from June 1984 until June 1993, so that you did not get annual allowances for the five years 1989-90 to 1993-94 inclusive.

The balancing allowance is calculated as follows:

£ £
Residue of expenditure 60,000
Write off:
period of industrial use: 15 x £2,000 30,000
period of non-industrial use 5 x £2,000 (notional) 10,000 40,000
Residue of expenditure 20,000
Sale proceeds 12,000
Balance 8,000
Balancing allowance: 15/20 x £8,000 6,000

Does a balancing adjustment arise on the disposal of a holiday cottage?

(6) This is an anti-avoidance provision. Holiday cottage industrial building allowances are only given for Bord Fáilte registered holiday cottages. Because a holiday cottage that is no longer registered with Bord Fáilte could otherwise be sold without giving rise to a balancing allowance (or charge), such a sale is deemed to have been made while the building was an industrial building at a price equivalent to the capital expenditure (net of any grants) on the building.

Where you buy a building that is not in use as a holiday cottage, you are not entitled to a balancing allowance, even if the cottage is subsequently re-registered.

The effect is that all writing down allowances (and any accelerated allowances) previously given are recaptured by a balancing charge at the time the holiday cottage is deregistered.

Does a balancing adjustment arise on a re-registered holiday cottage?

(7) If a holiday cottage that remains unsold while not registered with Bord Fáilte is subsequently reregistered by you and a balancing charge was made on you, you are entitled to an annual allowance equivalent to what a buyer of the cottage would have obtained.

What is the maximum balancing charge?

(8) A balancing charge can never exceed the actual allowances granted to the trader.

Section 275 Restriction of balancing allowances on sale of industrial building or structure

How does the creation of a lease for a premium to a connected person followed by a sale of the relevant interest affect a balancing adjustment?

(1)-(3) This anti-avoidance section aims to prevent you, where you are a person holding the relevant interest in an industrial building from obtaining an excessive balancing allowance by a transaction involving the creation of a lease (or other inferior interest) for a premium followed by a sale of the relevant interest at a reduced value.

The section applies if the relevant interest in an industrial building subject to an inferior interest is sold to a connected person (section 10) so that a balancing allowance arises (apart from the section), or where it appears that the purpose of the overall transaction, including the granting of the inferior interest, is to obtain a balancing allowance. The section also applies if the seller is connected with the person entitled to the inferior interest or if that person is connected with the buyer of the relevant interest.

In any such case, the section requires your net sale proceeds (in the balancing allowance computation) to be increased by the amount of any premium receivable by you on the grant of the inferior interest (the lease). Further, if the rent payable by the lessee is below a proper commercial rent (having regard to the amount of the premium paid for the lease), the net sales proceeds must also be increased to reflect the proper commercial rent.

For the purposes of this section, the “premium” on the granting of an inferior interest is taken after deducting any part of the premium which is taxed as rent (section 98), a point relevant only where the duration of the lease does not exceed 50 years. For any long lease (more than 50 years), the full amount of the premium is taken.

Example

This example builds upon the circumstances described in the example to section 274(3)-(4).

A company (holding the relevant interest, a freehold) is the lessor of a factory building which is leased to X Ltd (not a connected company) at a small rent (due to X Ltd having paid a large premium of €720,000 for the grant of the lease on 15 May 2008).

The cost of construction in May-July 2006 was €800,000, giving rise to industrial building writing down allowances of €32,000 per year so long as the company holds the freehold interest.

On 25 October 2008, the company sells the freehold interest (now subject to the 99 year lease to X Ltd) for a market value price of €65,000.

The purchaser holds 60% of the ordinary share capital of the company. The residue of expenditure for the balancing adjustment computation is calculated as follows:

Construction cost (2006) 800,000
Writing down allowances (2006 and 2007) 64,000
Residue (before lease granted) 736,000
Balancing allowance on grant of lease 16,000
Residue of expenditure (after grant of lease) 720,000

In the absence of this section, the company would get a balancing allowance of €655,000 (€720,000 – €65,000 sale proceeds).

However, because the purchaser is connected, this section requires the €65,000 sale proceeds to be increased by the amount of the premium, up to a level which would prevent the company from receiving any balancing allowance (and no more).

This means that the increase is limited to €655,000, with the following result:

Residue of expenditure 720,000
Actual sale proceeds 65,000
Increase 655,000
Proceeds as increased 720,000
Balancing allowance (or charge) nil

The effect of this section may be to reduce or eliminate the balancing allowance, but the increase in the net sales proceeds is restricted so that it cannot create a balancing charge.

Are there any rules to prevent the creation of a balancing allowance in certain circumstances?

(4) This anti-avoidance provision deals with transactions which create a substantial balancing allowance in order to bring forward capital allowances that would otherwise not be deductible for some time.

Normally, the residue of expenditure taken over by the buyer to be written off over the rest of the writing down life of the asset is the residue before the sale as reduced by any balancing allowance actually made to you as the seller on the sale (or as increased by a balancing charge). Where your balancing allowance is reduced or cancelled by (3), the buyer’s residue is reduced by the balancing allowance which would have been given if (3) did not apply.

Example

Building on the example from (1)-(3), you (as an individual) take over a residue of expenditure of €65,000, to be written off evenly over the remainder of the 25 year writing down life. This is calculated as:

Residue of expenditure (before 25 October 2008 sale) 720,000
Balancing allowance denied to the company 655,000
Residue of expenditure (after sale) 65,000

Can the restriction on balancing allowances be affected by changing the terms of the lease?

(5) No. The effect of this section cannot be changed by varying the terms under which the inferior interest is granted between the time that interest is granted and the time the relevant interest is sold.

Section 276 Application of sections 272 and 274 in relation to capital expenditure on refurbishment

What is refurbishment?

(1) Refurbishment means construction work (including the provision or improvement of water sewerage or heating facilities) carried out in the course of repairing or restoring a building or structure.

When does the writing down life of a refurbished building begin?

(2) The writing down life of a refurbished building begins when the expenditure has been incurred – not the date the building was first used.

Example

You refurbish a hotel (which was first used in January 1930).

In the absence of legislation, it might be argued that the writing down life dates from January 1930. This would mean that the disposal of the hotel would not give rise to a balancing charge as the disposal takes place outside the building’s writing down life.

How is a balancing adjustment calculated on the disposal of a refurbished building?

(3) In calculating a balancing allowance or charge on the disposal of a refurbished industrial building, any apportionments to be made between refurbishment and non-refurbishment expenditure must be made on a basis that is just and reasonable.

Section 277 Writing off of expenditure and meaning of “residue of expenditure”

How is expenditure on an industrial building written off?

(1) By being precise as to the dates at which amounts of expenditure are to be written off, this section ensures that the trader receives the exact balancing allowance or charge necessary to ensure the proper writing down amount (and no more or no less) is given for an asset.

The purchaser gets the correct figure for his/her tax calculations.

When is an initial allowance written off?

(2) An industrial building initial allowance is written off at the time when the building is first used.

When is an annual allowance written off?

(3) An industrial building annual allowance is to be written off at the time by reference to which the title to that allowance was determined.

If an annual allowance is to be written off at the same time as a building is sold or demolished, it is to be taken into account before calculating the residue of expenditure. In other words, it is not disallowed.

Entitlement to an annual allowance arises if the building is in use as an industrial building at the end of the basis period for the tax year. In the case of a trader (Case I) this is normally a 12 month period ending in the tax year; in the case of a lessor (Case V) this is the actual tax year.

What is the “residue of expenditure”?

(4) The residue of expenditure means:

the qualifying expenditure on the building (net of grants)

less

any initial allowance previously obtained

less

any writing down allowances (including free depreciation) previously obtained

less

any notional allowances required to be written off (see below).

It is therefore the fund out of which the purchaser’s writing down allowances are made.

Where a building does not qualify in any particular year for an annual allowance, for example, because it is being used for a non-industrial purpose, or because it has fallen into disuse, a notional annual allowance is to be written off. However, such notional allowances need only be written off when the residue is being calculated for the purpose of a balancing charge or allowance.

What happens if the residue exceeds the sale proceeds?

(5) If the residue of expenditure exceeds the sale proceeds, it is reduced by the amount of that excess so that the the write off by subsequent annual allowances over the remainder of the writing down life is limited to the sale proceeds (the price paid).

What happens if the residue does not exceed the sale proceeds?

(6) If the sale proceeds exceed the residue of expenditure, any balancing charge due by the seller must be added to the residue to allow the purchaser the full write off to which he is entitled.

How does a premium affect the residue?

(7) Where a balancing allowance arises as a result of a long lease being created out of a relevant interest in return for a premium, such a premium does not include the part of the premium which is taxed as rent (section 274(1)(a)(iv)).

In such cases, the tax written down value of the building is reduced by the amount by which the residue exceeds the consideration.

The balancing allowance is adjusted downward to reflect the fact that part of the premium is taxed as rent.

Section 278 Manner of making allowances and charges

How is an allowance given?

(1) A trader is entitled to claim the allowance against the profits of his trade.

A lessor is entitled to claim the allowance against rental income.

In either case, this means that the allowance is not given as a deduction when calculating profits; it is deducted from taxable profits after they have been calculated (but see section 307(2) for the corporation tax rule).

If the industrial building allowance exceeds the taxable profits, the relief can be carried forward for set off against the taxable profits of the next tax year, or it may be used to create a loss that can be set off against income from all sources in the same tax year section 392.

The order of set off of the allowances is at the discretion of the claimant: Tax Briefing 42.

How is an allowance given on a building that was leased before use?

(2) If expenditure is incurred on a building that is leased before use, the allowance is given by way of discharge or repayment of tax.

“Discharge or repayment” means either that the allowance is given by deducting it from the amount of the relevant income in an assessment already made (but before the tax assessed is paid) or by Revenue repaying any tax overpaid before the letting income assessed was reduced by the allowance. Under self-assessment (Part 41), the taxpayer is permitted to deduct the allowance from the letting income before making his tax payment, in effect discharging himself.

How is an allowance given to a Case IV lessor?

(3)-(4) These deal with the manner of granting the industrial building allowances to a lessor in the exceptional case where income is not taxed under Case V (e.g., taxed under Case IV). In any such case, the allowance (annual, initial or balancing) is given by discharge or repayment of tax: first against the letting income taxed under the other Case, then against similar income for future years (section 305).

Is a balancing charge on a Case IV lessor also under Case IV?

(5) If income from a leased industrial building is taxed under Case IV, any balancing charge is made under Case IV.

Is the allowance given “primarily against” income under Case IV or V?

(6) For a lessor, any industrial building allowance (annual, initial or balancing) is available “primarily against” Case V income.

For a Case IV lessor the allowance is given primarily against Case IV income.

If allowances are “primarily against” income of a particular class (e.g., Case V), the claimant can elect to have any excess allowances over the income of that class for a tax year set off against total income (from all sources) for the same year (section 306(1)(b)).

This election must be made within 24 months after the end of the tax year. If the excess cannot be fully set off against total income, any unrelieved balance is carried forward against future rental income.

Section 279 Purchases of certain buildings or structures

What is “the net price paid”?

(1) The legislation on industrial building allowances is worded in terms of giving the allowances (annual, initial or balancing) on or by reference to the capital expenditure on the construction of the building.

A purchaser of a newly constructed industrial building is deemed to have incurred construction expenditure on the building provided that:

(a) the vendor did not claim any industrial building allowances in respect of the building, and

(b) the relevant interest in the building is sold before the building is used, or within a period of one year after it commences to be used.

The section provides for a purchase from a non-builder (see (2)) and for a purchase from a builder (see (3)).

In applying this section, the net price paid for the purchase of the relevant interest in a building is

the amount represented by A in the formula:

A   =   B   x      C   
C + D

where:

B is the purchase price, i.e., the amount paid by a person on the purchase of the relevant interest in the building,

C is the construction cost, i.e., the expenditure actually incurred on the construction of the building, and

D is non-allowable cost, i.e., expenditure incurred for the purposes of section 270(2)(a), (b) or (c) (normally expenditure incurred on the acquisition of, or rights in or over, any land: section 270(2)(a)).

The construction expenditure is defined as excluding the site or land cost, i.e., it is the actual expenditure incurred on the construction after the site has been acquired.

The ‘Net Price Paid’ Formula and Separate Site Sales and Building Agreements: Tax Briefing Issue 66 – 2007

It is Revenue’s view that the amount paid on the purchase does not include the cost of professional fees and stamp duty. Accordingly, such costs should not be included in “B” in the formula: Tax Briefing 42.

What is the allowance on a building bought from a non-builder?

(2) This subsection deals with a purchase from a non-builder. Except where the construction was carried out by a builder in the course of a building trade (see (3)), the purchaser is deemed to have incurred construction expenditure equal to the lower of the net price paid and the actual construction expenditure incurred by the person who erected the building.

If the building was sold more than once before its first use (or within 12 months after its first use), only the last purchaser is entitled to an initial allowance (where available) and all industrial building allowances are based on the lower of the net price paid by the last purchaser and the actual construction expenditure.

The deemed construction expenditure is treated as incurred on the date the purchase price becomes payable by the purchaser (or the last purchaser). The actual construction expenditure is then ignored for all the industrial building allowances.

Example

X Ltd, a holding company (not a builder), constructs a building in a qualifying rural area (Part 10 Chapter 8) at a cost of €120,000 on a site purchased for €30,000. The construction was completed on 30 June 2006.

X Ltd sells the building on 15 July 2006 to Y Ltd for a total price of €180,000 payable on 31 July 2006.

Y Ltd then leases the building to Z Ltd, which commences to use the building on 1 August 2006 as a commercial premises.

Y Ltd is entitled to a 50% initial allowance in 2006 on deemed construction expenditure (section 372N) calculated as follows:

Total purchase price 180,000
Construction expenditure 120,000
Construction expenditure land cost 150,000
Net price paid: €180,000 x (€120,000/€150,000) 144,000
Deemed construction expenditure (lower of €120,000 and €144,000) 120,000
Industrial building initial allowance at 50% 60,000

Y Ltd is then entitled to annual allowances at 4% from 2006 onwards based on the deemed construction expenditure of €120,000 (i.e., annual allowances of €4,800).

What is the allowance on a building bought from a builder?

(3) This subsection deals with a purchase from a builder. A different rule applies where the construction expenditure incurred on the building bought used (or within 12 months after its first use) was incurred by a builder in the course of a building trade. In this case, the purchaser is deemed to have incurred construction expenditure equal to the net price paid to the builder so that the initial allowance (if available) and all later industrial building allowances are also based on the net price paid to the builder. This means that the allowances are not restricted to the builder’s construction cost, but are given also on the builder’s profit margin (but with the site cost excluded).

If a building bought unused (or within 12 months after its first use) is sold more than once before its first use (or within 12 months after its first use), all the industrial building allowances are based on the lower of the net price paid to the builder on the first sale and the price paid by the last purchaser. The deemed construction expenditure is treated as incurred on the date the purchase price becomes payable by the purchaser (or the last purchaser). The actual construction expenditure is then totally ignored for all the industrial building allowances.

The rule regarding a purchase within 12 months after first use enables a builder or developer to construct a building, lease it to a tenant for use in an industrial trade and then sell the relevant interest to an investor after the tenant has begun to use the building. Usually, the developer can realise a better price if there is a sitting tenant than if he/she sells the property with vacant possession.

In refurbishment cases, C (the refurbishment expenditure actually incurred) is substituted for construction expenditure actually incurred in the formula:

A   =   B   x      C   
C + D

Example

X Ltd constructed a factory in Co Dublin (not a designated or enterprise area) in the course of its trade as a speculative builder. Construction was completed in May 2009 at a cost of €240,000, with a site cost of an additional €40,000.

01.07.2009 X Ltd sold the unused building and the land for €350,000 to A and B, a partnership.

The net price on the sale to A and B is calculated as:

Total purchase price 350,000
Construction expenditure 240,000
Construction expenditure land cost 280,000
Net price paid €350,000 x (€240,000/€280,000) 300,000

01.09.2009 A and B granted a 35 year lease of the building to Y Ltd, a manufacturing company, which began to use the building on 1 October 2009.

18.02.2010 A and B (who did not claim any industrial building allowances) sell the relevant interest, i.e., the freehold interest subject to the lease to Y Ltd, to Z Ltd for €420,000 (payable on 18 March 2010).

Because A and B did not claim any industrial building allowances, Z Ltd (as the last purchaser within the 12 months of first use and now the lessor holding the relevant interest) is entitled to the industrial building annual allowance on deemed construction expenditure which is treated as incurred on 18 March 2010. No initial allowance is available since the building is not in a designated or enterprise area.

Z Ltd’s annual allowances are calculated on the lower of the €300,000 net price paid to X Ltd (the builder) on the first sale and the price paid by Z Ltd (the last purchaser). Clearly, X Ltd’s sale price (€300,000) is lower than Z Ltd’s purchase price (€420,000).

Assuming that Z Ltd has a 12 months’ accounting period ending 31 March 2009, its first annual allowance given for that period is:

4% x €300,000 12,000

Example

A developer purchases an existing property for €90,000 (site value of €10,000 and building value of €80,000).

Refurbishment expenditure of €55,000 is incurred and he sells the building for €180,000.

The “net price paid” is €180,000 x €55,000 / (€55,000 + €90,000) = €68,275

Accordingly, under section 279(3), the expenditure deemed to have been incurred by the purchaser of the refurbished building is €68,275.

Note

If the refurbishment expenditure in this example was incurred by a person whose trade did not consist of the construction of buildings with a view to their sale, the amount of expenditure which the purchaser is deemed to have incurred under section 279(2) is €55,000, i.e., the lower of the expenditure actually incurred on the refurbishment, or the net price paid.

Source: Tax Briefing 29.

Section 280 Temporary disuse of building or structure

Can an allowance be claimed on a building that is temporarily not in use?

(1) The annual allowance is only available if the is in use building at the end of the basis period; if it is not, then no allowance is due.

A building may continue to be treated as an industrial building during a period of temporary disuse if it was in use as an industrial building immediately before that period.

Temporary disuse is not defined, but it would likely cover, for example, the period of disuse between a cessation of trade by an owner-occupier trader and the commencement of “industrial” trading by a tenant to whom the former owner-occupier has let the building. In the case of a lessor, it would cover the period of temporary disuse between lettings. Another temporary disuse might be caused by flooding.

It is possible for a building to have an industrial use for five years, a non-industrial use for 11 years, then a period of temporary disuse immediately followed by a new period of industrial use. In such a case, the industrial building annual allowances would resume in the new period of industrial use but there would be no annual allowances for the period of temporary disuse (because the temporary disuse period was not preceded by industrial use).

How is an allowance give in respect of a building that is temporarily out of use?

(2) For a trader, the annual allowance continues to be made in taxing the profits of the trade in the period of temporary disuse, unless the trade has ceased, in which case the allowance is made by way of discharge or repayment of tax.

For a lessor, the allowance is made by discharge or repayment of tax, but the lessor has rental income from any other premises, the annual allowance is given as a deduction from that income.

For a trader, a balancing charge is made by means of a Case IV assessment.

For a lessor, a balancing allowance is made by a Case V assessment.

Does a discontinuance trigger a balancing adjustment?

(3) The discontinuance of a trade is not regarded as a permanent discontinuance for balancing adjustment purposes.

In other words, if a trader ceases business, he/she can proceed to let to another trader an industrial building which he/she occupied for his/her trade, without triggering a balancing adjustment.

Section 281 Special provisions in regard to leases

Does the ending of a lease give rise to a balancing charge?

(1) The holder of a leasehold interest may incur expenditure on the construction (or refurbishment) of an industrial building. A leaseholder who uses or sublets the building for an industrial trade can claim the allowance.

If the lease ends within the writing down life of the building, it is normally necessary to calculate a balancing adjustment on the tenant (section 274). However, if the lessor allows the tenant to stay in possession beyond the formal term of the lease, the tenant’s lease is deemed to continue and the balancing adjustment is deferred until the tenant is in fact required to give up possession.

Can a new lease be treated as the continuation of the old lease?

(2) Where on the termination of a lease, the lessee is entitled to a new lease (either by statute or by the terms of the existing lease) and such a new lease is granted, the new lease is to be treated as a continuation of the old lease.

How is compensation paid to a tenant for construction of a building treated?

(3) Compensation paid by a lessor to a lessee on the termination of a lease for expenditure on any building erected (or refurbished) during the tenancy is treated as payment for the surrender of the lease.

Section 282 Supplementary provisions (Chapter 1)

What is a deemed relevant interest?

(1) The relevant interest in an industrial building means the legal interest held by the person who incurred the construction costs at the time the costs were incurred. It may be a freehold interest or a leasehold interest.

A trader who requests a builder to construct an industrial building on his behalf may have no “relevant interest” in the building when the expenditure was incurred because there is no building in existence. Such a trader is deemed to have acquired the interest in the future building as if it were built at the time the pre-construction payments were made.

Can non-qualifying expenditure be ignored when computing a balancing adjustment?

(2) In computing a balancing adjustment (section 280) on the disposal of a building, any part of the price (or compensation) that relates to non-qualifying expenditure must be ignored.

Section 283 Initial allowances

What is plant?

Plant is the permanent apparatus (Yarmouth v France, 19 QBD 647) used to carry on the business, as distinct from the stock in trade of the business. In that case, an employee sued his employer as a result of injuries sustained due to defective “plant” (a vicious horse).

(a) railway locomotives and carriages (Caledonian Railway Co Ltd v Banks, (1880) 1 TC 487),

(b) tramway rails (LCC v Edwards, 5 TC 383),

(c) loose tools, and equipment (Hinton v Maden and Ireland Ltd, (1959) 38 TC 391),

(d) barrister’s books (Breathnach v McCann, 3 ITR 11. This followed the UK decision in Munby v Furlong, 50 TC 491),

(e) fish cages used in fish farming (freshwater lakes or offshore) (Inspector Manual 9.2.2),

(f) video tapes used in a video rental business (Tax Briefing 14, May 1994).

(a) an option cancellation payment: International Drilling Co Ltd v Bolton, [1983] STC 70, and

(b) the extra sterling cost of a foreign currency installment purchase: Van Arkadie v Sterling Coated Materials Ltd, [1983] STC 95.

Revenue practice allows expenditure on certain fixtures incorporated in industrial buildings to be deducted as part of industrial building allowance, in place of machinery or plant allowance (see notes to section 270(2)).

A building or structure or fixture within a building (for example, an elevator) may, in fact, be the “machinery” or “plant” with which a trader carries on his business. However these items do not generally qualify as machinery or plant, on the basis that they are the “setting” in which the business is carried on, unless they have an active function in carrying on the trade: Jarrold v John Good and Sons Ltd, (1962) 40 TC 681. In that case, movable office partitioning qualified as plant.

Over the years, the UK courts have used this “functional test” to allow certain building or structural type assets to qualify as plant, for example:

(a) A dry dock: IRC v Barclay, Curle and Co Ltd (1969) 45 TC 221.

(b) A swimming pool: Cooke v Beach Station Caravans Ltd, [1974] STC 402.

(c) Grain silos: Schofield v R and H Hall Ltd, [1975] STC 353.

(d) Certain electrical installations: Cole Brothers Ltd v Phillips, [1982] STC 307.

(e) Light fittings and murals in a hotel: IRC v Scottish and Newcastle Breweries Ltd, [1982] STC 296.

(f) Window advertisement panels: Leeds Permanent Building Society v Procter, [1982] STC 821.

(g) Mezzanine platforms in warehouses: Hunt v Henry Quick Ltd, King v Bridisco Ltd, [1992] STC 633.

The Irish courts have held that the following structures qualify as plant:

(a) A henhouse, i.e., a structure specially designed for egg production: O’Srianáin v Lakeview Ltd, 3 ITR 219.

(b) A racecourse stand (excluding bar areas): O’Grady v Roscommon Race Committee, 4 ITR 425. This may be contrasted with the decision of the UK courts in Brown v Burnley Football and Athletic Co Ltd, [1980] STC 424.

(c) A petrol station forecourt canopy: O’Culacháin v McMullan Brothers, 4 ITR 284. This may be contrasted with the decision of the UK courts in Dixon v Fitch’s Garage Ltd, [1975] STC 486.

However, Revenue do not regard golf courses or tennis courts (for example, attached to a hotel) as “plant” (Revenue Precedent IT93-3033, 18 March 1993).

The logic applied by the UK courts is not always followed in equivalent Irish cases, and each case must be treated on its own merits.

Over the years, the UK courts have also used the “setting” and “functional” tests to disqualify certain building or structural type assets from the definition of plant, for example:

(a) A harbour bed: Dumbarton Harbour Board v Cox, (1919) 7 TC 147.

(b) Prefabricated buildings: St John’s School (Mountford and Knibbs) v Ward, [1975] STC 7.

(c) A ship used as a floating restaurant, on the basis that it was the setting in which the business was carried on:Benson v Yard Arm Club Ltd, [1979] STC 266.

(d) A football spectator stand, on the basis that it was the setting in which the business was carried on: Brown v Burnley Football and Athletic Co Ltd, [1980] STC 424. This may be contrasted with the decision of the Irish courts inO’Grady v Roscommon Race Committee, 4 ITR 425.

(e) A suspended ceiling: Hampton v Forte Autogrill Ltd, [1980] STC 80. The Irish courts followed this decision inDunnes Stores (Oakville) Ltd v Cronin, 1 ITR 68. Revenue does not accept that a suspended ceiling which functions as part of the air-conditioning system is plant. The ceiling’s air-conditioning function is regarded as ancillary to its main function as part of the building (Revenue Precedent IT2002, 30 May 1996 and IT95-3001a, 25 February 1995).

(f) An inflatable tennis court cover: Thomas v Reynolds, [1987] STC 135.

(g) Kennels: Carr v Sayer, [1992] STC 396.

(h) Glasshouses: Gray v Seymour‘s Garden Centre (Horticulture), [1993] STC 394.

(i) A petrol station forecourt canopy: Dixon v Fitch’s Garage Ltd, [1975] STC 486. This was not followed by the Irish courts in O’Culacháin v McMullan Brothers, 4 ITR 284.

(j) An underground bunker for an electricity substation: Bradley v London Electricity plc, [1996] STC 1054.

(k) A car wash site: Attwood v Anduff Car Wash Ltd, [1997] STC 1167.

The UK courts have also held that the following do not qualify as plant:

(a) A stallion for stud purposes: Earl of Derby v Aylmer, (1915) 6 TC 665.

(b) Wallpaper pattern books: Rose and Co (Wallpapers and Paints) Ltd v Campbell, (1967) 44 TC 500.

(c) Finance charges for an oil rig: Ben-Odeco Ltd v Powlson, [1978] STC 460.

(d) Furniture for a flat: Mason v Tyson, [1980] STC 284.

(e) Wallpaper designs (but the cost of such designs may be included as part of the cost of providing blank screens and rollers): McVeigh v Arthur Sanderson and Sons Ltd, (1968) 45 TC 273.

More recently, in Wimpey International Ltd v Warland, [1988] STC 149, 61 TC 51, Hoffman J, in reviewing the UK case law, ruled:

(a) items not used in the business cannot be plant,

(b) stock in trade cannot be plant, and

(c) plant must be permanently employed in the business.

However, “an item used in carrying on the business is excluded if such use is as the premises or place on which the business is conducted.” In other words, the question is whether the item is, or has become, part of the premises. In the case in question, light fittings were held to be plant, but floor tiles, glass shop fronts and staircases were not. The light fitting had not become part of the premises; the floor tiles etc had.

The following marina furniture items used in a commercial marina for berthing boats and other craft are considered plant: pontoons, anchors, gangways, equipment and conduit for utilities, and movable access bridge but not piles (Revenue Precedent, 6 March 2000

UK law on plant incorporated in buildings

(Non-qualifying) assets included in the expression “building”:

A Walls, floors, ceilings, doors, gates, shutters, windows and stairs.

B Mains services, and systems, of water, electricity and gas.

C Waste disposal systems.

D Sewerage and drainage systems.

E Shafts or other structures in which lifts, hoists, escalators and moving walkways are installed.

F Fire safety systems.

Assets so included, but expenditure on which may qualify as plant:

1 Electrical, cold water, gas and sewerage systems-

(a) provided mainly to meet the particular requirements of the trade, or

(b) provided mainly to serve particular machinery or plant used for the purposes of the trade.

(“Electrical systems” include lighting systems.)

2 Space or water heating systems; powered systems of ventilation, air cooling or air purification; and any ceiling or floor comprised in such systems.

3 Manufacturing or processing equipment; storage equipment, including cold rooms; display equipment; and counters, checkouts and similar equipment.

4 Cookers, washing machines, dishwashers, refrigerators and similar equipment; washbasins, sinks, baths, showers, sanitary ware and similar equipment; and furniture and furnishings.

5 Lifts, hoists, escalators and moving walkways.

6 Sound insulation provided mainly to meet the particular requirements of the trade.

7 Computer, telecommunication and surveillance systems (including their wiring or other links).

8 Refrigeration or cooling equipment.

9 Sprinkler equipment and other equipment for extinguishing or containing fire; fire alarm systems.

10 Burglar alarm systems.

11 Any machinery (including devices for providing motive power) not within any other item in this column.

12 Strong rooms in bank or building society premises; safes.

13 Partition walls, where moveable and intended to be moved in the course of the trade.

14 Decorative assets provided for the enjoyment of the public in the hotel, restaurant or similar trades.

15 Advertising hoardings, and signs, displays and similar assets.

16 Swimming pools (including diving boards, slides and structures on which such boards or slides are mounted).

Notes:

An asset does not fall within the list if its principal purpose is to insulate or enclose the interior of the building or provide an interior wall, a floor or a ceiling which (in each case) is intended to remain permanently in place.

UK law on structures and assets regarded as plant

Non-qualifying structures and assets:

A Any tunnel, bridge, viaduct, aqueduct, embankment or cutting.

B Any way or hard standing, such as a pavement, road, railway or tramway, a park for vehicles or containers, or an airstrip or runway.

C Any inland navigation, including a canal or basin or a navigable river.

D Any dam, reservoir or barrage (including any sluices, gates, generators and other equipment associated with it).

E Any dock.

F Any dike, sea wall, weir or drainage ditch.

G Any structure not within any other item in this column.

Qualifying (expenditure on) structures and assets:

1 Alteration of land for the purpose only of installing machinery or plant.

2 Dry docks. “Dock” includes any harbour, wharf, pier, marina or jetty, and any other structure in or at which vessels may be kept or merchandise or passengers may be shipped or unshipped.

3 A jetty or similar structure provided mainly to carry machinery or plant.

4 Pipelines or underground ducts or tunnels with a primary purpose of carrying utility conduits.

5 Towers provided to support floodlights.

6 A reservoir incorporated into a water treatment works or on the provision of any service reservoir of treated water for supply within any housing estate or other particular locality.

7 A silo provided for temporary storage or on the provision of storage tanks.

8 Slurry pits or silage clamps.

9 Fish tanks or fish ponds.

10 Rails, sleepers and ballast for a railway or tramway.

11 Structures and other assets for providing the setting for any ride at an amusement park or exhibition.

12 Fixed zoo cages.

Ownership of assets (lessors of machinery or plant)

See section 298 which deals with allowances for lessors.

In the case of leased machinery or plant, the allowance goes to the person who incurs the burden of wear and tear:MacSaga Investment Co Ltd v Lupton, 44 TC 659.

The UK courts have also held that the asset must be owned by the person incurring the expenditure: Stokes v Costain Property Investments Ltd, [1984] STC 204. In that case, the tenant (Costain) incurred expenditure on lifts and central heating equipment. The company was denied an allowance on the basis that the lifts did not belong to the tenant but to the landlord, as they were fixtures and therefore part of the building. The UK Capital Allowances Act 1990 section 52 now allows a tenant or lessee of land to claim capital allowances in such cases.

See also Melluish v BMI, [1995] STC 964, and Ensign Tankers (Leasing) Ltd v Stokes, [1992] STC 226.

Example

A company recently refurbished its pub premises and incurred the following capital expenditure:

Treatment
New bar counter Plant
New fixed seating Plant
New tables no allowance
New unfixed seating (stools) no allowance
New fireplace may qualify as repairs
Central heating may qualify as repairs
Air conditioning system Plant
New leaded glass windows may qualify as repairs
New exterior façade may qualify as repairs
Architects fees Capital

What is an initial allowance?

(1)-(2) Expenditure incurred on new machinery or plant for use in a trade may qualify for a machinery or plant (initial) allowance for the basis period in which the capital expenditure has been incurred.

Although “new” means unused and not second-hand, a second-hand ship is deemed to be new and therefore qualifies for an initial allowance.

A new machine that incorporates a limited number of recycled parts may be regarded as “new”, i.e., unused and not second-hand (Revenue Precedent CTF190, 9 December 1980).

Large vessels of burden that substantially go to sea (for example, ocean-going dredgers) may be regarded as ships (Revenue Precedent IT97-3006, 20 November 1997).

How much is the initial allowance?

(3)-(5) For expenditure incurred on or after 1 April 1992, the initial allowance is only granted in the following exceptional cases:

(a) Shannon and IFSC companies are entitled to the initial allowance for capital expenditure incurred in providing machinery or plant for the purpose of the Shannon or IFSC activity. This is subject to the following restrictions:

(i) for capital expenditure incurred on or after 6 May 1993, no initial allowance is given to a lessor unless the lessor lets the machinery or plant to the lessee in the course of the lessor’s Shannon or IFSC activity (for earlier expenditure the allowance was available to the lessor if the lessee carried on a Shannon or IFSC activity), and

(ii) for machinery or plant provided on or after 23 April 1996, no initial allowance is given unless the machinery or plant is used for the company’s own Shannon or IFSC activity (not for Shannon or IFSC activities in general).

(b) The machinery or plant is provided for a project that has been approved for grant aid by an industrial development agency during the period 1 January 1986 to 31 December 1988 and the expenditure is incurred before 31 December 1996.

(c) The machinery or plant is provided for a project that has been approved for grant aid by an industrial development agency during the period 1 January 1989 to 31 December 1990 and the expenditure is incurred before 31 December 1997 (or 31 December 2002 in the case of IDA listed projects that still qualify for section 130financing).

The deadline of 31 December 1997 is extended to 30 June 1998 in cases where the expenditure could not be incurred before 31 December 1997 due to legal proceedings that were the subject of a High Court order made before 1 January 1998.

What restrictions apply to initial allowances?

(6) For expenditure incurred on or after 1 April 1989, except for cases mentioned in (a) and (b) above, a machinery or plant initial allowance and a machinery or plant wear and tear allowance cannot both be claimed for the same chargeable period, and free depreciation (section 285) may not be claimed for any later period.

What is the overall limit on an allowance?

(7) An initial allowance cannot, when combined with annual allowances, exceed the cost of the asset.

Section 284 Wear and tear allowances

Plant integral to industrial/commercial buildings – Interaction with restriction on amount of qualifying construction expenditure: Tax Briefing Issue 68 – 2008

What is a wear and tear allowance?

(1) A wear and tear allowance may be claimed in respect of expenditure on plant and machinery if the asset is in usefor the purpose of the trade at the end of the basis period.

Capital allowances are not automatically deductible in computing company profits for corporation tax purposes: Elliss v BP Oil Northern Ireland Refinery Ltd, [1987] STC 36. Revenue accept that a company may opt not to claim allowances for a particular accounting period, and instead claim the allowances in a later period, thereby preserving the written down value for future claims (Inspector Manual 9.2.6, 9.4.1).

A wear and tear allowance is deemed to have been made for a chargeable period in which the trader’s profits were exempt from tax or the asset was put to non-trading use (section 287) (Revenue Precedent IT95-3012, 2 August 1995).

How much is the wear and tear allowance?

(2) Since 4 December 2002, the wear and tear allowance is 12.5% on a straight line basis over eight years:

(i) in the case of machinery or plant other than registered sea fishing boats (see 3A)), and

(ii) in the case of road vehicles other than taxi or short time hire vehicles (section 286).

(b) The allowance is proportionately scaled back for a chargeable period shorter that 12 months.

A road vehicle is a vehicle suitable for the conveyance by road of persons or goods or the haulage by road of other vehicles.

Example

A trader had the following profit and loss account for an accounting year:

Gross profit 80,000
Expenses
Salaries 40,000
Travel 10,000
Legal fees 5,000
Depreciation (new office equipment) 2,000 57,000
Net profit 23,000

The new office equipment (computer hardware) cost €8,000, and its useful life is four years, giving rise to an annual depreciation charge of 25% (€2,000).

However, for tax purposes, depreciation is not allowed, and instead, the trader gets a wear and tear allowance of 12.5% x €8,000 = €1,000:

Net profit 23,000
Add back: depreciation 2,000
Taxable profit 25,000
Less wear and tear allowance 1,000
Net assessable income 24,000

What is an asset’s tax written down value?

(3) The wear and tear allowance is based on an asset’s tax written down value (TWDV) at the start of the basis period. The opening TWDV is the cost of the assets reduced by the total wear and tear allowances given for previous years.

What is a sea fishing boat allowance?

(3A) Capital expenditure incurred on a registered sea fishing boat, certified by Bord Iascaigh Mhara as necessary for renewal of the white fishing fleet, may qualify for an allowance.

Since 24 March 2004, the expenditure is written off over six years beginning with the chargeable period in which the expenditure is incurred. 50% of the cost is claimable in the first year of the writing down period, with 20% of the balanceof the expenditure (i.e., 10% of the total cost) to be written off in each of the next five years of the writing down period.

The allowance is proportionately scaled back where the chargeable period is shorter than one year.

The allowance is also given to lessors (section 403(5A)).

What is the maximum wear and tear allowance claimable?

(4) The allowances given for an asset (initial and annual) cannot exceed the price paid for the asset.

Can a building also qualify for wear and tear allowance?

(5) Expenditure which qualifies for industrial building allowances cannot also qualify for a wear and tear allowance.

Can a landlord claim wear and tear allowances?

(6) A landlord can claim wear and tear allowances in respect of fixtures and fittings used in the rented premises.

What is the TWDV of assets vested in Dublin Airport Authority?

(8) The value of plant and machinery (A) vested in the Dublin Airport Authority on the vesting day (section 268(10)), is deemed for tax purposes to have been written down by the total annual allowances (B) that would have been given had such allowances been claimed and allowed.

Section 285 Acceleration of wear and tear allowances

What is an accelerated wear and tear allowance?

(1)-(2) Before 1 April 1988, the wear and tear allowance for a chargeable period could be increased, at the option of the taxpayer, to any amount up to 100% of the qualifying expenditure.

Between 1 April 1988 and 1 April 1989, the allowance could be increased to 75% of the qualifying expenditure.

Between 1 April 1989 and 1 April 1991, the allowance could be increased to 50% of the qualifying expenditure.

Between 1 April 1991 and 1 April 1992, the allowance could be increased to 25% of the qualifying expenditure.

These increased annual allowances, also known as free depreciation, have been largely abolished for machinery or plant provided for use on or after 1 April 1992.

When can an accelerated wear and tear allowance be claimed?

(3)-(7) For chargeable periods ending before 6 April 1999, free depreciation is only available in the following exceptional cases:

(a) Shannon and IFSC companies may claim increased wear and tear allowances for capital expenditure incurred in providing machinery or plant for the purpose of the Shannon or IFSC activity. This is subject to the following restrictions:

(i) for capital expenditure incurred on or after 6 May 1993, no increased wear and tear allowance is available to a lessor unless the lessor lets the machinery or plant to the lessee in the course of the lessor’s Shannon or IFSC activity (for earlier expenditure the increased allowance was available if the lessee carried on a Shannon or IFSC activity), and

(ii) for machinery or plant provided on or after 23 April 1996, no increased wear and tear allowance is given unless the machinery or plant is used for the company’s own Shannon or IFSC activity (not for Shannon or IFSC activities in general).

(b) Machinery or plant provided before 31 December 1995 and for which the purchase contract was agreed before 28 January 1988.

(c) The machinery is provided for a project that has been approved for grant aid by an industrial development agency during the period 1 January 1986 to 31 December 1988, and the expenditure is incurred before 31 December 1996.

(d) Machinery or plant provided before 1 April 1991 for a hotel trade, but only where the contract for the hotel building (or holiday cottages to be registered with the National Tourism Development Authority) was agreed before 1 June 1988.

(e) The machinery or plant is provided for a project that has been approved for grant aid by an industrial development agency during the period 1 January 1989 to 31 December 1990, and the expenditure is incurred before 31 December 1997 (or 31 December 2002 in the case of IDA listed projects that still qualify for section 130financing).

The deadline of 31 December 1997 is extended to 30 June 1998 in cases where the expenditure could not be incurred before 31 December 1997 due to legal proceedings that were the subject of a High Court order made before 1 January 1998.

(f) The machinery or plant is for use in a hotel, holiday camp or holiday cottage, and the contract to provide it was made before 31 December 1990, and the expenditure was incurred before 31 December 1995. Within six months of its completion, the building must be registered with Bord Fáilte.

In cases (a)-(e) above, the taxpayer remains entitled to opt for increased allowances up to 100% of the expenditure, irrespective of when the machinery or plant is provided for use. The increased allowances may be claimed in one or more chargeable periods until the expenditure is fully written off (whether by increased or normal annual allowances).

In case (f) above, the taxpayer is entitled to opt for increased allowances up to 50% of the expenditure, whether this is taken in one or more chargeable periods, irrespective of when the machinery or plant is provided for use.

Can an initial and an accelerated allowance be claimed for the same period?

(8) It is not possible to claim an initial allowance and an accelerated allowance for the same period.

Section 285A Acceleration of wear and tear allowances for certain energy-efficient equipment

Capital Allowances for Energy-Efficient Equipment: Tax Briefing Issue 70 – 2008

What is the energy-efficient equipment allowance?

(1)-(2) Expenditure in the relevant period on energy-efficient equipment on the specified list and which have been certified by the Minister for Communications, Energy and Natural Resources, qualifies for 100% first year allowances.

What is the “specified list”?

(3) The specified list refers to motors and drives, lighting and building energy management systems.

Can the Minister add to the specified list?

(4) The Minister for Communication, Energy and Natural Resources must make the specified list, and state the energy criteria to be met, and the qualifying products for each technology class.

The Minister may also amend the specified list.

The list is located in the Taxes Consolidation Act 1997 (Accelerated Capital Allowances for Energy Efficient Equipment) Order 2008 (SI 399/2008).

Is the allowance available to individuals?

(5) The accelerated allowance in (2) only applies to companies. It does not apply to equipment that is leased or hired.

Is there a minimum spend to qualify for the allowance?

(6) The accelerated allowance in (2) does not apply if the expenditure is less than the minimum specified in the Table.

What expenditure does not qualify?

(7) The accelerated allowance in (2) does not apply to expenditure incurred outside the relevant period (three years from the date on which Ministerial Order takes effect).

Expenditure incurred on or after 31 January 2008 but before the Order is made qualifies.

Can equipment other than plant and machinery qualify?

(8) Equipment that would not otherwise be regarded as machinery or plant for tax law purposes will be so regarded.

Is there an upper limit for a claim on an alternative fuel vehicle?

(8A) You can claim the lower of:

(a) the €24,000 low emission vehicle limit (section 380K), or

(b) the 100% allowance (Schedule 4A).

You can’t claim under both sections – you either take the low emission vehicle allowance (section 380K) or the 100% allowance (Schedule 4A).

How must changes be made to the specified list?

(9) An order making or amending the specified list must be laid before Dáil Éireann. If a resolution annulling it is passed within the next 21 days, it is deemed to be annulled – but this does not prejudice anything done under the order.

Section 286 Increased wear and tear allowances for taxis and cars for short-term hire

What is the allowance for a taxi or short-term hire car?

(1)-(2) The wear and tear allowance for cars used for a qualifying purpose, i.e., taxis and short-term hire cars, is 40% on a reducing balance basis, compared to 20% for motor vehicles generally.

A taxi means a licensed public hire vehicle fitted with a taximeter.

A short-term hire car is a private passenger car (not a truck, lorry, van or bus) which is hired to members of the public where no period of hire exceeds a continuous period of up to eight weeks. Hire in this context does not include hire under a hire purchase agreement, haulage (agreements to transport goods or passengers), or hire with a driver.

A lease operator cannot qualify for the increased allowance by making a sequence of eight week hires to the same person (or any connected person). Short-term hire periods to the same person (or any connected person) are aggregated and if the eight week period is exceeded, the car does not qualify.

The car must be under short-term hire at least 75% of the time it is available for use. This is to ensure that a leased car does not qualify for the increased allowance by initially being briefly used for short-term hire.

The car need only be under short-term hire at least 50% of the time it is available for use if it was hired at least 75% of the time it was available for use in the previous chargeable period.

Taxi: This excludes hackneys and limousines hired for weddings or funerals.

Short-term hire: The allowance is given for rental cars available through a car rental firm. It is not given for leased cars, the contracts for which are generally for two to five year periods.

Previous chargeable period: This ensures car hire operators are not unreasonably penalised as a result of a recession year in the tourism industry.

Section 286A Wear and tear allowances for licences for public hire vehicles

What is the taxi plate allowance?

(1)-(2) Prior to the deregulation of the taxi market, many taxi owners paid significant sums to acquire their licence.

This section gives a wear and tear allowance to a taxi-driver who acquired his licence before 21 November 2000. The allowance is based on the cost of the licence or its market value for inheritance tax purposes (qualifying expenditure). The expenditure is treated as having been incurred on 21 November 1997, or if later, the date the trade began. The licence is treated as plant and machinery provided by the licence holder for the taxi trade.

A taxi owner remains entitled to the allowance even if he part-lets his taxi.

A holder of multiple licences only gets the allowance for the licence used in his trade (the relevant licence).

Can a taxi-plate allowance be claimed by a widow(er) who lets the licence?

(3) If a survivor of a marriage or civil partnership lets the taxi:

(i) he is treated as having incurred the expenditure on the cost of the licence,

(ii) the licence is treated as machinery or plant, and

(iii) the letting of the taxi is treated as the carrying on of a taxi trade.

The rule is limited to one licence per individual.

What is the taxi-plate allowance?

(4) The allowance is 20% per annum on a straight-line basis.

Example

A self-employed taxi driver bought a taxi licence for €80,000 on 1 January 2000.

He drives the taxi during the day and rents it on Sunday night and week nights for €800 per month.

He is entitled to the following wear and tear allowances:

1999-2000: 20% x €80,000 16,000
2000-01: 20% x €80,000 16,000
2001: 20% x €80,000 x 75% 12,000
2002: 20% x €80,000 16,000
2003: 20% x €80,000 16,000
2004: 20% x €80,000 x 25% 4,000
Total 80,000

Can a loss generated by a taxi-plate licence be set against other income?

(5) A loss generated by a taxi-plate allowance may only be set against the income from the letting of the licence.

Does interest apply to a backdated claim for taxi-plate allowance?

(6) If the back-dating of the taxi wear and tear allowance results in an overpayment of tax for 1997-98, 1998-99 or 1999-00, the interest which would normally be payable in respect of the overpayment (0.5% per month) does not apply.

How early can a backdated claim be made?

(7) The wear and tear allowance for taxi licences is back-dated to the tax years 1997-98, 1998-99, 1999-00 and 2000-01.

Section 287 Wear and tear allowances deemed to have been made in certain cases

What is a deemed wear and tear allowance?

(1)-(2) If an asset is not used for a trade, a deemed allowance, equivalent to the normal wear and tear allowance is given for every chargeable period concerned, including those years where no allowance was actually obtained.

What is the normal wear and tear allowance?

(3) The normal wear and tear allowance for a chargeable period means the full unrestricted wear and tear allowance due for that period on machinery or plant used for a trade the profits of which are fully liable to tax (not exempt from tax).

Section 288 Balancing allowances and balancing charges

What is a balancing adjustment?

(1) A balancing adjustment means:

(a) a balancing allowance (an additional capital allowance), or

(b) a balancing charge (a reduction or withdrawal of capital allowances already given).

Such an adjustment usually arises when plant and machinery for which an allowance has been granted is sold or scrapped.

The adjustment is to ensure that a trader receives the proper writing down allowances for the asset in question over its period of use in the trade.

A balancing adjustment is required when:

(a) plant is sold or ceases to belong to the trader,

(b) plant ceases to be used for the trade, i.e., is converted to private use,

(c) the trade ceases permanently, and the plant continues to belong to the trader, or

(d) a capital consideration becomes receivable for computer software, or the right to use such software.

How is a balancing adjustment calculated?

(2)-(3) The balancing adjustment computation has the following format:

amount still unallowed (see section 292)

minus

sale, insurance or compensation moneys

equals

balancing allowance (or charge).

In certain cases, the open market value of the asset may be taken as the sale, insurance, salvage or compensation moneys (for example, see section 289).

Example

Plant bought for 1,000
Wear and tear allowances given 600
Amount still unallowed 400
Minus: sale proceeds 300
Balancing allowance 100
If the sale proceeds had been 550
Balancing charge would be 150

How is a balancing adjustment calculated on computer software?

(3A) This rule applies where a balancing adjustment is to be made in relation to computer software (see (1)(d)) and the owners retains an interest in the software.

In such a case, “the amount still unallowed” (see (2)-(3) above) is adjusted in the same proportion as the “sale, insurance or compensation” proceeds bears to the total of such proceeds and the market value of the machinery or plant which has not been disposed of.

In addition, the original capital expenditure on the software is reduced in the same proportion as the “sale, insurance or compensation” proceeds bears to the total of such proceeds and the market value of the machinery or plant which has not been disposed of.

What is minimum proceeds required for a balancing charge?

(3B) No balancing charge arises if the amount of the sale, insurance or compensation proceeds are less than €2,000. However, this rule does not apply in the case of a disposal to connected persons (section 10).

When does the disposal of an intangible asset escape a balancing charge?

(3C) No balancing charge arises on the disposal of an intangible asset (section 291A) if the disposal occurs more than 5 years after the asset was “first provided”, but if the the disposal is to a connected company that company can claim capital allowances only on the written down value irrespective of what it paid for the asset.

What is the maximum balancing charge?

(4) A balancing charge can never exceed the allowances claimed by the trader. Where a balancing charge arises in the case of computer software, the amount unallowed is adjusted in accordance with (3A).

What is the maximum balancing charge for certain food-processing machinery?

(5) Prior to Finance Act 1973 section 11, grants were not deducted in arriving at the qualifying expenditure for wear and tear purposes but were deducted for the purpose of a balancing charge. A person could claim allowances amounting to more than the cost of the plant and machinery.

This treatment continued to apply for:

(a) certain manufacturing grant-aided machinery or plant purchased before 29 January 1986, and

(b) certain grant-aided machinery or plant used in food manufacturing businesses after that date.

If the total allowances obtained by the food processing company up to the time of the balancing event exceeds the net of grant expenditure, a balancing charge arises. The amount is the excess of the allowances over the net of grant expenditure plus the actual sale proceeds (if any).

Example

Meat processing company buys new machinery for use in the manufacturing process at a gross cost of €10,000.

It receives a grant of €3,000 towards the cost of the machinery so that the net of grant cost is €7,000.

After six years the machinery is sold for €2,600.

Wear and tear allowances are given for for six years at 12.5% = 6 x €1,250 = €7,500.

This €7,500 exceeds the €7,000 net of grant expenditure by €500. Therefore, a balancing charge of €3,100 (€500 excess + €2,600 sale proceeds) is levied.

The net capital outlay and the net capital allowances over the period of ownership may be reconciled as follows:

Purchase 10,000
Less grant 3,000
Net purchase cost 7,000
Less sale proceeds 2,600
Net capital outlay 4,400
Wear and tear allowances 7,500
Less balancing charge 3,100
Net capital allowances 4,400

Can a balancing charge on a decommissioned fishing vessel be spread?

(6) The European Union Council Regulation 3699/93 provides grants to fishermen who decommission their vessels. A balancing charge arising on the receipt of such a grant may be spread: one third in the period in which the grant is received and one third in each of the two succeeding periods.

A balancing allowance is given in full for the chargeable period in which the decommissioning occurs.

Can a balancing charge on a decommissioned fishing vessel be spread longer?

(6A) From 17 April 2008, a balancing charge arising on the decommissioning of a fishing vessel may be spread over five years.

Section 289 Calculation of balancing allowances and balancing charges in certain cases

What is the open market price?

(1) The open market price of plant and machinery means the price it would fetch of sold in the open market.

How is a balancing adjustment calculated where no sale takes place?

(2) The balancing adjustment is based:

(a) on the net proceeds, where plant and machinery is sold at or above open market price, on the permanent cessation of the trade,

(b) he net insurance or compensation proceeds together with any scrap proceeds, where the plant and machinery is lost or destroyed.

How is a balancing adjustment calculated on a cessation?

(3) A balancing adjustment is based on the open market price where plant and machinery:

(a) continues to belong to a trader who has permanently ceased to trade,

(b) is given away or sold at less than market price (whether before or on a cessation).

(a) taking a nominal residual value or

(b) conservatively estimating the market value of the asset.

How is a balancing adjustment calculated if the recipient is liable to BIK?

(4) If the recipient of plant and machinery is chargeable to benefit in kind charge on that gift, the balancing adjustment is based on the net sale proceeds.

Are the purchaser’s allowances based on open market price?

(5) Where a trader acquires plant and machinery at less than open market price his wear and tear allowances and any future balancing adjustments, are based on that the open market price.

Can the seller and purchaser elect to postpone a balancing charge?

(6) A seller and purchaser may jointly elect to treat a transfer as a sale equal to the amount of the unallowed expenditure just before the gift or sale or, if lower, at the open market value.

This allows the seller to avoid a balancing charge, but the new owner gets wear and tear allowances on a lower “purchase” cost.

This effectively treats the machinery as remaining in the same ownership, and any future balancing adjustment made on the new owner will be equal to that which would have been made on the old owner if he/she had continued to own the machinery, had used it in the same way as the new owner, and had obtained the allowances made to the new owner.

Does the postponement election apply to unconnected persons?

(6A) This is an anti-avoidance provision. Since 6 February 2003, the postponement election in (6):

(a) only applies between connected persons,

(b) does not apply to a transfer from an individual to a company.

Section 290 Option in case of replacement

Can a balancing charge be set against the cost of replacement plant?

A trader may elect to set a balancing charge against the expenditure on replacement plant.

The wear and tear allowance for the replacement plant is reduced by the amount of the balancing charge.

If the balancing charge exceeds the cost of the new plant, no allowance is given for the new plant.

Section 291 Computer software

Is there a wear and tear allowance for software?

(1)-(2) Computer software and the right to use such software are regarded, for capital allowance purposes, as plant and machinery.

Is software also an intangible asset?

(3) To distinguish the software allowance from the intangible asset allowance (section 291A), this section refers to “end-use” software, i.e. it excludes software provided for others in return for a royalty.

Can intangible assets get a wear and tear allowance?

(4) Persons who elected in writing between 4 February 2010 and before 4 February 2012, could opt to continue treating intangible assets as eligible for a wear and tear allowance (this section) instead of an intangible assets allowance (section 291A).

Section 291A Intangible assets

Intangible Assets Scheme: Tax Briefing Issue 09 – 2010

What is an intangible asset?

(1) An intangible asset takes the same meaning as it has for accounting purposes. To qualify for an allowance, the expenditure must be incurred by a company on a specified intangible asset:

(a) a patent, registered design, design right or invention,

(b) a trade mark, trade name, brand, brand name, domain name, service mark or publishing title,

(c) copyright or related right,

(ca) software bought by a company for commercial exploitations (not as plant and machinery),

(d)-(e) a supplementary protection certificate under EU law,

(f) plant breeders’ rights,

(fa) an application for the grant or registration of intellectual property rights,

(g) secret processes or formulae concerning industrial, commercial or scientific experience, including know-how and customer lists except where such lists are provided in connection with the transfer of a business as a going concern,

(h) an authorisation without which it would not be possible to sell a medicine or product of any design, process or invention,

(i) rights derived from research into the effects of a medicine or product of any design, process or invention,

(j) a licence in respect of an intangible asset in (a) to (i),

(k) rights granted under foreign law that correspond to those in (a)-(j),

(l) goodwill attributable to anything within (a)-(k).

What is an intangible asset allowance?

(2) When a company buys a specified intangible asset for its trade, the asset is treated as plant and machinery.

How much is the intangible asset allowance?

(3) The annual intangible asset allowance is:

A  x 100
B

where-

A is amount of amortisation or impairment charged to the company’s profit and loss account, in accordance with generally accepted accounting practice, and

B is the actual cost of the asset, or if greater, the value of the asset for amortisation purposes.

In other words, the allowance is given at the same rate as the asset is depreciated for accounting purposes.

Is the depreciation rate compulsory?

(4) Although the default writing down rate for intangible assets is the depreciation rate (see (3)), a company can elect for an annual allowance of 7%.

The election is made on the company’s self-assessment return for the period in which expenditure was first incurred, and the election applies to all capital expenditure on the asset.

Is management of intangible assets a separate trade?

(5) A trade (relevant activities) which consists of managing, developing or exploiting intangible assets, including the sale of goods or services that derive their value from such assets, is treated as a separate trade (a relevant trade).

Income must be attributed to the relevant trade on a just and reasonable basis, as if it were being carried on by an independent company.

What is the maximum allowance that can be claimed in a period?

(6) The aggregate amount of any intangible asset allowances and related interest expense must not exceed the trading income from the relevant trade for the period.

Excess allowances and interest expense can be carried forward against trading income of the relevant trade for later accounting periods.

What expenditure does not qualify for an allowance?

(7) Expenditure does not qualify if it:

(a) qualifies for any other tax relief or deduction,

(b) exceeds an arm’s length price for the asset,

(c) is not for bona fide commercial reasons or is incurred as part of a tax avoidance scheme.

Can Revenue consult outside experts?

(8) Revenue may consult with an expert to ascertain:

(a) the extent to which expenditure is incurred on an intangible asset, and

(b) in relation to transactions between connected persons, the amount that would have been payable on an arm’s length basis.

Official secrecy does not prevent them from discussing the details of a claim with the expert, however, before consulting the expert, they must inform the company of the expert’s identity and the details they propose to disclose. Revenue must not disclose information to the expert if the company can show to Revenue (or on appeal, the Appeal Commissioners) that disclosure would prejudice its trade.

Can a reconstruction transferee get an allowance?

(9) In general, no allowance is given to a transferee who acquires an asset from a transferor on a no gain-no loss basis as part of:

(a) a corporate reconstruction or amalgamation (section 615), or

(b) a transfer of trading stock within a group (section 617).

However, the transferor and transferee may jointly elect that the transferee will get an allowance based on his expenditure in acquiring the asset from the transferor.

What is the deadline for claiming the allowance?

(10) A claim for an intangible asset allowance must be made within 12 months of the accounting period in which the expenditure was incurred.

Section 292 Meaning of “amount still unallowed”

What is the “amount still unallowed”?

The amount still unallowed means:

the qualifying expenditure on the machinery or plant (net of grants)

less

any initial allowance previously obtained

less

any wear and tear allowances previously obtained

less

any notional allowances required to be written off (for periods of disuse or private use)

less

any scientific research allowance

less

any previous balancing allowance.

Where it is necessary to calculate a balancing adjustment, the amount still unallowed of the expenditure of the plant is compared with the sale, insurance, salvage or compensation moneys (section 318).

Section 293 Application to partnerships

How is a balancing adjustment calculated in a partnership?

(1) Where the partners are different at the time of the basis period and the time of the balancing adjustment, special rules are needed to ensure the adjustment is made correctly.

In such cases, the adjustment is computed on the assumption that there has been no change in the members between the time the asset was acquired and the end of the basis period in which the balancing event occurs.

The adjustment is then allocated between the partners – see section 1010.

How are allowances calculated on assets not owned by the partnership?

(2) Where machinery or plant belonging to a partner is used for a partnership trade, but is not partnership property, the same allowances and balancing adjustments are to be made as would be due if the machinery or plant has at all relevant times been partnership property.

Does a transfer from one partner to another cause a balancing adjustment?

(3) If a partner’s plant and machinery is used by the partnership and is transferred to another partner, the transfer does not give rise to an adjustment provided it continues to be used for the partnership trade.

Does payment of rent to a partner affect a balancing adjustment?

(4) The rules in (2) and (3) do not apply if the asset-owning partner gets rent for the use of the machinery, and that rent is deductible in computing the partnership profits.

Section 294 Machinery or plant used partly for non-trading purposes [TCA 1997 s 294] Commentary

Is a balancing charge adjusted for private use of an asset?

Where machinery is used for private purposes, the wear and tear allowance which would be allowable if the asset were used exclusively for business purposes is reduced by an appropriate fraction, to an amount that is “just and reasonable”, depending on the extent of the private use.

Without a corresponding provision for balancing adjustments, the “expenditure unallowed” would be the full cost of the asset less any wear and tear allowances actually given.

This section ensures that in such cases the balancing adjustment must also be an amount that is just and reasonable.

Section 295 Option in case of succession under will or intestacy

Can a successor elect to avoid a balancing adjustment?

Normally, the death of a trader gives rise to a balancing adjustment.

A successor to a deceased trader may elect to treat plant acquired from the deceased at an amount equal to the expenditure unallowed, or the open market price, if lower.

When the successor later disposes of the plant, the balancing adjustment is computed as if the deceased had lived and continued to own the plant and trade up to the disposal date.

Section 296 Balancing allowances and balancing charges: wear and tear allowances deemed to have been made in certain cases

What is a deemed wear and tear allowance?(1)-(2) A wear and tear allowance may not have been made for a period during the ownership of an asset, for example because the asset was used entirely for non-business purposes or for an exempt trade.

In such cases, a deemed wear and tear allowance, equivalent to the normal wear and tear allowance, is assumed to have been written off for every year concerned.

What is a normal wear tear allowance?

(3) The normal wear and tear allowance for a chargeable period is the allowance that would be due on the basis that the profits are fully liable to tax (not exempt).

Example

X and Y, each buy a machine costing €800 in 2010 and each sells his machine in 2012 for €350, so that each sustains a loss of €450.

X’s wear and tear allowances for 2010 and 2011 are 2 x €100 = €200.

X’s unallowed expenditure is €600, and he gets a balancing allowance of €250 (the excess of the unallowed expenditure €600 over the sale proceeds €350).

The total allowances given (€200 + €250) equals the amount of the loss.

Y puts the asset to non-trading use and does not obtain wear and tear allowances for 2010 and 2011.

In arriving at Y’s unallowed expenditure, it is also necessary to write off €200 as deemed allowances for the period of non-trading use.

Y’s unallowed expenditure is €600 compared with the sale proceeds of €350, so that he gets a balancing allowance of €250.

Y’s total allowances are therefore €250, compared with a loss of €450.

Is a deemed allowance give where a company is not within the CT charge?

(4) Where a company is not within the charge to corporation tax during a tax year, that tax year or the relevant part of it is treated as an accounting period for which a deemed wear and tear allowance must be written off.

Can a deemed allowance cause a balancing charge greater than allowances given?

(5) A deemed allowance may not give rise to a balancing charge greater than the total allowances actually obtained.

Section 297 Subsidies towards wear and tear

Does compensation received for the use of an asset affect a balancing adjustment?

(1)-(2) This section applies where compensation is received for use of machinery in another person’s trade. This usually arises in the case of employees.

Compensation received by an employee for depreciation to a car used in the employment is not taxable in the employee’s hands, because no profit arises to the employee. This is not altered by section 118 which imposes a BIK charge on a sum paid “in respect of expenses” – depreciation is not an expense in this regard.

Where subsidies towards wear and tear are received, the recipient is treated as having been given allowances equal to the total subsidy, in addition to the allowances given to him.

Section 299 Allowances to lessees

Can a lessee claim a wear and tear allowance?

(1) A lessee on whom the wear and tear burden falls is entitled to claim wear and tear allowances.

Burden of wear and tear: These changes were made after the decision in Union Cold Storage Co Ltd v Ellerker, (1939) 22 TC 547.

What is the basis for a lessee’s wear and tear allowance?

(3) For the lessee to claim wear and tear allowances, the lessor and lessee must jointly elect that the burden of wear and tear fall on the lessee.

Once that election is made, the lessee gets a deduction based on the aggregate deductible amount that would have been deductible in accordance with generally accepted accounting practice.

Where a lessee’s “capital” expenditure exceeds the amount by which the lease payments exceed the aggregate deductible amount, the “capital” element of the lease payments is deemed to be the excess of the aggregate lease payments over the the aggregate deductible amount.

Section 300 Manner of making allowances and charges

How is a wear and tear allowance given?

(1) A wear and tear allowance is given to a trader in taxing the profits of his trade. This rule does not apply to:

(a) the allowance available for furnished lettings (section 284(6)), or

(b) allowances for lessors of machinery or plant (section 298).

The allowance is deducted from taxable profits after they have been calculated. See section 307(2) for the treatment of a company’s trade chargeable to corporation tax.

How is a wear and tear allowance given to a lessor?

(2) For a lessor whose income is chargeable under Case IV, the allowance is given by way of discharge or repayment of tax, and is primarily available against such leasing income.

In exceptional circumstances (section 403(6)-(7)), a Case IV lessor may opt to set off the balance of the allowance for a tax year against his income from all sources for that year (section 305(1)(b)).

Under what Case is a balancing charge made on a lessor?

(3) A balancing charge is made on a casual lessor of plant and machinery (i.e., a lessor who does not carry on a leasing trade), under Case IV.

How is a wear and tear allowance given to a landlord?

(4) A wear and tear allowance is given to a property landlord against his Case V rental income.

Section 301 Application to professions, employments and offices

How is a wear and tear allowance given to a professional person?

(1) A wear and tear allowance is given to a professional person in taxing the income from his profession.

Section 283 Initial allowances

What is plant?

Plant is the permanent apparatus (Yarmouth v France, 19 QBD 647) used to carry on the business, as distinct from the stock in trade of the business. In that case, an employee sued his employer as a result of injuries sustained due to defective “plant” (a vicious horse).

(a) railway locomotives and carriages (Caledonian Railway Co Ltd v Banks, (1880) 1 TC 487),

(b) tramway rails (LCC v Edwards, 5 TC 383),

(c) loose tools, and equipment (Hinton v Maden and Ireland Ltd, (1959) 38 TC 391),

(d) barrister’s books (Breathnach v McCann, 3 ITR 11. This followed the UK decision in Munby v Furlong, 50 TC 491),

(e) fish cages used in fish farming (freshwater lakes or offshore) (Inspector Manual 9.2.2),

(f) video tapes used in a video rental business (Tax Briefing 14, May 1994).

(a) an option cancellation payment: International Drilling Co Ltd v Bolton, [1983] STC 70, and

(b) the extra sterling cost of a foreign currency installment purchase: Van Arkadie v Sterling Coated Materials Ltd, [1983] STC 95.

Revenue practice allows expenditure on certain fixtures incorporated in industrial buildings to be deducted as part of industrial building allowance, in place of machinery or plant allowance (see notes to section 270(2)).

A building or structure or fixture within a building (for example, an elevator) may, in fact, be the “machinery” or “plant” with which a trader carries on his business. However these items do not generally qualify as machinery or plant, on the basis that they are the “setting” in which the business is carried on, unless they have an active function in carrying on the trade: Jarrold v John Good and Sons Ltd, (1962) 40 TC 681. In that case, movable office partitioning qualified as plant.

Over the years, the UK courts have used this “functional test” to allow certain building or structural type assets to qualify as plant, for example:

(a) A dry dock: IRC v Barclay, Curle and Co Ltd (1969) 45 TC 221.

(b) A swimming pool: Cooke v Beach Station Caravans Ltd, [1974] STC 402.

(c) Grain silos: Schofield v R and H Hall Ltd, [1975] STC 353.

(d) Certain electrical installations: Cole Brothers Ltd v Phillips, [1982] STC 307.

(e) Light fittings and murals in a hotel: IRC v Scottish and Newcastle Breweries Ltd, [1982] STC 296.

(f) Window advertisement panels: Leeds Permanent Building Society v Procter, [1982] STC 821.

(g) Mezzanine platforms in warehouses: Hunt v Henry Quick Ltd, King v Bridisco Ltd, [1992] STC 633.

The Irish courts have held that the following structures qualify as plant:

(a) A henhouse, i.e., a structure specially designed for egg production: O’Srianáin v Lakeview Ltd, 3 ITR 219.

(b) A racecourse stand (excluding bar areas): O’Grady v Roscommon Race Committee, 4 ITR 425. This may be contrasted with the decision of the UK courts in Brown v Burnley Football and Athletic Co Ltd, [1980] STC 424.

(c) A petrol station forecourt canopy: O’Culacháin v McMullan Brothers, 4 ITR 284. This may be contrasted with the decision of the UK courts in Dixon v Fitch’s Garage Ltd, [1975] STC 486.

However, Revenue do not regard golf courses or tennis courts (for example, attached to a hotel) as “plant” (Revenue Precedent IT93-3033, 18 March 1993).

The logic applied by the UK courts is not always followed in equivalent Irish cases, and each case must be treated on its own merits.

Over the years, the UK courts have also used the “setting” and “functional” tests to disqualify certain building or structural type assets from the definition of plant, for example:

(a) A harbour bed: Dumbarton Harbour Board v Cox, (1919) 7 TC 147.

(b) Prefabricated buildings: St John’s School (Mountford and Knibbs) v Ward, [1975] STC 7.

(c) A ship used as a floating restaurant, on the basis that it was the setting in which the business was carried on:Benson v Yard Arm Club Ltd, [1979] STC 266.

(d) A football spectator stand, on the basis that it was the setting in which the business was carried on: Brown v Burnley Football and Athletic Co Ltd, [1980] STC 424. This may be contrasted with the decision of the Irish courts inO’Grady v Roscommon Race Committee, 4 ITR 425.

(e) A suspended ceiling: Hampton v Forte Autogrill Ltd, [1980] STC 80. The Irish courts followed this decision inDunnes Stores (Oakville) Ltd v Cronin, 1 ITR 68. Revenue does not accept that a suspended ceiling which functions as part of the air-conditioning system is plant. The ceiling’s air-conditioning function is regarded as ancillary to its main function as part of the building (Revenue Precedent IT2002, 30 May 1996 and IT95-3001a, 25 February 1995).

(f) An inflatable tennis court cover: Thomas v Reynolds, [1987] STC 135.

(g) Kennels: Carr v Sayer, [1992] STC 396.

(h) Glasshouses: Gray v Seymour‘s Garden Centre (Horticulture), [1993] STC 394.

(i) A petrol station forecourt canopy: Dixon v Fitch’s Garage Ltd, [1975] STC 486. This was not followed by the Irish courts in O’Culacháin v McMullan Brothers, 4 ITR 284.

(j) An underground bunker for an electricity substation: Bradley v London Electricity plc, [1996] STC 1054.

(k) A car wash site: Attwood v Anduff Car Wash Ltd, [1997] STC 1167.

The UK courts have also held that the following do not qualify as plant:

(a) A stallion for stud purposes: Earl of Derby v Aylmer, (1915) 6 TC 665.

(b) Wallpaper pattern books: Rose and Co (Wallpapers and Paints) Ltd v Campbell, (1967) 44 TC 500.

(c) Finance charges for an oil rig: Ben-Odeco Ltd v Powlson, [1978] STC 460.

(d) Furniture for a flat: Mason v Tyson, [1980] STC 284.

(e) Wallpaper designs (but the cost of such designs may be included as part of the cost of providing blank screens and rollers): McVeigh v Arthur Sanderson and Sons Ltd, (1968) 45 TC 273.

More recently, in Wimpey International Ltd v Warland, [1988] STC 149, 61 TC 51, Hoffman J, in reviewing the UK case law, ruled:

(a) items not used in the business cannot be plant,

(b) stock in trade cannot be plant, and

(c) plant must be permanently employed in the business.

However, “an item used in carrying on the business is excluded if such use is as the premises or place on which the business is conducted.” In other words, the question is whether the item is, or has become, part of the premises. In the case in question, light fittings were held to be plant, but floor tiles, glass shop fronts and staircases were not. The light fitting had not become part of the premises; the floor tiles etc had.

The following marina furniture items used in a commercial marina for berthing boats and other craft are considered plant: pontoons, anchors, gangways, equipment and conduit for utilities, and movable access bridge but not piles (Revenue Precedent, 6 March 2000

UK law on plant incorporated in buildings

(Non-qualifying) assets included in the expression “building”:

A Walls, floors, ceilings, doors, gates, shutters, windows and stairs.

B Mains services, and systems, of water, electricity and gas.

C Waste disposal systems.

D Sewerage and drainage systems.

E Shafts or other structures in which lifts, hoists, escalators and moving walkways are installed.

F Fire safety systems.

Assets so included, but expenditure on which may qualify as plant:

1 Electrical, cold water, gas and sewerage systems-

(a) provided mainly to meet the particular requirements of the trade, or

(b) provided mainly to serve particular machinery or plant used for the purposes of the trade.

(“Electrical systems” include lighting systems.)

2 Space or water heating systems; powered systems of ventilation, air cooling or air purification; and any ceiling or floor comprised in such systems.

3 Manufacturing or processing equipment; storage equipment, including cold rooms; display equipment; and counters, checkouts and similar equipment.

4 Cookers, washing machines, dishwashers, refrigerators and similar equipment; washbasins, sinks, baths, showers, sanitary ware and similar equipment; and furniture and furnishings.

5 Lifts, hoists, escalators and moving walkways.

6 Sound insulation provided mainly to meet the particular requirements of the trade.

7 Computer, telecommunication and surveillance systems (including their wiring or other links).

8 Refrigeration or cooling equipment.

9 Sprinkler equipment and other equipment for extinguishing or containing fire; fire alarm systems.

10 Burglar alarm systems.

11 Any machinery (including devices for providing motive power) not within any other item in this column.

12 Strong rooms in bank or building society premises; safes.

13 Partition walls, where moveable and intended to be moved in the course of the trade.

14 Decorative assets provided for the enjoyment of the public in the hotel, restaurant or similar trades.

15 Advertising hoardings, and signs, displays and similar assets.

16 Swimming pools (including diving boards, slides and structures on which such boards or slides are mounted).

Notes:

An asset does not fall within the list if its principal purpose is to insulate or enclose the interior of the building or provide an interior wall, a floor or a ceiling which (in each case) is intended to remain permanently in place.

UK law on structures and assets regarded as plant

Non-qualifying structures and assets:

A Any tunnel, bridge, viaduct, aqueduct, embankment or cutting.

B Any way or hard standing, such as a pavement, road, railway or tramway, a park for vehicles or containers, or an airstrip or runway.

C Any inland navigation, including a canal or basin or a navigable river.

D Any dam, reservoir or barrage (including any sluices, gates, generators and other equipment associated with it).

E Any dock.

F Any dike, sea wall, weir or drainage ditch.

G Any structure not within any other item in this column.

Qualifying (expenditure on) structures and assets:

1 Alteration of land for the purpose only of installing machinery or plant.

2 Dry docks. “Dock” includes any harbour, wharf, pier, marina or jetty, and any other structure in or at which vessels may be kept or merchandise or passengers may be shipped or unshipped.

3 A jetty or similar structure provided mainly to carry machinery or plant.

4 Pipelines or underground ducts or tunnels with a primary purpose of carrying utility conduits.

5 Towers provided to support floodlights.

6 A reservoir incorporated into a water treatment works or on the provision of any service reservoir of treated water for supply within any housing estate or other particular locality.

7 A silo provided for temporary storage or on the provision of storage tanks.

8 Slurry pits or silage clamps.

9 Fish tanks or fish ponds.

10 Rails, sleepers and ballast for a railway or tramway.

11 Structures and other assets for providing the setting for any ride at an amusement park or exhibition.

12 Fixed zoo cages.

Ownership of assets (lessors of machinery or plant)

See section 298 which deals with allowances for lessors.

In the case of leased machinery or plant, the allowance goes to the person who incurs the burden of wear and tear:MacSaga Investment Co Ltd v Lupton, 44 TC 659.

The UK courts have also held that the asset must be owned by the person incurring the expenditure: Stokes v Costain Property Investments Ltd, [1984] STC 204. In that case, the tenant (Costain) incurred expenditure on lifts and central heating equipment. The company was denied an allowance on the basis that the lifts did not belong to the tenant but to the landlord, as they were fixtures and therefore part of the building. The UK Capital Allowances Act 1990 section 52 now allows a tenant or lessee of land to claim capital allowances in such cases.

See also Melluish v BMI, [1995] STC 964, and Ensign Tankers (Leasing) Ltd v Stokes, [1992] STC 226.

Example

A company recently refurbished its pub premises and incurred the following capital expenditure:

Treatment
New bar counter Plant
New fixed seating Plant
New tables no allowance
New unfixed seating (stools) no allowance
New fireplace may qualify as repairs
Central heating may qualify as repairs
Air conditioning system Plant
New leaded glass windows may qualify as repairs
New exterior façade may qualify as repairs
Architects fees Capital

What is an initial allowance?

(1)-(2) Expenditure incurred on new machinery or plant for use in a trade may qualify for a machinery or plant (initial) allowance for the basis period in which the capital expenditure has been incurred.

Although “new” means unused and not second-hand, a second-hand ship is deemed to be new and therefore qualifies for an initial allowance.

A new machine that incorporates a limited number of recycled parts may be regarded as “new”, i.e., unused and not second-hand (Revenue Precedent CTF190, 9 December 1980).

Large vessels of burden that substantially go to sea (for example, ocean-going dredgers) may be regarded as ships (Revenue Precedent IT97-3006, 20 November 1997).

How much is the initial allowance?

(3)-(5) For expenditure incurred on or after 1 April 1992, the initial allowance is only granted in the following exceptional cases:

(a) Shannon and IFSC companies are entitled to the initial allowance for capital expenditure incurred in providing machinery or plant for the purpose of the Shannon or IFSC activity. This is subject to the following restrictions:

(i) for capital expenditure incurred on or after 6 May 1993, no initial allowance is given to a lessor unless the lessor lets the machinery or plant to the lessee in the course of the lessor’s Shannon or IFSC activity (for earlier expenditure the allowance was available to the lessor if the lessee carried on a Shannon or IFSC activity), and

(ii) for machinery or plant provided on or after 23 April 1996, no initial allowance is given unless the machinery or plant is used for the company’s own Shannon or IFSC activity (not for Shannon or IFSC activities in general).

(b) The machinery or plant is provided for a project that has been approved for grant aid by an industrial development agency during the period 1 January 1986 to 31 December 1988 and the expenditure is incurred before 31 December 1996.

(c) The machinery or plant is provided for a project that has been approved for grant aid by an industrial development agency during the period 1 January 1989 to 31 December 1990 and the expenditure is incurred before 31 December 1997 (or 31 December 2002 in the case of IDA listed projects that still qualify for section 130financing).

The deadline of 31 December 1997 is extended to 30 June 1998 in cases where the expenditure could not be incurred before 31 December 1997 due to legal proceedings that were the subject of a High Court order made before 1 January 1998.

What restrictions apply to initial allowances?

(6) For expenditure incurred on or after 1 April 1989, except for cases mentioned in (a) and (b) above, a machinery or plant initial allowance and a machinery or plant wear and tear allowance cannot both be claimed for the same chargeable period, and free depreciation (section 285) may not be claimed for any later period.

What is the overall limit on an allowance?

(7) An initial allowance cannot, when combined with annual allowances, exceed the cost of the asset.

Section 284 Wear and tear allowances

Plant integral to industrial/commercial buildings – Interaction with restriction on amount of qualifying construction expenditure: Tax Briefing Issue 68 – 2008

What is a wear and tear allowance?

(1) A wear and tear allowance may be claimed in respect of expenditure on plant and machinery if the asset is in usefor the purpose of the trade at the end of the basis period.

Capital allowances are not automatically deductible in computing company profits for corporation tax purposes: Elliss v BP Oil Northern Ireland Refinery Ltd, [1987] STC 36. Revenue accept that a company may opt not to claim allowances for a particular accounting period, and instead claim the allowances in a later period, thereby preserving the written down value for future claims (Inspector Manual 9.2.6, 9.4.1).

A wear and tear allowance is deemed to have been made for a chargeable period in which the trader’s profits were exempt from tax or the asset was put to non-trading use (section 287) (Revenue Precedent IT95-3012, 2 August 1995).

How much is the wear and tear allowance?

(2) Since 4 December 2002, the wear and tear allowance is 12.5% on a straight line basis over eight years:

(i) in the case of machinery or plant other than registered sea fishing boats (see 3A)), and

(ii) in the case of road vehicles other than taxi or short time hire vehicles (section 286).

(b) The allowance is proportionately scaled back for a chargeable period shorter that 12 months.

A road vehicle is a vehicle suitable for the conveyance by road of persons or goods or the haulage by road of other vehicles.

Example

A trader had the following profit and loss account for an accounting year:

Gross profit 80,000
Expenses
Salaries 40,000
Travel 10,000
Legal fees 5,000
Depreciation (new office equipment) 2,000 57,000
Net profit 23,000

The new office equipment (computer hardware) cost €8,000, and its useful life is four years, giving rise to an annual depreciation charge of 25% (€2,000).

However, for tax purposes, depreciation is not allowed, and instead, the trader gets a wear and tear allowance of 12.5% x €8,000 = €1,000:

Net profit 23,000
Add back: depreciation 2,000
Taxable profit 25,000
Less wear and tear allowance 1,000
Net assessable income 24,000

What is an asset’s tax written down value?

(3) The wear and tear allowance is based on an asset’s tax written down value (TWDV) at the start of the basis period. The opening TWDV is the cost of the assets reduced by the total wear and tear allowances given for previous years.

What is a sea fishing boat allowance?

(3A) Capital expenditure incurred on a registered sea fishing boat, certified by Bord Iascaigh Mhara as necessary for renewal of the white fishing fleet, may qualify for an allowance.

Since 24 March 2004, the expenditure is written off over six years beginning with the chargeable period in which the expenditure is incurred. 50% of the cost is claimable in the first year of the writing down period, with 20% of the balanceof the expenditure (i.e., 10% of the total cost) to be written off in each of the next five years of the writing down period.

The allowance is proportionately scaled back where the chargeable period is shorter than one year.

The allowance is also given to lessors (section 403(5A)).

What is the maximum wear and tear allowance claimable?

(4) The allowances given for an asset (initial and annual) cannot exceed the price paid for the asset.

Can a building also qualify for wear and tear allowance?

(5) Expenditure which qualifies for industrial building allowances cannot also qualify for a wear and tear allowance.

Can a landlord claim wear and tear allowances?

(6) A landlord can claim wear and tear allowances in respect of fixtures and fittings used in the rented premises.

What is the TWDV of assets vested in Dublin Airport Authority?

(8) The value of plant and machinery (A) vested in the Dublin Airport Authority on the vesting day (section 268(10)), is deemed for tax purposes to have been written down by the total annual allowances (B) that would have been given had such allowances been claimed and allowed.

Section 285 Acceleration of wear and tear allowances

What is an accelerated wear and tear allowance?

(1)-(2) Before 1 April 1988, the wear and tear allowance for a chargeable period could be increased, at the option of the taxpayer, to any amount up to 100% of the qualifying expenditure.

Between 1 April 1988 and 1 April 1989, the allowance could be increased to 75% of the qualifying expenditure.

Between 1 April 1989 and 1 April 1991, the allowance could be increased to 50% of the qualifying expenditure.

Between 1 April 1991 and 1 April 1992, the allowance could be increased to 25% of the qualifying expenditure.

These increased annual allowances, also known as free depreciation, have been largely abolished for machinery or plant provided for use on or after 1 April 1992.

When can an accelerated wear and tear allowance be claimed?

(3)-(7) For chargeable periods ending before 6 April 1999, free depreciation is only available in the following exceptional cases:

(a) Shannon and IFSC companies may claim increased wear and tear allowances for capital expenditure incurred in providing machinery or plant for the purpose of the Shannon or IFSC activity. This is subject to the following restrictions:

(i) for capital expenditure incurred on or after 6 May 1993, no increased wear and tear allowance is available to a lessor unless the lessor lets the machinery or plant to the lessee in the course of the lessor’s Shannon or IFSC activity (for earlier expenditure the increased allowance was available if the lessee carried on a Shannon or IFSC activity), and

(ii) for machinery or plant provided on or after 23 April 1996, no increased wear and tear allowance is given unless the machinery or plant is used for the company’s own Shannon or IFSC activity (not for Shannon or IFSC activities in general).

(b) Machinery or plant provided before 31 December 1995 and for which the purchase contract was agreed before 28 January 1988.

(c) The machinery is provided for a project that has been approved for grant aid by an industrial development agency during the period 1 January 1986 to 31 December 1988, and the expenditure is incurred before 31 December 1996.

(d) Machinery or plant provided before 1 April 1991 for a hotel trade, but only where the contract for the hotel building (or holiday cottages to be registered with the National Tourism Development Authority) was agreed before 1 June 1988.

(e) The machinery or plant is provided for a project that has been approved for grant aid by an industrial development agency during the period 1 January 1989 to 31 December 1990, and the expenditure is incurred before 31 December 1997 (or 31 December 2002 in the case of IDA listed projects that still qualify for section 130financing).

The deadline of 31 December 1997 is extended to 30 June 1998 in cases where the expenditure could not be incurred before 31 December 1997 due to legal proceedings that were the subject of a High Court order made before 1 January 1998.

(f) The machinery or plant is for use in a hotel, holiday camp or holiday cottage, and the contract to provide it was made before 31 December 1990, and the expenditure was incurred before 31 December 1995. Within six months of its completion, the building must be registered with Bord Fáilte.

In cases (a)-(e) above, the taxpayer remains entitled to opt for increased allowances up to 100% of the expenditure, irrespective of when the machinery or plant is provided for use. The increased allowances may be claimed in one or more chargeable periods until the expenditure is fully written off (whether by increased or normal annual allowances).

In case (f) above, the taxpayer is entitled to opt for increased allowances up to 50% of the expenditure, whether this is taken in one or more chargeable periods, irrespective of when the machinery or plant is provided for use.

Can an initial and an accelerated allowance be claimed for the same period?

(8) It is not possible to claim an initial allowance and an accelerated allowance for the same period.

Section 285A Acceleration of wear and tear allowances for certain energy-efficient equipment

Capital Allowances for Energy-Efficient Equipment: Tax Briefing Issue 70 – 2008

What is the energy-efficient equipment allowance?

(1)-(2) Expenditure in the relevant period on energy-efficient equipment on the specified list and which have been certified by the Minister for Communications, Energy and Natural Resources, qualifies for 100% first year allowances.

What is the “specified list”?

(3) The specified list refers to motors and drives, lighting and building energy management systems.

Can the Minister add to the specified list?

(4) The Minister for Communication, Energy and Natural Resources must make the specified list, and state the energy criteria to be met, and the qualifying products for each technology class.

The Minister may also amend the specified list.

The list is located in the Taxes Consolidation Act 1997 (Accelerated Capital Allowances for Energy Efficient Equipment) Order 2008 (SI 399/2008).

Is the allowance available to individuals?

(5) The accelerated allowance in (2) only applies to companies. It does not apply to equipment that is leased or hired.

Is there a minimum spend to qualify for the allowance?

(6) The accelerated allowance in (2) does not apply if the expenditure is less than the minimum specified in the Table.

What expenditure does not qualify?

(7) The accelerated allowance in (2) does not apply to expenditure incurred outside the relevant period (three years from the date on which Ministerial Order takes effect).

Expenditure incurred on or after 31 January 2008 but before the Order is made qualifies.

Can equipment other than plant and machinery qualify?

(8) Equipment that would not otherwise be regarded as machinery or plant for tax law purposes will be so regarded.

Is there an upper limit for a claim on an alternative fuel vehicle?

(8A) You can claim the lower of:

(a) the €24,000 low emission vehicle limit (section 380K), or

(b) the 100% allowance (Schedule 4A).

You can’t claim under both sections – you either take the low emission vehicle allowance (section 380K) or the 100% allowance (Schedule 4A).

How must changes be made to the specified list?

(9) An order making or amending the specified list must be laid before Dáil Éireann. If a resolution annulling it is passed within the next 21 days, it is deemed to be annulled – but this does not prejudice anything done under the order.

Section 286 Increased wear and tear allowances for taxis and cars for short-term hire

What is the allowance for a taxi or short-term hire car?

(1)-(2) The wear and tear allowance for cars used for a qualifying purpose, i.e., taxis and short-term hire cars, is 40% on a reducing balance basis, compared to 20% for motor vehicles generally.

A taxi means a licensed public hire vehicle fitted with a taximeter.

A short-term hire car is a private passenger car (not a truck, lorry, van or bus) which is hired to members of the public where no period of hire exceeds a continuous period of up to eight weeks. Hire in this context does not include hire under a hire purchase agreement, haulage (agreements to transport goods or passengers), or hire with a driver.

A lease operator cannot qualify for the increased allowance by making a sequence of eight week hires to the same person (or any connected person). Short-term hire periods to the same person (or any connected person) are aggregated and if the eight week period is exceeded, the car does not qualify.

The car must be under short-term hire at least 75% of the time it is available for use. This is to ensure that a leased car does not qualify for the increased allowance by initially being briefly used for short-term hire.

The car need only be under short-term hire at least 50% of the time it is available for use if it was hired at least 75% of the time it was available for use in the previous chargeable period.

Taxi: This excludes hackneys and limousines hired for weddings or funerals.

Short-term hire: The allowance is given for rental cars available through a car rental firm. It is not given for leased cars, the contracts for which are generally for two to five year periods.

Previous chargeable period: This ensures car hire operators are not unreasonably penalised as a result of a recession year in the tourism industry.

Section 286A Wear and tear allowances for licences for public hire vehicles

What is the taxi plate allowance?

(1)-(2) Prior to the deregulation of the taxi market, many taxi owners paid significant sums to acquire their licence.

This section gives a wear and tear allowance to a taxi-driver who acquired his licence before 21 November 2000. The allowance is based on the cost of the licence or its market value for inheritance tax purposes (qualifying expenditure). The expenditure is treated as having been incurred on 21 November 1997, or if later, the date the trade began. The licence is treated as plant and machinery provided by the licence holder for the taxi trade.

A taxi owner remains entitled to the allowance even if he part-lets his taxi.

A holder of multiple licences only gets the allowance for the licence used in his trade (the relevant licence).

Can a taxi-plate allowance be claimed by a widow(er) who lets the licence?

(3) If a survivor of a marriage or civil partnership lets the taxi:

(i) he is treated as having incurred the expenditure on the cost of the licence,

(ii) the licence is treated as machinery or plant, and

(iii) the letting of the taxi is treated as the carrying on of a taxi trade.

The rule is limited to one licence per individual.

What is the taxi-plate allowance?

(4) The allowance is 20% per annum on a straight-line basis.

Example

A self-employed taxi driver bought a taxi licence for €80,000 on 1 January 2000.

He drives the taxi during the day and rents it on Sunday night and week nights for €800 per month.

He is entitled to the following wear and tear allowances:

1999-2000: 20% x €80,000 16,000
2000-01: 20% x €80,000 16,000
2001: 20% x €80,000 x 75% 12,000
2002: 20% x €80,000 16,000
2003: 20% x €80,000 16,000
2004: 20% x €80,000 x 25% 4,000
Total 80,000

Can a loss generated by a taxi-plate licence be set against other income?

(5) A loss generated by a taxi-plate allowance may only be set against the income from the letting of the licence.

Does interest apply to a backdated claim for taxi-plate allowance?

(6) If the back-dating of the taxi wear and tear allowance results in an overpayment of tax for 1997-98, 1998-99 or 1999-00, the interest which would normally be payable in respect of the overpayment (0.5% per month) does not apply.

How early can a backdated claim be made?

(7) The wear and tear allowance for taxi licences is back-dated to the tax years 1997-98, 1998-99, 1999-00 and 2000-01.

Section 287 Wear and tear allowances deemed to have been made in certain cases

What is a deemed wear and tear allowance?

(1)-(2) If an asset is not used for a trade, a deemed allowance, equivalent to the normal wear and tear allowance is given for every chargeable period concerned, including those years where no allowance was actually obtained.

What is the normal wear and tear allowance?

(3) The normal wear and tear allowance for a chargeable period means the full unrestricted wear and tear allowance due for that period on machinery or plant used for a trade the profits of which are fully liable to tax (not exempt from tax).

Section 288 Balancing allowances and balancing charges

What is a balancing adjustment?

(1) A balancing adjustment means:

(a) a balancing allowance (an additional capital allowance), or

(b) a balancing charge (a reduction or withdrawal of capital allowances already given).

Such an adjustment usually arises when plant and machinery for which an allowance has been granted is sold or scrapped.

The adjustment is to ensure that a trader receives the proper writing down allowances for the asset in question over its period of use in the trade.

A balancing adjustment is required when:

(a) plant is sold or ceases to belong to the trader,

(b) plant ceases to be used for the trade, i.e., is converted to private use,

(c) the trade ceases permanently, and the plant continues to belong to the trader, or

(d) a capital consideration becomes receivable for computer software, or the right to use such software.

How is a balancing adjustment calculated?

(2)-(3) The balancing adjustment computation has the following format:

amount still unallowed (see section 292)

minus

sale, insurance or compensation moneys

equals

balancing allowance (or charge).

In certain cases, the open market value of the asset may be taken as the sale, insurance, salvage or compensation moneys (for example, see section 289).

Example

Plant bought for 1,000
Wear and tear allowances given 600
Amount still unallowed 400
Minus: sale proceeds 300
Balancing allowance 100
If the sale proceeds had been 550
Balancing charge would be 150

How is a balancing adjustment calculated on computer software?

(3A) This rule applies where a balancing adjustment is to be made in relation to computer software (see (1)(d)) and the owners retains an interest in the software.

In such a case, “the amount still unallowed” (see (2)-(3) above) is adjusted in the same proportion as the “sale, insurance or compensation” proceeds bears to the total of such proceeds and the market value of the machinery or plant which has not been disposed of.

In addition, the original capital expenditure on the software is reduced in the same proportion as the “sale, insurance or compensation” proceeds bears to the total of such proceeds and the market value of the machinery or plant which has not been disposed of.

What is minimum proceeds required for a balancing charge?

(3B) No balancing charge arises if the amount of the sale, insurance or compensation proceeds are less than €2,000. However, this rule does not apply in the case of a disposal to connected persons (section 10).

When does the disposal of an intangible asset escape a balancing charge?

(3C) No balancing charge arises on the disposal of an intangible asset (section 291A) if the disposal occurs more than 5 years after the asset was “first provided”, but if the the disposal is to a connected company that company can claim capital allowances only on the written down value irrespective of what it paid for the asset.

What is the maximum balancing charge?

(4) A balancing charge can never exceed the allowances claimed by the trader. Where a balancing charge arises in the case of computer software, the amount unallowed is adjusted in accordance with (3A).

What is the maximum balancing charge for certain food-processing machinery?

(5) Prior to Finance Act 1973 section 11, grants were not deducted in arriving at the qualifying expenditure for wear and tear purposes but were deducted for the purpose of a balancing charge. A person could claim allowances amounting to more than the cost of the plant and machinery.

This treatment continued to apply for:

(a) certain manufacturing grant-aided machinery or plant purchased before 29 January 1986, and

(b) certain grant-aided machinery or plant used in food manufacturing businesses after that date.

If the total allowances obtained by the food processing company up to the time of the balancing event exceeds the net of grant expenditure, a balancing charge arises. The amount is the excess of the allowances over the net of grant expenditure plus the actual sale proceeds (if any).

Example

Meat processing company buys new machinery for use in the manufacturing process at a gross cost of €10,000.

It receives a grant of €3,000 towards the cost of the machinery so that the net of grant cost is €7,000.

After six years the machinery is sold for €2,600.

Wear and tear allowances are given for for six years at 12.5% = 6 x €1,250 = €7,500.

This €7,500 exceeds the €7,000 net of grant expenditure by €500. Therefore, a balancing charge of €3,100 (€500 excess + €2,600 sale proceeds) is levied.

The net capital outlay and the net capital allowances over the period of ownership may be reconciled as follows:

Purchase 10,000
Less grant 3,000
Net purchase cost 7,000
Less sale proceeds 2,600
Net capital outlay 4,400
Wear and tear allowances 7,500
Less balancing charge 3,100
Net capital allowances 4,400

Can a balancing charge on a decommissioned fishing vessel be spread?

(6) The European Union Council Regulation 3699/93 provides grants to fishermen who decommission their vessels. A balancing charge arising on the receipt of such a grant may be spread: one third in the period in which the grant is received and one third in each of the two succeeding periods.

A balancing allowance is given in full for the chargeable period in which the decommissioning occurs.

Can a balancing charge on a decommissioned fishing vessel be spread longer?

(6A) From 17 April 2008, a balancing charge arising on the decommissioning of a fishing vessel may be spread over five years.

Section 289 Calculation of balancing allowances and balancing charges in certain cases

What is the open market price?

(1) The open market price of plant and machinery means the price it would fetch of sold in the open market.

How is a balancing adjustment calculated where no sale takes place?

(2) The balancing adjustment is based:

(a) on the net proceeds, where plant and machinery is sold at or above open market price, on the permanent cessation of the trade,

(b) he net insurance or compensation proceeds together with any scrap proceeds, where the plant and machinery is lost or destroyed.

How is a balancing adjustment calculated on a cessation?

(3) A balancing adjustment is based on the open market price where plant and machinery:

(a) continues to belong to a trader who has permanently ceased to trade,

(b) is given away or sold at less than market price (whether before or on a cessation).

(a) taking a nominal residual value or

(b) conservatively estimating the market value of the asset.

How is a balancing adjustment calculated if the recipient is liable to BIK?

(4) If the recipient of plant and machinery is chargeable to benefit in kind charge on that gift, the balancing adjustment is based on the net sale proceeds.

Are the purchaser’s allowances based on open market price?

(5) Where a trader acquires plant and machinery at less than open market price his wear and tear allowances and any future balancing adjustments, are based on that the open market price.

Can the seller and purchaser elect to postpone a balancing charge?

(6) A seller and purchaser may jointly elect to treat a transfer as a sale equal to the amount of the unallowed expenditure just before the gift or sale or, if lower, at the open market value.

This allows the seller to avoid a balancing charge, but the new owner gets wear and tear allowances on a lower “purchase” cost.

This effectively treats the machinery as remaining in the same ownership, and any future balancing adjustment made on the new owner will be equal to that which would have been made on the old owner if he/she had continued to own the machinery, had used it in the same way as the new owner, and had obtained the allowances made to the new owner.

Does the postponement election apply to unconnected persons?

(6A) This is an anti-avoidance provision. Since 6 February 2003, the postponement election in (6):

(a) only applies between connected persons,

(b) does not apply to a transfer from an individual to a company.

Section 290 Option in case of replacement

Can a balancing charge be set against the cost of replacement plant?

A trader may elect to set a balancing charge against the expenditure on replacement plant.

The wear and tear allowance for the replacement plant is reduced by the amount of the balancing charge.

If the balancing charge exceeds the cost of the new plant, no allowance is given for the new plant.

Section 291 Computer software

Is there a wear and tear allowance for software?

(1)-(2) Computer software and the right to use such software are regarded, for capital allowance purposes, as plant and machinery.

Is software also an intangible asset?

(3) To distinguish the software allowance from the intangible asset allowance (section 291A), this section refers to “end-use” software, i.e. it excludes software provided for others in return for a royalty.

Can intangible assets get a wear and tear allowance?

(4) Persons who elected in writing between 4 February 2010 and before 4 February 2012, could opt to continue treating intangible assets as eligible for a wear and tear allowance (this section) instead of an intangible assets allowance (section 291A).

Section 291A Intangible assets

Intangible Assets Scheme: Tax Briefing Issue 09 – 2010

What is an intangible asset?

(1) An intangible asset takes the same meaning as it has for accounting purposes. To qualify for an allowance, the expenditure must be incurred by a company on a specified intangible asset:

(a) a patent, registered design, design right or invention,

(b) a trade mark, trade name, brand, brand name, domain name, service mark or publishing title,

(c) copyright or related right,

(ca) software bought by a company for commercial exploitations (not as plant and machinery),

(d)-(e) a supplementary protection certificate under EU law,

(f) plant breeders’ rights,

(fa) an application for the grant or registration of intellectual property rights,

(g) secret processes or formulae concerning industrial, commercial or scientific experience, including know-how and customer lists except where such lists are provided in connection with the transfer of a business as a going concern,

(h) an authorisation without which it would not be possible to sell a medicine or product of any design, process or invention,

(i) rights derived from research into the effects of a medicine or product of any design, process or invention,

(j) a licence in respect of an intangible asset in (a) to (i),

(k) rights granted under foreign law that correspond to those in (a)-(j),

(l) goodwill attributable to anything within (a)-(k).

What is an intangible asset allowance?

(2) When a company buys a specified intangible asset for its trade, the asset is treated as plant and machinery.

How much is the intangible asset allowance?

(3) The annual intangible asset allowance is:

A  x 100
B

where-

A is amount of amortisation or impairment charged to the company’s profit and loss account, in accordance with generally accepted accounting practice, and

B is the actual cost of the asset, or if greater, the value of the asset for amortisation purposes.

In other words, the allowance is given at the same rate as the asset is depreciated for accounting purposes.

Is the depreciation rate compulsory?

(4) Although the default writing down rate for intangible assets is the depreciation rate (see (3)), a company can elect for an annual allowance of 7%.

The election is made on the company’s self-assessment return for the period in which expenditure was first incurred, and the election applies to all capital expenditure on the asset.

Is management of intangible assets a separate trade?

(5) A trade (relevant activities) which consists of managing, developing or exploiting intangible assets, including the sale of goods or services that derive their value from such assets, is treated as a separate trade (a relevant trade).

Income must be attributed to the relevant trade on a just and reasonable basis, as if it were being carried on by an independent company.

What is the maximum allowance that can be claimed in a period?

(6) The aggregate amount of any intangible asset allowances and related interest expense must not exceed the trading income from the relevant trade for the period.

Excess allowances and interest expense can be carried forward against trading income of the relevant trade for later accounting periods.

What expenditure does not qualify for an allowance?

(7) Expenditure does not qualify if it:

(a) qualifies for any other tax relief or deduction,

(b) exceeds an arm’s length price for the asset,

(c) is not for bona fide commercial reasons or is incurred as part of a tax avoidance scheme.

Can Revenue consult outside experts?

(8) Revenue may consult with an expert to ascertain:

(a) the extent to which expenditure is incurred on an intangible asset, and

(b) in relation to transactions between connected persons, the amount that would have been payable on an arm’s length basis.

Official secrecy does not prevent them from discussing the details of a claim with the expert, however, before consulting the expert, they must inform the company of the expert’s identity and the details they propose to disclose. Revenue must not disclose information to the expert if the company can show to Revenue (or on appeal, the Appeal Commissioners) that disclosure would prejudice its trade.

Can a reconstruction transferee get an allowance?

(9) In general, no allowance is given to a transferee who acquires an asset from a transferor on a no gain-no loss basis as part of:

(a) a corporate reconstruction or amalgamation (section 615), or

(b) a transfer of trading stock within a group (section 617).

However, the transferor and transferee may jointly elect that the transferee will get an allowance based on his expenditure in acquiring the asset from the transferor.

What is the deadline for claiming the allowance?

(10) A claim for an intangible asset allowance must be made within 12 months of the accounting period in which the expenditure was incurred.

Section 292 Meaning of “amount still unallowed”

What is the “amount still unallowed”?

The amount still unallowed means:

the qualifying expenditure on the machinery or plant (net of grants)

less

any initial allowance previously obtained

less

any wear and tear allowances previously obtained

less

any notional allowances required to be written off (for periods of disuse or private use)

less

any scientific research allowance

less

any previous balancing allowance.

Where it is necessary to calculate a balancing adjustment, the amount still unallowed of the expenditure of the plant is compared with the sale, insurance, salvage or compensation moneys (section 318).

Section 293 Application to partnerships

How is a balancing adjustment calculated in a partnership?

(1) Where the partners are different at the time of the basis period and the time of the balancing adjustment, special rules are needed to ensure the adjustment is made correctly.

In such cases, the adjustment is computed on the assumption that there has been no change in the members between the time the asset was acquired and the end of the basis period in which the balancing event occurs.

The adjustment is then allocated between the partners – see section 1010.

How are allowances calculated on assets not owned by the partnership?

(2) Where machinery or plant belonging to a partner is used for a partnership trade, but is not partnership property, the same allowances and balancing adjustments are to be made as would be due if the machinery or plant has at all relevant times been partnership property.

Does a transfer from one partner to another cause a balancing adjustment?

(3) If a partner’s plant and machinery is used by the partnership and is transferred to another partner, the transfer does not give rise to an adjustment provided it continues to be used for the partnership trade.

Does payment of rent to a partner affect a balancing adjustment?

(4) The rules in (2) and (3) do not apply if the asset-owning partner gets rent for the use of the machinery, and that rent is deductible in computing the partnership profits.

Section 294 Machinery or plant used partly for non-trading purposes [TCA 1997 s 294] Commentary

Is a balancing charge adjusted for private use of an asset?

Where machinery is used for private purposes, the wear and tear allowance which would be allowable if the asset were used exclusively for business purposes is reduced by an appropriate fraction, to an amount that is “just and reasonable”, depending on the extent of the private use.

Without a corresponding provision for balancing adjustments, the “expenditure unallowed” would be the full cost of the asset less any wear and tear allowances actually given.

This section ensures that in such cases the balancing adjustment must also be an amount that is just and reasonable.

Section 295 Option in case of succession under will or intestacy

Can a successor elect to avoid a balancing adjustment?

Normally, the death of a trader gives rise to a balancing adjustment.

A successor to a deceased trader may elect to treat plant acquired from the deceased at an amount equal to the expenditure unallowed, or the open market price, if lower.

When the successor later disposes of the plant, the balancing adjustment is computed as if the deceased had lived and continued to own the plant and trade up to the disposal date.

Section 296 Balancing allowances and balancing charges: wear and tear allowances deemed to have been made in certain cases

What is a deemed wear and tear allowance?(1)-(2) A wear and tear allowance may not have been made for a period during the ownership of an asset, for example because the asset was used entirely for non-business purposes or for an exempt trade.

In such cases, a deemed wear and tear allowance, equivalent to the normal wear and tear allowance, is assumed to have been written off for every year concerned.

What is a normal wear tear allowance?

(3) The normal wear and tear allowance for a chargeable period is the allowance that would be due on the basis that the profits are fully liable to tax (not exempt).

Example

X and Y, each buy a machine costing €800 in 2010 and each sells his machine in 2012 for €350, so that each sustains a loss of €450.

X’s wear and tear allowances for 2010 and 2011 are 2 x €100 = €200.

X’s unallowed expenditure is €600, and he gets a balancing allowance of €250 (the excess of the unallowed expenditure €600 over the sale proceeds €350).

The total allowances given (€200 + €250) equals the amount of the loss.

Y puts the asset to non-trading use and does not obtain wear and tear allowances for 2010 and 2011.

In arriving at Y’s unallowed expenditure, it is also necessary to write off €200 as deemed allowances for the period of non-trading use.

Y’s unallowed expenditure is €600 compared with the sale proceeds of €350, so that he gets a balancing allowance of €250.

Y’s total allowances are therefore €250, compared with a loss of €450.

Is a deemed allowance give where a company is not within the CT charge?

(4) Where a company is not within the charge to corporation tax during a tax year, that tax year or the relevant part of it is treated as an accounting period for which a deemed wear and tear allowance must be written off.

Can a deemed allowance cause a balancing charge greater than allowances given?

(5) A deemed allowance may not give rise to a balancing charge greater than the total allowances actually obtained.

Section 297 Subsidies towards wear and tear

Does compensation received for the use of an asset affect a balancing adjustment?

(1)-(2) This section applies where compensation is received for use of machinery in another person’s trade. This usually arises in the case of employees.

Compensation received by an employee for depreciation to a car used in the employment is not taxable in the employee’s hands, because no profit arises to the employee. This is not altered by section 118 which imposes a BIK charge on a sum paid “in respect of expenses” – depreciation is not an expense in this regard.

Where subsidies towards wear and tear are received, the recipient is treated as having been given allowances equal to the total subsidy, in addition to the allowances given to him.

Section 299 Allowances to lessees

Can a lessee claim a wear and tear allowance?

(1) A lessee on whom the wear and tear burden falls is entitled to claim wear and tear allowances.

Burden of wear and tear: These changes were made after the decision in Union Cold Storage Co Ltd v Ellerker, (1939) 22 TC 547.

What is the basis for a lessee’s wear and tear allowance?

(3) For the lessee to claim wear and tear allowances, the lessor and lessee must jointly elect that the burden of wear and tear fall on the lessee.

Once that election is made, the lessee gets a deduction based on the aggregate deductible amount that would have been deductible in accordance with generally accepted accounting practice.

Where a lessee’s “capital” expenditure exceeds the amount by which the lease payments exceed the aggregate deductible amount, the “capital” element of the lease payments is deemed to be the excess of the aggregate lease payments over the the aggregate deductible amount.

Section 300 Manner of making allowances and charges

How is a wear and tear allowance given?

(1) A wear and tear allowance is given to a trader in taxing the profits of his trade. This rule does not apply to:

(a) the allowance available for furnished lettings (section 284(6)), or

(b) allowances for lessors of machinery or plant (section 298).

The allowance is deducted from taxable profits after they have been calculated. See section 307(2) for the treatment of a company’s trade chargeable to corporation tax.

How is a wear and tear allowance given to a lessor?

(2) For a lessor whose income is chargeable under Case IV, the allowance is given by way of discharge or repayment of tax, and is primarily available against such leasing income.

In exceptional circumstances (section 403(6)-(7)), a Case IV lessor may opt to set off the balance of the allowance for a tax year against his income from all sources for that year (section 305(1)(b)).

Under what Case is a balancing charge made on a lessor?

(3) A balancing charge is made on a casual lessor of plant and machinery (i.e., a lessor who does not carry on a leasing trade), under Case IV.

How is a wear and tear allowance given to a landlord?

(4) A wear and tear allowance is given to a property landlord against his Case V rental income.

Section 301 Application to professions, employments and offices

How is a wear and tear allowance given to a professional person?

(1) A wear and tear allowance is given to a professional person in taxing the income from his profession.

Section 304 Income tax: allowances and charges in taxing a trade, etc

How is a capital allowance claimed?

(1)-(2) A capital allowance must be claimed, in the case of an individual, in the income tax return.

For companies, see section 307.

Must a claimant certify his claim?

(3) A claim for industrial building allowance must include a certificate stating that the expenditure was incurred on the construction or refurbishment of an industrial building.

A claim for initial allowance on plant and machinery must include a certificate stating that the expenditure was incurred on new plant and machinery

How are excess allowances treated?

(4) Excess allowances may be carried forward for set off against the taxable profits of the next tax year.

How is a balancing charge collected?

(5) A balancing charge is collected by means of an assessment.

In practice, it is included as an income item in the assessment for the relevant tax year.

Do the capital allowance rules apply to professions?

(6) The capital allowance rules also apply to professionals and employees.

The automatic carry forward of excess allowances does not apply to allowances given against rental income.

Section 305 Income tax: manner of granting, and effect of, allowances made by means of discharge or repayment of tax

How are allowances available primarily against specified income given?

(1) Certain capital allowances are said to be available primarily against a specified class of income. These include:

(a) the industrial building allowances given primarily against a landlord’s Case V income, and

(b) allowances given to a lessor of plant and machinery who is chargeable under Case IV – these are severely restricted (see section 403).

If the allowances exceed the specified income for a year, the taxpayer can elect (within two years after the end of the tax year) to set the excess:

(a) in the case of an individual, against his other income for the same tax year,

(b) in the case of a married couple assessed jointly (section 1017), firstly against the individual’s income for the same tax year, and then against the income of the spouse for the same tax year,

(c) in the case of a person other than an individual, against other income for same tax year.

Any balance remaining after the excess has been set off as described in (a)-(c) may be carried forward for deduction or set off against profits of future years.

A construction or refurbishment allowance attaching to a property acquired from a company is ringfenced so that it does not exceed the profit rent from the property (section 409E).

Specified class: Tax Briefing 42.

Can a Revenue decision regarding capital allowances be appealed?

(2) A decision of the Revenue Commissioners as to capital allowances may be appealed to the Appeal Commissioners in writing within 21 days of the date of receipt of the decision notice.

How is an appeal determined?

(3) The Appeal Commissioners must hear and determine such an appeal in the same manner as an appeal against an income tax assessment. There is a further right of appeal to the Circuit Court, and on a point of law, to the High Court.

What penalty applies to a false capital allowances claim?

(4) A €3,000 penalty applies to a person who makes a false capital allowances claim.

Section 306 Meaning of basis period

What is a basis period?

(1)-(3) Capital allowances are given by reference to expenditure incurred by a trader in a tax year’s basis period, i.e., the period the profits of which are used to compute the tax liability.

The basis periods for successive tax years may overlap, for example, on commencement (section 66) or cessation (section 67) of a trade. In such a case, the overlap belongs to the first basis period.

If there is a gap between two basis periods:

(a) generally, the interval belongs to the second basis period, but

(b) If the second year is the year in which the trade permanently ceases, the interval belongs to the first basis period.

For a landlord, the basis period is the tax year itself.

Do the basis period rules apply for professions?

(4) The rules relating to basis periods that overlap, and gaps between basis periods, also apply to professionals and employees.

What is the basis period for a Case IV lessor?

(5) The basis period for a Case V lessor (of plant and machinery) is the tax year itself.

Section 307 Corporation tax: allowances and charges in taxing a trade

Where do capital allowances fit in a company tax computation?

(1) Corporation tax is charged on a company’s profits after deducting capital allowances.

The manner of granting these allowances is set out in (2) and in section 308.

How are capital allowance given to a company?

(2) A company’s capital allowance can be deducted as a trading expense. A balancing charge is treated as a trading receipt.

A company may, within two years of the end of the accounting period to which the claim relates, write to the inspector to disclaim that allowance.

This means that, unlike the income tax treatment, capital allowances are deducted and balancing charges are added before arriving at the company’s taxable profits.

Section 308 Corporation tax: manner of granting, and effect of, allowances made by means of discharge or repayment of tax

How are allowances available primarily against specified income given to a company?

(1) Certain capital allowances are said to be available primarily against a specified class of income. These include:

(a) the industrial building allowances given primarily against a landlord’s Case V income, and

(b) allowances given to a lessor of plant and machinery who is chargeable under Case IV – these are severely restricted (see section 403).

These allowances are give by deducting the allowance from the income of the specified class.

How are non-trading balancing charges given?

(2) Non-trading balancing charges are treated as additional income of the same class as the income concerned.

Can excess allowances be carried forward?

(3) If the allowances exceed the income of the class to which they relate for that period, the excess may be carried forward for set off against the same class of income in future periods.

Can excess allowances be set against total profits?

(4) Where there is a deficiency of income of the specified class, excess allowances may be:

(a) set against total profits (income and gains) of the current period, or

(b) carried back and set against total profits of the preceding period.

Can excess allowances be carried back against preceding year profits?

(5) The carry back of allowances must be to a preceding period of equal length to the current period. If the preceding period is shorter, the amount of allowances carried back must be scaled back proportionately.

What is the time limit for a claim to carry back excess allowances?

(6) A claim to carry back excess allowances must be made within two years of the end of the current period.

Section 308A Assets transferred in course of scheme of reconstruction or amalgamation

What is a “scheme of reconstruction or amalgamation”?

(1) A scheme of reconstruction or amalgamation (SRA) means:

(a) a scheme of reconstruction of a company or companies, or

(b) the amalgamation of any two or more companies.

What relief applies where a company transfers a trade as part of a SRA?

(2) The relief in (3) applies where:

(a) a transferring company transfers the whole or part of its trade to an acquiring company as part of an SRA,

(b) both the transferring company and acquiring company were resident in the State, or trading through a branch or agency in the State, and

(c) the transferring company receives no consideration for the transfer (other than the acquiring company taking responsibility for trade debts).

How does the SRA relief apply?

(3) If the conditions in (2) are met:

(a) the transfer is treated as not giving rise to a balancing allowance or balancing charge (on the transferring company), and

(b) the acquiring company becomes entitled to any unexpired capital allowances, and liable for any balancing charges that would have fallen due to the transferring company had it continued to trade.

When does SRA relief not apply?

(4) The relief in (3) does not apply to an SRA where there is no change of ownership.

Section 309 Companies not resident in the State

Can a foreign company claim capital allowances?

A foreign company may be liable to CT in respect of one source of income and income tax in respect of another.

In such a case, the capital allowances relating to income chargeable to corporation tax (for example, profits of an Irish branch) must be allowed against such income.

Similarly, capital allowances relating to income chargeable to income tax (for example, Case V rental income not connected with an Irish branch) must be allowed against income chargeable to income tax.

Section 310 Allowances in respect of certain contributions to capital expenditure of local authorities

Does a contribution toward local authority capital expenditure qualify?

(1) A contribution towards capital expenditure incurred by a local authority on a Department of Environment approved scheme for the treatment of trade effluents, or the supply of water qualifies for a writing down allowance as if the contribution had bought an asset for use in the contributor’s trade.

Does a contribution toward water supply infrastructure qualify?

(2) A contribution made by a non-domestic water user towards the cost of new water-supply infrastructure may qualify for a capital allowance on a similar basis.

What allowance can be claimed on a contribution to a local authority?

(2A) A capital contribution toward plant and machinery, qualifies for 12.5% annual wear and tear allowance.

Can a successor claim a predecessor’s unused allowances?

(3) Where a business is sold or transferred, the successor is entitled to any unused allowances.

Section 311 Apportionment of consideration and exchanges and surrenders of leasehold interests

What happens when several assets are sold for a single price?

(1) This is an anti-avoidance section. A single all embracing price that is received for a combined sale of different assets must be justly apportioned between the various assets. In other words, the net sale proceeds must be split up to enable the parts of the net proceeds to be fairly allocated to the individual assets.

The Revenue may disregard any fictitious allocation where different assets are sold together for a single price.

What happens when a single compensation payment is received for several assets?

(2) A single compensation payment received for different assets must be justly apportioned between the various assets.

Does a sale include an exchange?

(3) In general, a sale includes:

(a) an exchange of property, and

(b) the surrender of a leasehold interest.

The price includes references to such exchange or surrender.

Is a transfer to an insolvency trustee treated as a sale?

(3A) Transfers of property to trustees in Debt Settlement or Personal Insolvency arrangements are not treated as sales.

Do the apportionment rules apply to other allowances?

(4) The apportionment rules also apply to mining and scientific research allowances.

Section 312 Special provisions as to certain sales

What is “control”?

(1) A person controls a body corporate if either through holding shares or special voting powers, he/she can ensure that the company’s affairs are conducted in accordance with his/her wishes.

A person controls a partnership if he/she has a right to more than half the partnership income or assets.

Can transactions between companies under common control be challenged?

(2) This anti-avoidance section applies to transactions between companies under common control (for example, a parent and a subsidiary, or two companies both controlled by a third company or by an individual). It also applies to transactions involving partnerships under common control.

In such a situation, it might be possible to

(a) create a balancing allowance by selling an asset to another company, or

(b) create an inflated allowance for the successor company by selling the asset at an inflated price.

Do open market values apply between controlled companies?

(3) In such transactions, an open market price is to be substituted for the actual sale price of the asset, but this rule may be varied in certain circumstances (see (4)-(5)).

Example

X Ltd and Y Ltd are both owned and controlled by Z Ltd.

X Ltd builds a factory at a cost of €200,000, and obtains thereby 25 annual allowances of €4,000 in respect of the expenditure (section 272).

After one year, having claimed €4,000, X Ltd sells the factory to Y Ltd for €10,000 thereby creating a balancing allowance (and consequential immediate cash flow advantage) for itself of €184,000 (€200,000 – €4,000 – €10,000). Y Ltd becomes entitled to write off the price paid (€10,000) over the next 24 years (the remainder of the writing down life).

The net effect is that a 25 year writing down allowance is effectively written down in one year.

To prevent such schemes, subs (3) ensures that open market value must be used for the sale to Y Ltd.

When is the open market price used?

(4) Where machinery or plant is sold between companies under common control, the amount to be substituted for the actual sale price is the lower of the open market price and the seller’s “cost” net of any grant received.

When is tax written down value used?

(5)-(6) When an asset is transferred between companies under common control, the companies may opt to substitute the transferred asset’s tax written down value for its open market value.

In such as case, the seller does not have a balancing charge, and the buyer may write off a reduced figure over the remaining life of the asset. However, if the buyer subsequently sells the asset for more than its tax written down value, the balancing charge must take account of the allowances already given.

Because this option simply moves a balancing charge from seller to buyer, it is not normally available if buyer or seller are non-resident, as it might prove impossible to collect any balancing charge from a non-resident buyer.

However, the option is allowed if the non-resident company trades through an Irish branch or agency.

Section 313 Effect, in certain cases, of succession to trade, etc

Does open market price apply where a person succeeds to a trade?

(1) When a person (a successor) succeeds to a trade previously carried on by another, the trade is treated as having ceased and the successor is deemed to have commenced a new trade on the date of the succession (section 69).

Where this happens, any property that was used in the predecessor’s trade that continues to be used in the successor’s trade is deemed to have been sold to the successor at its open market price on the date of the succession. The predecessor’s balancing adjustment is based on the open market price. The successor’s capital allowances are also calculated on the open market price.

Does a change of partners trigger a balancing adjustment?

(2) During a partnership trade (so long as the “relevant period” (section 1007) continues), a change in the partners (for example, the introduction of a new partner or the retirement of an old one) does not occasion a balancing adjustment for any partnership property. The capital allowances for the partnership trade, and any balancing allowances or charges on any sales by the partnership, are calculated as if the partnership trade were carried on throughout the relevant period by the same person.

How are allowances given to a successor of a deceased trader?

(3) A successor to a deceased trader can elect to have machinery owned by the deceased, and used for the trade, treated as bought for the expenditure unallowed, or the market value, if lower.

Section 314 Procedure on apportionment

Must a single price for several assets be apportioned?

(1)-(2) A single price for a combined sale of different assets must be justly apportioned between the various assets. In other words, the price must be split to enable the parts of the net proceeds to be fairly allocated to the individual assets (section 311).

The same apportionment must be used by both seller and buyer.

In the event of a dispute with Revenue as to the apportionment of a capital allowance or the open market price of a property, the matter may be determined by the Appeal Commissioners in the same manner as an appeal against an income tax assessment.

There is a further right of appeal to the Circuit Court, and, on a point of law, to the High Court.

Section 315 Property used for purposes of “exempted trading operations”

This section is spent.

Section 316 Interpretation of certain references to expenditure and time when expenditure is incurred

Does revenue expenditure count for capital allowances purposes?

(1) Capital expenditure does not include

(a) revenue type expenditure that is deductible in the normal way in the computation of taxable profits,

(b) any annual payment or charge (payable under deduction of tax.

Similarly, capital receipts do not include trading receipts.

When is expenditure incurred?

(2) Expenditure is “incurred” on the day on which it becomes payable. To claim an industrial building allowance, the claimant need not have actually paid over the money. The date on which the expenditure is incurred is the date the debt is incurred.

Does post-31 July 2008 expenditure on a hotel qualify?

(2A) Where work on the construction of a hotel or holiday cottage straddles the 31 July 2008 deadline, only expenditure attributable to work carried on before that date qualifies for capital allowances.

Does post-31 July 2008 expenditure on other tax incentive properties qualify?

(2B) Section 270(4) lists allowances that are to be reduced to 75% (in 2007) and 50% (to 31 July 2008) of the amount that would otherwise have been due. The allowances in question relate to hotels, sports injury clinics, multi-storey car parks, industrial and commercial premises in qualifying urban/renewal areas and in town renewal areas and park and ride facilities, third level education premises, and nursing home residential units.

Where construction work straddles 31 July 2008, only expenditure attributable to work carried out before that date qualifies.

For residential units attached to qualifying nursing homes, the final deadline is 30 April 2010. Expenditure by a company on the construction or refurbishment of a residential unit between 1 May 2007 and 30 April 2010, is restricted to 75% of the full amount. Expenditure by an individual on the construction or refurbishment of a residential unit between 1 May 2007 and 30 April 2010, is restricted to 50% of the full amount.

Does post-31 July 2008 expenditure on nursing homes qualify?

(2C) The final deadline for expenditure on nursing homes, convalescent homes, qualifying hospitals and qualifying mental health centres is:

(a) 30 June 2010 in the case of developments exempted from planning permission, and

(b) 30 June 2011 in the case of developments where a full (not outline) valid planning application was made before 31 December 2009.

It may happen that construction work straddles 30 June 2010 (or 30 June 2011). In such a case, only expenditure properly attributable to work before 30 June 2010 (or 30 June 2011 if applicable) qualifies.

For aircraft hangars the expenditure must relate to work actually carried out in the 5 year period from the appointed day.

Does pre-trading capital expenditure qualify?

(3) Pre-trading capital expenditure on an industrial building, or new machinery or plant, is deemed to have been incurred on the first day of trading.

Section 317 Treatment of grants

What is a food processing trade?

(1) A food processing trade is a trade that consists of the manufacture of food for human consumption.

Processed food is food, the form and value of which changed significantly from that of its raw state.

Raw food that has been made to grow, ripen or decay faster than normal does not qualify. Food that has been preserved, washed or frozen does not qualify.

Malt used by the brewing industry is not regarded as “intended for human consumption as a food” (Revenue PrecedentCTF93/1006, 4 March 1993).

Does grant-aided expenditure qualify?

(2) Except in the case of a food processing trade, industrial building and machinery or plant allowances are calculated on the cost of the asset net of grants. Any expenditure met by the State, the European Union, or any person other than the claimant does not qualify for capital allowances.

See Cyril Lord Carpets Ltd v Schofield, (1966) 42 TC 637; Stokes v Costain Property Investments Ltd, [1983] STC 405;McKinney v Hagans Caravans (Manufacturing) Ltd, [1997] STC 1023. For government subsidies see Gayjon Processes Ltd v Poulter, [1985] STC 174 and Ryan v Crabtree Denims Ltd, [1987] STC 402.

Does grant-aid qualify in a food processing trade?

(3) In the case of a food processing trade, capital allowances can be calculated on a grant-inclusive basis.

However, any grant is deducted in arriving at the amount unallowed of the expenditure in calculating the balancing adjustment on the sale etc. of the plant (section 288).

Can a lessor claim capital allowances on a grant-inclusive basis?

(4) A lessor of machinery or plant used in a food processing trade is not entitled to claim capital allowances based on the grant inclusive cost of the asset.

Section 318 Meaning of “sale, insurance, salvage or compensation moneys”

What is the meaning of “sale, insurance or compensation proceeds”?

The sale, insurance or compensation proceeds arising on the disposal of an asset means:

(a) where the asset is sold, the net sale proceeds,

(aa) where a right to use or deal with computer software is granted, the consideration received for granting that right,

(b) where the asset is demolished or destroyed, the insurance proceeds plus the net scrap value of the asset,

(c) where the asset is stolen or otherwise lost, the insurance proceeds or any other compensation moneys,

(d) where an industrial building ceases to be used, any capital sum received as compensation by the trader or lessor,

(e) where the event giving rise to the charge is the cessation of use for trading purposes, of a registered nursing home, a qualifying residential unit attached to such a home, a qualifying hospital, a qualifying mental health centre, or a qualifying childcare premises: the residue of expenditure plus any allowances granted.

The proceeds figure includes any capital sum received as compensation for the loss of the asset, but not any revenue sum received as compensation for loss of income from the asset, if such revenue has been taken into account as revenue in the profit and loss account.

Section 319 Adjustment of allowances by reference to value-added tax

Are capital allowances given on a VAT-exclusive basis?

(1) A VAT-registered trader is given capital allowances on the basis of the VAT-exclusive cost of the asset.

An unregistered trader is given capital allowances on the basis of the VAT-inclusive cost of the asset.

Does VAT affect a balancing adjustment?

(2) Balancing adjustments are calculated on the VAT-exclusive cost of the asset.

Section 320 Other interpretation (Part 9)

This section provides definitions which are used in interpreting Part 9 relating to the capital allowances and balancing charges for industrial buildings, machinery or plant and dredging expenditure.

Does income include a balancing charge?

(1) Income includes a balancing charge. This means that carried forward capital allowances can be set against “income” (including a balancing charge) of the later period.

A lease includes any lease agreement the term for which has begun, and any tenancy.

Does an asset include part of an asset?

(2) An asset includes pat of an asset, however, any specific reference in Part 9 to “the whole of a building or structure” is not to be read as referring to a part of that building.

For example, an addition to a factory is treated as a separate building with its own industrial building writing down allowance.

Does plant and machinery include a share in such plant and machinery?

(3) Plant and machinery includes a share in plant and machinery.

When is an asset regarded as sold?

(4) An asset is regarded as sold when the sale is complete or when the buyer takes possession of the asset, whichever is the earlier.

Does a cessation include a “deemed” cessation?

(5) A cessation of trade includes a deemed cessation, for example, when a person succeeds to a business.

What is the meaning of “an allowance made”?

(6) A reference in Part 9 to “an allowance made”, where appropriate, can be read as referring to an allowance which would have been made against income of a particular class if that income had been sufficient to absorb it.

Section 321 Provisions of general application in relation to the making of allowances and charges

Do the capital allowance rules apply to other provisions?

(1) The rules in (2)-(9) apply when calculating capital allowances and balancing adjustments.

They also apply to:

(a) restriction of allowances and charges for cars (section 374),

(b) farm buildings and works (sections 658660),

(c) mining allowances (sections 670683),

(d) scientific research (sections 765766),

(e) training of local staff (section 769), and

(f) any other provisions in the Tax Acts related to allowances and charges.

The rules do not cover the capital allowances and balancing charges relating to patent rights. Part 29 contains its own corresponding rules.

What is a “chargeable period”?

(2) The term chargeable period is used to describe both an individual’s tax year and a company’s accounting period. In the context of an individual, the chargeable period related to expenditure means the tax year’s basis period, not the tax year.

Are labour and interest part of an asset’s cost?

(2A) Under International Financial Reporting Standards (IFRS), labour costs and interest may be “capitalised”, i.e., included in the cost of an asset for accounting purposes.

In general, for capital allowance purposes, labour is to be recognised as part of the asset’s cost but interest is not.

What is “corporation tax”?

(3) Corporation tax for a chargeable period means the tax correctly chargeable (by reference to the financial year) for that period.

What is an “allowance” or “charge”?

(4) In the context of corporation tax, an allowance being made in taxing a trade means that the allowance is made in computing a company’s income for corporation tax.

In the context of income tax, an allowance being made in taxing a trade means that the allowance is made in charging an individual’s profits for income tax.

Are allowances subject to a specific writing down period?

(5) Certain capital allowances (for example, on patent rights, section 755) are expressed as being given as “writing down” allowances to be made over a writing down period of a specified number of years. This means that the writing down allowance for each 12 month period is arrived at by dividing the capital expenditure by the number of years in the writing down period.

Example

A company purchases existing patent rights for a capital sum of €36,000 on 1 September 2009 in its nine months accounting period ending 31 March 2010. The patent has 12 years to run from the date of purchase.

Capital expenditure on patent rights attract writing down allowances over a writing down period of 17 years beginning with the accounting period in which the expenditure is incurred or, if lower, over the part of the 17 years left to run at the date of the purchase (section 755). Therefore, the writing down period is 12 years.

The writing down allowance for each 12 month accounting period commencing with that of the expenditure is:

€36,000 / 12 years 3,000

For the company’s nine month accounting period to 31 March 2010, the writing down allowance is €2,250 (€3,000 x 9/12).

(6) Legislation spent.

How is an allowance apportioned for a period of less than one year?

(7) An annual allowance for an accounting period of less than one year is proportionately reduced. This means that if a company with a six month accounting period receives half the annual writing down allowance.

The reference to a “fraction or percentage, specified numerically,” is designed to exclude any proportionate reduction under that paragraph in the case of an allowance which is to be made for a specified period (for example, mine development allowance (section 670) or allowance for capital expenditure on purchase of patent rights (section 755), where the computation method looks after the circumstance that the accounting period may be less than a year (Inspector Manual 9.4.4).

Do the rules also apply for income tax cessation and corporation tax?

(8)-(9) The income tax rules relating to the treatment of capital allowances on a cessation (or “deemed” cessation) of a trade also apply for corporation tax.

Can a balancing adjustment be made on a Shannon or IFSC company?

(10) A balancing allowance or charge can continue to be made on a company that qualified for Shannon (section 445) or IFSC (section 446) relief.

Section 322 Interpretation (Chapter 1)

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Section 323 Capital allowances in relation to construction of certain commercial premises

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Section 324 Double rent allowance in respect of rent paid for certain business premises

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Section 325 Rented residential accommodation: deduction for certain expenditure on construction

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Section 326 Rented residential accommodation: deduction for certain expenditure on conversion

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Section 327 Rented residential accommodation: deduction for certain expenditure on refurbishment

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Section 328 Residential accommodation: allowance to owner-occupiers in respect of certain expenditure on construction or refurbishment

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Section 329 Provisions supplementary to sections 325 to 328

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Section 330 Interpretation (Chapter 2)

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Section 331 Accelerated capital allowances in relation to construction or refurbishment of certain industrial buildings or structures

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Section 332 Capital allowances in relation to construction or refurbishment of certain commercial premises

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Section 333 Double rent allowance in respect of rent paid for certain business premises

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Section 334 Rented residential accommodation: deduction for certain expenditure on construction

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Section 335 Rented residential accommodation: deduction for certain expenditure on conversion

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Section 336 Rented residential accommodation: deduction for certain expenditure on refurbishment

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Section 337 Residential accommodation: allowance to owner-occupiers in respect of certain expenditure on construction or refurbishment

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Section 338 Provisions supplementary to sections 334 to 337

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Section 339 Interpretation (Chapter 3)

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Section 340 Designated areas, designated streets and enterprise areas

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Section 341 Accelerated capital allowances in relation to construction or refurbishment of certain industrial buildings or structures

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Section 342 Capital allowances in relation to construction or refurbishment of certain commercial premises

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Section 343 Capital allowances in relation to construction or refurbishment of certain buildings or structures in enterprise areas

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Section 344 Capital allowances in relation to construction or refurbishment of certain multi-storey car parks

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Section 345 Double rent allowance in respect of rent paid for certain business premises

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Section 346 Rented residential accommodation: deduction for certain expenditure on construction

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Section 347 Rented residential accommodation: deduction for certain expenditure on conversion

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Section 348 Rented residential accommodation: deduction for certain expenditure on refurbishment

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Section 349 Residential accommodation: allowance to owner-occupiers in respect of certain expenditure on construction or refurbishment

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Section 350 Provisions supplementary to sections 346 to 349

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Section 350A Provision against double relief

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Section 351 Interpretation (Chapter 4)

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Section 352 Accelerated capital allowances in relation to construction or refurbishment of certain industrial buildings or structures

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Section 353 Capital allowances in relation to construction or refurbishment of certain commercial premises

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Section 354 Double rent allowance in respect of rent paid for certain business premise

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Section 355 Disclaimer of capital allowances on holiday cottages, holiday apartments, etc

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Section 356 Rented residential accommodation: deduction for certain expenditure on construction

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Section 357 Rented residential accommodation: deduction for certain expenditure on conversion

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Section 359 Provisions supplementary to sections 356 to 358

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Section 360 Interpretation (Chapter 5)

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Section 361 Rented residential accommodation: deduction for certain expenditure on construction

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Section 362 Rented residential accommodation: deduction for certain expenditure on conversion

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Section 363 Rented residential accommodation: deduction for certain expenditure on refurbishment

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Section 364 Residential accommodation: allowance to owner-occupiers in respect of certain expenditure on construction or refurbishment

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Section 365 Provisions supplementary to sections 360 to 364

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Section 366 Interpretation (Chapter 6)

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Section 367 Qualifying areas

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Section 368 Accelerated capital allowances in relation to construction or refurbishment of certain industrial buildings or structures

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Section 369 Capital allowances in relation to construction or refurbishment of certain commercial premises

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Section 370 Double rent allowance in respect of rent paid for certain business premises

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Section 371 Residential accommodation: allowance to owner-occupiers in respect of certain expenditure on construction or refurbishment

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Section 372 Provisions supplementary to section 371

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Section 372A Interpretation and application (Chapter 7)

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Section 372B Qualifying areas

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Section 372BA Qualifying streets

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Section 372C Accelerated capital allowances in relation to construction or refurbishment of certain industrial buildings or structures

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Section 372D Capital allowances in relation to construction or refurbishment of certain commercial premises

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Section 372E Double rent allowance in respect of rent paid for certain business premises

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Section 372F Rented residential accommodation: deduction for certain expenditure on construction

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Section 372G Rented residential accommodation: deduction for certain expenditure on conversion

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Section 372H Rented residential accommodation: deduction for certain expenditure on refurbishment

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Section 372I Residential accommodation: allowance to owner-occupiers in respect of expenditure on construction or refurbishment

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Section 372J Provisions supplementary to sections 372F to 372I

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Section 372K [Non-application of relief in certain cases and provision against double relief]

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Section 372L Interpretation (Chapter 8)

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Section 372M Accelerated capital allowances in relation to construction or refurbishment of certain industrial buildings or structures

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Section 372N Capital allowances in relation to construction or refurbishment of certain commercial buildings or structures

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Section 372O Double rent allowance in respect of rent paid for certain business premises

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Section 372P Rented residential accommodation: deduction for certain expenditure on construction

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Section 372Q Rented residential accommodation: deduction for certain expenditure on conversion

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Section 372R Rented residential accommodation: deduction for certain expenditure on refurbishment

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Section 372RA Residential accommodation: allowance to owner-occupiers in respect of certain expenditure on construction or refurbishment

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Section 372S Provisions supplementary to sections 372P to 372RA

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Section 372T Non-application of relief in certain cases and provision against double relief

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Section 372U Interpretation (Chapter 9)

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Section 372V Capital allowances in relation to construction or refurbishment of certain park and ride facilities

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Section 372W Capital allowances in relation to construction or refurbishment of certain commercial premises

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Section 372X Rented residential accommodation: deduction for certain expenditure on construction

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Section 372Y Residential accommodation: allowance to owner-occupiers in respect of certain expenditure on construction

Amendments

Section 372Y repealed by Finance Act 2002 section 24(3)(h).

Section 372Z Provisions supplementary to sections 372X and 372Y

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Section 372Z repealed by Finance Act 2002 section 24(3)(h).

Section 372AA Interpretation and application (Chapter 10)

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Section 372AB Qualifying areas

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Section 372AC Accelerated capital allowances in relation to construction or refurbishment of certain industrial buildings or structures

Amendments

Legislation spent or repealed

Section 372AD Capital allowances in relation to construction or refurbishment of certain commercial premises

Amendments

Legislation spent or repealed

Section 372AE Rented residential accommodation: deduction for certain expenditure on construction

Amendments

Section 372AE repealed by Finance Act 2002 section 24(3)(i).

Section 372AF Rented residential accommodation: deduction for certain expenditure on conversion

Amendments

Section 372AF repealed by Finance Act 2002 section 24(3)(i).

Section 372AG Rented residential accommodation: deduction for certain expenditure on refurbishment

Amendments

Section 372AG repealed by Finance Act 2002 section 24(3)(i).

Section 372AH Residential accommodation: allowance to owner-occupiers in respect of certain expenditure on construction or refurbishment

Amendments

Section 372AH repealed by Finance Act 2002 section 24(3)(i).

Section 372AI Provisions supplementary to sections 372AE to 372AH

Amendments

Section 372AI repealed by Finance Act 2002 section 24(3)(i).

Section 372AJ Non-application of relief in certain cases and provision against double relief

Amendments

Legislation spent or repealed

Section 372AK Interpretation (Chapter 11)

What definitions apply in relation to residential accommodation incentives?

A lease includes any tenancy and any lease-type agreement (but not a mortgage) whereby a landlord (a lessor) receive rent from a tenant (a lessee) in respect of leased land or buildings (premises) in the State.

Rent includes any payment in the nature of rent (for example, work done by a tenant on the leased premises).

A property’s market value is the price it might reasonably be expected to fetch if sold in the open market in conditions that would favour obtaining the best price for the seller.

Refurbishment expenditure means:

(a) in relation to a building which is not a multi-unit refurbishment (special specified building) expenditure on the repair or renewal of a building and the installation or upgrading of water, sewerage or heating facilities in the course of the restoration work, where the work has been certified by the Minister for the Environment and Local Government,

(b) in relation to a façade, construction work which constitutes repair, renewal or restoration of the facade,

(c) in relation to a multi-unit refurbishment (special specified building), expenditure on the repair or renewal of a building and installation or upgrading of water, sewerage or heating facilities in the course of the restoration work, where the work complies with the regulations governing standards of rented accommodation.

The “section 23” and owner-occupier type reliefs apply to tax incentive areas, i.e.:

(a) a qualifying urban area (section 372B),

(b) a qualifying rural area (Schedule 8A),

(c) the site of a qualifying park and ride facility (section 372U(1)),

(d) a qualifying town area (section 372AB),

(e) a qualifying student accommodation area.

In relation to an existing building, necessary construction involves:

(a) an extension amounting to not more than 30% of the property’s existing floor area, which is necessary to facilitate access to, or provide essential facilities in, the premises,

(b) construction or an additional storey or storeys to enhance the streetscape,

(c) construction of a replacement building.

A replacement building is one that fronts onto a qualifying street which:

(a) replaces an existing building for which a demolition order was given between 13 September 2000 and 31 March 2001, in a manner consistent with the character and size of the existing building, or

(b) replaces an existing single storey building that had to be demolished because it was incapable of structurally supporting the additional storey or storeys necessary to enhance the streetscape.

Section 372AL Qualifying period

What is the “qualifying period”?

(1) The qualifying period means:

(a) in relation to a qualifying urban area, 1 August 1998 to 31 December 2002 (31 December 2004 in the case of projects that received a certificate from relevant local authority on or before 30 April 2003 stating that not less than 15% of the cost was incurred before 31 December 2002),

(b) in relation to a qualifying street, 6 April 2001 to 31 December 2004 (31 December 2006 where the extension conditions in (1A) have been met and 31 July 2008 where the extension conditions in (1A) and (3) have been met),

(c) in relation to a qualifying rural area:

(i) as regards let residential property, 1 June 1998 to 31 December 2004 (31 December 2006 where the extension conditions in (1A) have been met and 31 July 2008 where the extension conditions in (1A) and (3) have been met),

(ii) as regards owner-occupier property, 6 April 1999 to 31 December 2004 (31 December 2006 where the extension conditions in (1A) have been met and 31 July 2008 where the extension conditions in (1A) and (3) have been met),

(d) in relation to a qualifying park and ride facility, 1 July 1999 to 31 December 2004 (31 December 2006 where the extension conditions in (1A) have been met and 31 July 2008 where the extension conditions in (1A) and (3) have been met),

(e) in relation to a qualifying town area, 1 April 2000 to 31 December 2004 (31 December 2006 where the extension conditions in (1A) have been met and 31 July 2008 where the extension conditions in (1A) and (3) have been met),

(f) in relation to a qualifying student accommodation area, 1 April 1999 to 31 March 2003 (31 December 2006 where the extension conditions in (1A) have been met and 31 July 2008 where the extension conditions in (1A) and (3) have been met),

(g) in relation to a special specified building, 6 April 2001 to 31 July 2008.

Does post-31 December 2004 expenditure qualify?

(1A) Expenditure incurred on or before 31 July 2006 continues to qualify where a valid planning application has been made and acknowledged as having been received before the relevant deadline by the planning authority. If the construction relates to an exempted development, 5% of the construction work needs to have been carried out before 31 December 2004.

Where does the 31 July 2008 deadline apply?

(2)-(3) The 31 July 2008 deadline for construction, conversion or refurbishment expenditure on a building in a tax incentive area applies where the developer (or where appropriate, the claimant) can show that work to the value of not less than 15% of the expenditure has been carried out before 31 December 2006.

Section 372AM Grant of certain certificates and guidelines, qualifying and special qualifying premises

What certificates does a dwelling need?

(1) A dwelling does not qualify for residential relief (section 372AP) or owner-occupier relief (section 372AR) unless it has the appropriate certificate of compliance (or, in the case of a self-built dwelling, a certificate of reasonable cost) from the Department of the Environment.

The certificate of compliance states that the building work meets the Department’s standards, and that the floor area is within the limits for qualifying premises. The certificate of reasonable cost states that the building work expenditure is reasonable.

A student accommodation facility must conform to development guidelines issued by the Minister for the Environment and Local Government. These guidelines deal with:

(a) the design and construction (or conversion or refurbishment) of student residences,

(b) the floor area and dimensions of student residences,

(c) the provision of ancillary facilities for student residences,

(d) the granting of certificates of reasonable costs,

(e) the designation of qualifying areas,

(f) the terms and conditions of qualifying leases, and

(g) the educational institutions to which this relief applies.

What is a qualifying premises?

(2) For a dwelling to be regarded as a qualifying premises, it must:

(a) be within the incentive area,

(b) be used as a dwelling,

(c) meet the floor area requirements,

(d) have the appropriate certificates, and

(e) be let throughout the 10 year period beginning with the first letting.

A dwelling is regarded as a qualifying premises for the purposes of residential letting relief (section 372AP) and owner-occupier relief (section 372AR) if it meets the following conditions:

(a) The site of the building is wholly within a tax incentive area, or it fronts onto a qualifying street.

(b) It must be used solely as a dwelling (not as office or shop).

(c) It meets the floor area requirements.

(d) It has a certificate of compliance, or in the case of a self-built property a certificate of reasonable cost which confirms the cost of the construction, conversion or refurbishment. This does not apply if the work relates solely to the refurbishment of a façade.

(e) In the case of a dwelling in a qualifying part and ride facility, the relevant local authority has certified that the development complies with the guidelines.

(f) In relation to residential letting relief (section 372AP), the property is let throughout the relevant period (i.e., the 10 year period beginning with the date of first letting). Reasonable periods of disuse between lettings are allowed.

What is a special qualifying premises?

(3) A property is a special qualifying premises if it meets following conditions:

(a) It is comprised in a muti-unit refurbishment (special specified building).

(b) It is used solely as a dwelling.

(c) It is let throughout the relevant period, i.e., the 10 year period beginning with the date of first letting. Reasonable periods of disuse between lettings are allowed.

(d) It does not also qualify for any other residential letting relief.

Section 372AN Eligible expenditure: lessors

What expenditure qualifies for residential letting relief?

(1) The following eligible expenditure qualifies for residential letting relief (section 372AP):

(a) construction expenditure, or necessary construction (section 372A(1)) of a dwelling which fronts onto (or which is comprised in a development that fronts onto) a qualifying street,

(b) conversion expenditure (see (2)),

(c) refurbishment expenditure (see (3)).

What is “conversion expenditure”?

(2) Conversion expenditure means expenditure on:

(a) The conversion into a dwelling of a building not previously used as a dwelling which fronts onto a designated street, or which is located in a tax incentive area (other than a qualifying park and ride facility). The conversion into a dwelling of a part of a building not previously used as a dwelling which fronts onto a designated street, or which is located in a qualifying urban area or a qualifying rural area also qualifies.

(b) The conversion into two or more dwellings of a building previously used as a a dwelling which fronts onto a designated street, or which is located in a tax incentive area (other than a qualifying park and ride facility). The conversion into two or more dwellings of a building previously used as a dwelling which fronts onto a designated street, or which is located in qualifying urban area or a qualifying rural area also qualifies.

What also qualifies as conversion expenditure?

(3) Conversion expenditure also includes expenditure on the repair or renewal of a building and the installation or upgrading of water, sewerage or heating facilities.

Conversion expenditure does not include:

(a) expenditure which qualifies for any other deduction or allowance for income tax or corporation tax purposes, or

(b) any expenditure unrelated to converting the building into a dwelling (for example, conversion expenditure which relates to a shop is not deductible).

How is the qualifying conversion cost calculated?

(4) The conversion cost of the residential and non-residential parts of a single building is calculated in proportion to the floor area of the entire building. In other words, if half the building’s floor space is residential, half of the conversion costs are deductible.

What is “refurbishment expenditure”?

(5) Refurbishment expenditure means expenditure on refurbishment of:

(a) a specified building (see (5)), and the façade of such a building located in a qualifying town area, or

(b) a special specified building.

It does not include “non-residential” expenditure, i.e., expenditure on any non-residential part of the building (for example, offices) where refurbishment expenditure is not directly attributable either the residential or the non-residential part of a building, it must be apportioned on the basis of floor area.

What is a “special specified building”?

(6) A special specified building is a building which contains more than one dwelling unit before and after its refurbishment.

A specified building is a premises which meets the following conditions:

(a) it is a building or part of a building that fronts onto a designated street or is located in any tax incentive areaexcept a park and ride facility,

(b) it is a part of a building which fronts onto a designated street or which is in a qualifying urban area or a qualifying town area,

(c) if it is a building in a qualifying rural area, or a building or part of a building in a qualifying town area, it contains more than one dwelling before and after its refurbishment,

(d) if it is a building or part of a building which fronts onto a designated street or which is located in a qualifying rural area, or a building in a student accommodation area, it contains more than two dwellings before and after its refurbishment.

Do site clearance costs qualify?

(7) Qualifying expenditure includes the cost of site clearance, i.e., preparing the land for building work. This includes demolition of old buildings on the land, earth moving, building of access roads, and the laying on of water, sewerage and electricity supplies.

Section 372AO Qualifying lease

What is market value?

(1) A property’s market value is the price it would fetch if sold in the open market in circumstances that the seller would get the best price reasonably obtainable, less the part of that price attributable to the site cost.

What is a qualifying lease?

(2) A lease is a qualifying lease if the landlord is taxed on the income from the lease under Case V and any premium payable under the lease:

(i) in a construction case, does not exceed 10% of the property’s relevant cost, i.e., the aggregate of the site cost and construction cost,

(ii) in a conversion case, does not exceed 10% of the property’s post-conversion market value,

(iii) in a refurbishment case, does not exceed 10% of the property’s post-refurbishment market value (or is payable before the completed date in connection with the refurbishment).

How is qualifying expenditure calculated where a dwelling is part of a building?

(3) The rule applies where a dwelling which has been converted or refurbished is part of a larger building and cannot be sold apart from the building of which it is a part. In such a case, the part-conversion (or part-refurbishment) market value of the dwelling is calculated based in the floor area of the entire building.

Does a lease purchase scheme qualify as a lease?

(4) A lease does not qualify if it is, in effect, a lease purchase scheme under which, at the end of the lease period, ownership will pass to the purchaser for a nominal sum.

Section 372AP Relief for lessors

Clawback of “section 23 type” relief in death cases: Tax Briefing Issue 08 – 2010

What is the relevant period?

(1) The relevant period in which eligible expenditure is incurred is:

(a) in relation to a constructed or converted premises, the 10 year period beginning with the date on which the premises is first let,

(b) in relation to a refurbished premises or special qualifying premises, the 10 year period beginning with the date on which the premises is first let after such completion.

The relevant price paid in relation to a property is the proportion of the net price arrived at by multiplying the net price by: eligible expenditure divided by the property’s relevant cost, i.e., the aggregate of the site cost and the cost of the construction, conversion or refurbishment, as appropriate.

How does a landlord of a qualifying premises obtain relief?

(2) A landlord of a qualifying premises or special qualifying premises can set the eligible expenditure against his/her rental income from that premises.

How does a landlord of a special qualifying premises obtain relief?

(3) A landlord of a special qualifying premises may set 15% of the eligible expenditure against his/her rental income from the premises for the chargeable period in which the expenditure was incurred (or if it was not let in that period, the chargeable period in which the date of first letting occurs,) and for each subsequent chargeable period.

The overall deduction may not exceed 100% of the expenditure. In other words, it is 15% for six years and 10% for the seventh year.

In this regard, a chargeable period means a tax year or company accounting period, as appropriate. The deduction is proportionately scaled back if the accounting period is shorter than 12 months.

Does a premium count as rent?

(4) Where a premium is payable under a short lease (a lease not longer than 50 years), part of the premium is treated as rent receivable at the time of the letting agreement. 100% of the premium is taxed if the lease is less than one year, 98% if the lease is for two years, etc. The construction cost deduction is restricted by the amount of the premium not taxed as rent.

Is residential relief restricted if there is non-residential capital expenditure?

(5) Construction expenditure only qualifies for relief if it does not exceed one quarter of the total capital expenditure that qualifies for allowances.

Furthermore, the expenditure only qualifies if the claimant has received a certificate from the relevant local authority stating that the premises complies with the development guidelines.

Example

Case 1 Case 2
Park and ride facility with residential element:
Construction of park and ride facility: 150,000 350,000
Construction of commercial premises: 290,000 200,000
Construction of residential units 120,000 600,000
560,000 1,150,000
Commercial element percentage 51% 17%
Residential element percentage 21% 52%

In case 1, the residential expenditure qualifies as it is less than 25% of the total potentially qualifying expenditure (€560,000).

In case 2, the residential expenditure does not qualify as it exceeds 25% of the total potentially qualifying expenditure (€1,150,000).

How is the construction cost calculated where a premises is part of a larger building?

(6) The construction cost (and site cost) of a qualifying premises which forms part of a larger building (for example, an apartment in a block of apartments) or is one of several buildings in a single development is calculated by apportioning the construction cost (and site cost) of the entire building (or development).

When is residential relief withdrawn?

(7) If within 10 years of the date of the first letting, the property is sold or no longer qualifies as a qualifying premises (for example, if the floor area is extended beyond the limits), any tax deduction against rental income already given is withdrawn.

This is achieved by treating the seller as having received rental income equivalent to A – B where:

A = deductions received in relation to the premises, and

B = relief as yet unclaimed because it is comprised in a carried forward rental loss.

Example

Allowable expenditure 70,000
Amount claimed in each of years 1, 2, 3 3 x €7,000 = 21,000
Premises sold on first day of year 4
Deemed rent received on first day of year 4 21,000
(This cancels the €21,000 claimed)

Does a transfer to a trustee in insolvency trigger a withdrawal of relief?

(7A) The transfer of property to a trustee in a debt settlement or personal insolvency arrangement does not trigger a withdrawal of relief.

How is the residential relief calculated in the case of a purchased premises?

(8) The purchaser of a qualifying premises may deduct from his/her rental income any unused deduction that has not been claimed by the previous landlord, i.e., the deduction that would have gone to the previous landlord within 10 years of the date of the first letting had he/she continued to let the premises him/herself.

The purchaser is not entitled to any deduction for the site cost part of the purchase price. The deduction must not exceed the relevant price paid, i.e., the construction element of the purchase price. This is the proportion of the net price paid represented by the construction element of the combined construction and site cost (relevant cost).

Example

1.
Purchaser buys property for (net price paid) 160,000 (A)
Developer’s construction expenditure in qualifying period 90,000 (B)
Developer’s total construction expenditure 95,000 (C)
Developer’s purchase cost of property (site cost) 30,000 (D)
Developer’s relevant cost 125,000 (C) (D)
Purchaser’s qualifying expenditure deduction 90,000 (B)
because it does not exceed the relevant price paid:
A x B/(C + D) = €160,000 x €90,000/(€95,000 + €30,000) = 115,200
2.
This example uses the same facts except:
Purchaser buys property for (net price paid) 120,000 (A)
The purchaser’s qualifying deduction is the relevant price paid
A x B/(C + D) = €120,000 x €90,000 / (€95,000 + €30,000) = 86,400
Because it is lower than the developer’s construction expenditure 90,000 (B)

Source: Revenue Guidance Notes (adapted)

How is residential letting relief calculated where an unused premises is bought?

(9) The purchaser of an unused qualifying premises (i.e., when buying from a builder), may claim a deduction equal to the lower of:

(a) The property’s construction cost (in the qualifying period).

(b) The relevant price, i.e., the construction cost part of the property’s purchase price. This is the part of the net price paid represented by the construction cost part of the combined construction and site cost (relevant cost).

If the property is sold more than once before being used, the deduction is given to the latest buyer.

Example

You buy an unused newly built property for (net price paid) 100,000 (A)
Developer’s construction expenditure in qualifying period 35,000 (B)
Developer’s total construction expenditure 45,000 (C)
Developer’s purchase cost of property (site cost) 30,000 (D)
Developer’s relevant cost 75,000 (C) + (D)
Purchaser’s qualifying expenditure
The relevant price paid, i.e., A x B/(C + D)
= €100,000 x €35,000 / (€45,000 + €30,000) = 46,667

1. A purchaser from a commercial builder is deemed to have incurred construction expenditure equal to the relevant price paid. This means qualifying expenditure includes a proportion of the developer’s profit on the construction (conversion, or refurbishment) (Tax Briefing 33).

2. If you sell on the property unused, you pass on your deduction (€46,667) to the next purchaser.

Example

(same facts as previous example)
You buy unused property from speculator for 100,000
Speculator had bought property from developer for 90,000 (A)
Your qualifying expenditure is not (as in previous example) 46,667
It is A x B/(C + D) = €90,000 x €35,000/(€45,000 + €30,000) = 42,000

Can a premises that is sold a number of times qualify?

(10) A property that was first sold by a commercial builder may be sold on through any number of buyers, but the deduction obtainable by the latest such buyer may not exceed the construction, conversion or refurbishment (as appropriate) element of the first sale price (the relevant price paid on the first purchase).

Can relieved expenditure qualify for relief under any other heading?

(11) Expenditure on a qualifying premises does not qualify under any other heading.

Does grant-aided expenditure qualify?

(12) Eligible expenditure is calculated on a grant-exclusive basis.

How is the withdrawal of a residential relief treated for CGT purposes?

(13) The withdrawal of rental relief expenditure is treated for CGT purposes as a balancing charge.

However, if the landlord is liable to CGT on the disposal of the property, he/she is allowed a CGT deduction for the construction etc. expenditure already obtained unless he/she makes a capital loss.

In such a case, the cost of the asset must exclude the rental relief, but he/she is given a compensating balancing charge to ensure that he/she retains the capital loss.

Example

You buy an apartment in a park and ride facility for €50,000, obtain a rental income deduction of €35,000, and sell the apartment for €70,000.

Sale proceeds 70,000
Cost 50,000
Chargeable gain 20,000
The cost is not adjusted.
Assume that you sold the apartment for 45,000
Cost 50,000
Less rental income deduction 35,000
Compensating balancing charge 35,000 50,000
Allowable loss 5,000

In effect, the cost is not adjusted.

How is a claw-back of relief treated for CGT purposes?

(13A) A deduction under this section is treated as a capital allowance. The amount represented by ‘A’ in subsection (7) is treated as a balancing charge. This ensures that a CGT loss is not restricted. This subsection only applies to claw-backs arising on or after 1 January 2012.

Is planning permission required?

(14) Planning permission is not required unless it has been received for the work.

What other conditions must be met in order to qualify for residential relief?

(15) To qualify for this deduction, a person must also fulfil additional conditions listed in section 372AS.

Section 372AQ Qualifying expenditure: owner occupiers

What is “qualifying expenditure”?

(1) Qualifying expenditure means the grant-exclusive cost of qualifying owner-occupied dwelling. In the case of a qualifying premises in a qualifying town, it includes refurbishment of the facade.

What is a qualifying owner occupied dwelling?

(2) A qualifying owner-occupied dwelling is a qualifying premises which is first used as the occupant’s sole or main residence.

What is “necessary construction”?

(3) In the case of a building which fronts onto (or which is part of a development that fronts onto) a qualifying street, “construction” means “necessary construction” (see section 372AK).

Does site clearance cost qualify?

(4) Qualifying expenditure includes the cost of site clearance, i.e., preparing the land for building work. This includes demolition of old buildings on the land, earth moving, building of access roads, and the laying on of water, sewerage and electricity supplies.

Section 372AR Relief for owner occupiers

How is owner-occupier claimed?

(1) Where you incur qualifying expenditure (section 372AQ), you may, in calculating your total income for the tax year in which the expenditure was incurred, and each of nine succeeding tax years, deduct a percentage of the qualifying expenditure:

(a) In the case of a newly built dwelling, this is 5% of the construction cost.

(b) In the case of a qualifying premises which fronts onto, or which is part of a development which fronts onto, a qualifying street, this is 10% of the necessary construction (section 372AK) cost.

 (2) Legislation spent.

Can owner-occupier relief be deducted from joint income?

(3) A married individual who is jointly (section 1017) but not separately (section 1023) assessed may take the deduction against his/her spouse’s total income.

When must owner-occupier relief be incurred?

(4) To qualify for owner-occupier relief, the expenditure must be incurred in the qualifying period.

Is there any restriction on the qualifying amount of expenditure on an owner occupied residence if there are other buildings on the site?

(5) Residential construction expenditure only qualifies for relief if together with other capital expenditure on the facility, it does not exceed one quarter of the total qualifying capital expenditure.

Furthermore, the expenditure only qualifies when the claimant has received a certificate from the relevant local authority stating that the premises complies with the development guidelines.

Is owner-occupier relief split between joint owners?

(6) Where two or more persons jointly own a home, the deduction is to be justly apportioned between owners by the inspector. The inspector’s decision may be amended by the Appeal Commissioners, or on appeal, the Circuit Court Judge.

How is owner occupier relief given if the qualifying property has to be apportioned?

(7) The rules in section 372AP(6), (9) and (10) which relate to apportionment of eligible expenditure, and the amount of such expenditure incurred in the qualifying period, also apply for owner-occupier relief.

Can owner-occupier relieved expenditure qualify for any other relief?

(8) Expenditure that qualifies for owner-occupier relief cannot qualify under any other heading.

Must planning permission be obtained?

(9) Owner-occupier relief does not apply if planning permission has not been obtained.

What other conditions apply to owner-occupier relief?

(10) A person claiming owner-occupier relief must also fulfil additional conditions listed in section 372AS.

Section 372AS Determination of expenditure incurred in qualifying period, and date expenditure treated as incurred for relief purposes

When must expenditure be incurred?

(1) To qualify for relief, eligible expenditure must have been incurred, and the building work must have been carried out, in the qualifying period.

What restrictions apply to expenditure incurred between January 2007 and July 2008?

(1A) This subsection restricts the amount of “section 23” relief that would otherwise be available in relation to expenditure incurred during 1 January 2007 to 31 July 2008. The relief is phased out as follows:

(a) relief relating to expenditure incurred during 1 January 2007 to 31 December 2007 is restricted to 75% of the full figure, and

(b) relief relating to expenditure incurred during 1 January 2008 to 31 July 2008 is restricted to 50% of the full figure.

Expenditure is only treated as “incurred” during 1 January 2007 to 31 December 2007, or during 1 January 2008 to 31 July 2008, to the extent that it is properly attributable to work carried out in the period in question.

Does site preparation work qualify?

(2) The rule in (1) also applies to land development which is treated as construction, conversion or refurbishment expenditure.

How is expenditure allocated if a building falls partly outside a qualifying area?

(2A) Where a building straddles the boundary of a qualifying area, expenditure is allocated to the part inside the boundary and the part outside the boundary on an area (square metre) basis.

When is expenditure deemed to have been incurred?

(3) Construction and conversion expenditure incurred within the qualifying period is deemed to have been incurred on the date of the first letting under a qualifying lease.

Refurbishment expenditure incurred within the qualifying period is deemed to have been incurred on the date of the first letting under a qualifying lease after the refurbishment or, where the flat has a sitting tenant, on the date of completion of the work.

Construction or refurbishment expenditure on an owner-occupied home is deemed to have been incurred on the date it is first used as a dwelling.

Section 372AT Appeals

Can a Revenue decision regarding residential relief be appealed?

A claimant is entitled to appeal a Revenue decision over any matter (apart from certificates of reasonable cost) relating to a deduction for construction, conversion or refurbishment expenditure or the owner-occupier allowance.

The Appeal Commissioners must hear and determine the matter as if it were an appeal against an income tax assessment. There is a further right of appeal to the Circuit Court, and, on a point of law, to the High Court.

Section 372AU Saver for relief due, and for clawback of relief given under old schemes

Is relief under repealed legislation still valid?

(1) Although the residential relief legislation which preceded this consolidated legislation is now repealed, a person entitled to a deduction under the old legislation remains entitled to the deduction.

Is owner-occupier legislation under repealed legislation still valid?

(2) Although the owner-occupier relief which preceded this consolidated legislation is now repealed, a person entitled to a deduction under the old legislation remains entitled to the deduction.

Section 372AV Continuity

How are the old relief enactments carried into the new Acts?

(1) As the old residential reliefs are now consolidated in this Chapter, the prior legislation (the old enactments) is repealed.

How does the new law replace the old Acts?

(2) Income tax, corporation tax and CGT law continues in force even though the consolidated law stands in place of the repealed law.

How is the pre-consolidation law connected to the new law?

(3) A reference in any document or other Act to a consolidated provision is to be read, where necessary, as a reference to the underlying pre-consolidation law.

How is a reference to a pre-consolidation provision to be read?

(4) A reference to a pre-consolidation provision is to be read as a reference to a consolidated provision.

Do things done under the repealed law have effect under the new law?

(5) Anything done under the repealed legislation is deemed to have been made under corresponding consolidation provision.

How is a deduction given under the old law treated?

(6) A deduction given under the old law is treated as given under the corresponding new law.

Do orders under the old law continue in effect?

(7)-(8) An order made under sections 372B(1) or 372BA(1) to section 372F, 372G, 372H or 372I is treated as having been made under section 372AP in so far as it relates to construction, conversion or refurbishment expenditure, andsection 372AR in so far it relates to owner-occupier relief.

An order made under section 372AB(1) to section 372AE, 372AF, 372AG or 372AH is treated as having been made under section 372AP in so far as it relates to construction, conversion or refurbishment expenditure, and section 372ARin so far it relates to owner-occupier relief.

Do officers’ authorisations continue in effect?

(9) Officers authorised or nominated under the repealed pre-consolidation legislation are deemed to have been authorised or nominated under the equivalent provisions of the consolidated law.

How are the old enactments connected to the consolidated law?

(10) A reference in any document or other law to a consolidated provision is to be read, where necessary, as a reference to the underlying pre-consolidation legislation.

Section 372AW Interpretation, applications for approval and certification

Mid-Shannon Scheme: Tax Briefing Issue 69 – 2008

What are qualifying tourism infrastructure facilities?

(1) This Chapter provides relief for expenditure incurred on the construction or refurbishment of qualifying tourism infrastructure facilities in the mid-Shannon Area, i.e., the corridor of land consisting of all qualifying mid-Shannon areas – these are listed in Schedule 8B. To qualify, expenditure must be incurred within the qualifying period(between 1 June 2008 and 31 May 2015). The project must also comply with the relevant guidelines and be approved by the mid-Shannon Tourism Infrastructure Board.

What is the mid-Shannon Tourism Infrastructure Board?

(2) The mid-Shannon Tourism Infrastructure Board is a board selected by the Minister for Arts, Sports and Tourism in consultation with the Minister for Finance. It may not exceed five persons.

No project may qualify for relief unless the Board has:

(i) granted advance approval for the project, and

(ii) certified in writing that the construction or refurbishment work complied with the relevant guidelines.

No project may qualify for approval in principle unless the Board receives an application for approval, together with the required information and details, within four years of this Chapter’s commencement date.

Are there guidelines for the mid-Shannon Tourism scheme?

(3) The Minister for Finance must issue guidelines to the mid-Shannon Tourism Board and the Board must have regard to those guidelines in granting approval to, or certifying, a project. The guidelines may deal with the following:

(a) the nature and extent of the contribution of the project to the mid-Shannon area,

(b) its coherence with national tourism strategy,

(c) environmental sensitivity,

(d) amenities and facilities to be provided,

(e) nature and extent to which accommodation buildings are allowed,

(f) standards of design and construction for qualifying projects,

(g) consistency with local planning law,

(h) details to be provided in an application for approval or for certification,

(i) the provision of information relating to capital expenditure on construction or refurbishment, the number and nature of investors, the amount to be invested by each and the investment structure to be used,

(j) any other matters which the Minister for Arts, Sports and Tourism (in consultation with the Minister for Finance) considers should be included.

What capital expenditure limits apply to Shannon tourism projects?

(4) The Board must not approve or certify expenditure on accommodation buildings if the capital expenditure exceeds the limit amount, i.e. the lower of:

(i) 50% of the total construction or refurbishment expenditure on all buildings or structures on the project,

(ii) the construction or refurbishment expenditure on buildings or structures in the project other than accommodation buildings.

If there is more than one accommodation building in a project and the capital expenditure on each exceeds the limit amount, the aggregate is reduced to the limit amount and apportioned on a just and reasonable basis between the accommodation buildings in the project.

As regards projects that meet the relevant guidelines, the Board may approve and certify expenditure on accommodation buildings which does not exceed the limit amount or the attributable portion of the limit amount.

Section 372AX Accelerated capital allowances in relation to the construction or refurbishment of certain registered holiday camps

What allowance is available for Shannon holiday camps?

(1) This section provides for an accelerated industrial building allowance in relation to expenditure on the construction or refurbishment of a holiday camp which meets the following conditions:

(a) The site is wholly within a qualifying mid-Shannon Tourism Area (Schedule 8B).

(b) It is in use as a registered holiday camp and meets the relevant guidelines (section 372AW(3)).

(c) The following data has been provided to the mid-Shannon Tourism Infrastructure Board:

(i) The amount of capital expenditure on construction or refurbishment, and where the limit amount applies, the amount eligible for certification.

(ii) The number and nature of investors.

(iii) The amount to be invested by each investor.

(iv) The investment structure to be used.

(v) Any other information specified in the relevant guidelines which will help the Minister for Finance carry out a cost-benefit exercise in relation to mid-Shannon qualifying area tax reliefs.

(d) The mid-Shannon Tourism Infrastructure Board provides a certificate:

(i) stating that the conditions in (a), (b) and (c) have been met,

(ii) confirming the date of first use of the premises (or its first use after refurbishment),

(iii) confirming that the relevant guidelines have been met.

What is the allowance for Shannon holiday cottages?

(2) The annual allowance (section 272) to be given in respect of a registered holiday cottage is 15% per annum. This gives a seven year writing down life (6 x 15% and 1 x 10%) but the if the premises is disposed of within 15 years of the date of first use (or first use following refurbishment), any allowances given are clawed back.

What is the allowance for refurbishment of holiday cottages in the Shannon scheme?

(3) As regards refurbishment projects, the 15% allowance mentioned in (2) only applies where the capital expenditure is not less than 20% of the market value of the premises prior to refurbishment.

Does expenditure which straddles the start or end date qualify?

(4) Where capital expenditure straddles the start date or end date of the qualifying period, only expenditure properly attributable to work carried out within the qualifying period qualifies for relief.

Section 372AY Capital allowances in relation to the construction or refurbishment of certain tourism infrastructure facilities

What is the allowance for Shannon tourism facilities?

(1) This section provides for an accelerated industrial building allowance in relation to expenditure on the construction or refurbishment of a tourism facility which meets the following conditions:

(a) The site is wholly within a qualifying mid-Shannon Tourism Area (Schedule 8B).

(b) It does not otherwise qualify for an industrial building allowance.

(c) It is in use for the operation of a qualifying tourism infrastructure facility.

(d) It does not include a licensed premises (“pub”) but it may include a restaurant licensed to sell wine and liquor.

(e) It does not include any facility for gambling, faming or wagering.

(f) The following data has been provided to the mid-Shannon Tourism Infrastructure Board:

(i) The amount of capital expenditure on construction or refurbishment, and where the limit amount applies, the amount eligible for certification.

(ii) The number and nature of investors.

(iii) The amount to be invested by each investor.

(iv) The investment structure to be used.

(v) Any other information specified in the relevant guidelines which will help the Minister for Finance carry out a cost-benefit exercise in relation to mid-Shannon qualifying area tax reliefs.

(g) The mid-Shannon Tourism Infrastructure Board provides a certificate:

(i) stating that the conditions in (a)-(f) have been met,

(ii) confirming the date of first use of the premises (or its first use after refurbishment),

(iii) confirming that the relevant guidelines have been met.

What rules apply to a Shannon tourism facility?

(2) The rules relating to industrial buildings allowance apply in relation to a qualifying tourism facility as if it were an industrial building and as if any activity (which would not otherwise qualify as a trade) carried on in the premises were a trade.

The industrial building allowance is only given in respect of construction or refurbishment expenditure incurred in the qualifying period.

What is the allowance for refurbishment of a Shannon tourism facility?

(3) As regards refurbishment projects, the 15% allowance mentioned in (2) only applies where the capital expenditure is not less than 20% of the market value of the premises prior to refurbishment.

What is the allowance for tourism facilities in the mid-Shannon Tourism scheme?

(4) The allowance (section 272) in respect of a qualifying tourism facility is 15% per annum. This gives a seven year writing down life (6 x 15% and 1 x 10%) but if the premises is disposed of within 15 years of the date of first use (or first use following refurbishment), any allowances given are clawed back.

Does expenditure which straddles the start or end date qualify?

(5) Where capital expenditure straddles the start date or end date of the qualifying period, only expenditure properly attributable to work carried out within the qualifying period qualifies for relief.

Section 372AZ Restrictions on relief, non-application of relief in certain cases and provision against double relief

What tourism facility expenditure does not qualify?

(1) The holiday camp allowance (section 372AX) and the qualifying facility allowance (section 372D) do not apply to expenditure incurred on constructing or refurbishing a property in a qualifying area:

(a) if the relevant interest (section 269) in the property on which the expenditure was incurred is held by a property developer, and the expenditure was incurred by that developer or a person connected (section 10) with him/her,

(b) if any part of the expenditure has been subsidised by the State,

(c) unless the capital allowances and the project comply with EU State Aid rules.

In this regard, a property developer is a person whose trade consists wholly or mainly of building or refurbishing properties in order to sell them.

Expenditure on the Mid-Shannon Tourism Scheme must also comply with the European Commission’s Regional Aid Guidelines.

Property Developers and Capital Allowances: Tax Briefing Issue 69 – 2008

Can Shannon expenditure qualify for any other relief?

(2) Shannon tourism expenditure does not qualify for any other tax relief.

What limits apply to expenditure on a Shannon project?

(3) The Board may not approve or certify expenditure if it exceeds the limit amount, i.e. the lower of:

(i) 50% of the total construction or refurbishment expenditure on all buildings or structures on the project,

(ii) the construction or refurbishment expenditure on non-accommodation buildings.

If the capital expenditure on accommodation buildings in a project exceeds the limit amount, the aggregate is reduced to the limit amount and apportioned on a just and reasonable basis between those buildings.

In such cases, the actual capital expenditure is reduced to the amount eligible for certification by the Board.

Is relief reduced for buildings in Clare/Tipperary?

(4) This subsection relates to buildings or structures in the Clare or Tipperary mid-Shannon areas. In such cases, the construction or refurbishment expenditure eligible for relief is reduced to 80% of the amount which would otherwise qualify for relief.

What allowance applies to a building bought unused?

(5) The legislation on industrial building allowances is worded in terms of giving the allowances by reference to the capital expenditure on the construction, or refurbishment, of the property.

The purchaser of a building is deemed to have incurred construction expenditure on the property provided that:

(a) the vendor did not claim any allowances in respect of the property, and

(b) the relevant interest in the premises is sold before the property is used, or within one year after it commences to be used.

The purchaser’s allowance is calculated as the lower of the net price paid and the actual construction expenditure. If the building was sold more than once before its first use (or within 12 months after its first use), only the last purchaser is entitled to an allowance based on the lower of the net price paid and the actual construction expenditure.

Section 372AAA Interpretation Chapter

What definitions apply to the “Living City Initiative”

The initiative applies to relevant houses as defined.

Market value is the best price obtainable for the building on the open market less the value of the land on which it is built.

The qualifying period is the period of 5 years from A date to be appointed by Ministerial order.

Refurbishment is any work carried out for the repair, restoration or maintenance of a Georgian house including work on water, sewerage or heating facilities.

Special regeneration areas will be designated by Ministerial order

Section 372AAB Residential accommodation allowance to owner-occupiers in respect of qualifying expenditure incurred on the conversion and refurbishment of Georgian houses.

What definitions apply to expenditure on relevant houses?

(1) conversion means converting a building or part of a building that was not in use as a dwelling into a dwelling house or the conversion of such a building or part of a building into 2 or more houses.

A house is a building or part of a building used as a dwelling and any out office, yard garden or other adjacent land enjoyed with the building.

A letter of certification is a letter from the local authority stating that the planning permission for the work has been granted, the house has a floor area of between 38 and 210 square metres, complies with any conditions that may be laid down and that the cost appears to be reasonable.

Qualifying expenditure is expenditure on the conversion or refurbishment of the house less any contribution, directly or indirectly, from the State or any board or authority.

A qualifying premises is a relevant house in a special regeneration area that is used solely as a dwelling, which has a letter of certification and which is used solely as the only or main residence of the individual who incurred the expenditure.

What relief is available?

(2) An individual who has incurred qualifying expenditure on a qualifying premises can deduct 10% of the expenditure from his total income in the year the expenditure is incurred and the following 9 years provided the house remains his only or main residence.

What information must be supplied to Revenue?

(2A) The claimant must supply his or her PPS number, the address of the property, its LPT identification number and details of the expenditure incurred.

How is the information to be supplied?

(2B) The claim and supporting information required must be provided to Revenue by such electronic means as they make available.

How is relief given in cases of joint assessment?

(3) Where spouses or civil partners are jointly assessed and have not applied for separate assessment the deduction may be made from the income of either or both of them.

How is expenditure in the qualifying period determined?

(4) Only expenditure on work actually carried out in the qualifying period may be claimed.

Can more than one person make a claim in respect of a building?

(5) Yes. The expenditure will be allowed in the proportions that two or more persons incurred it.

What rules will apply to determine eligible expenditure?

(6) The rules in section 372AP and section 372AN will apply to determine eligible expenditure on a qualifying premises in a qualifying period.

Can other reliefs be claimed on this expenditure?

(7) No relief will be given under this section for expenditure that is eligible for relief under any other provision of the Tax Acts

When is expenditure deemed to have been incurred?

(8) Conversion or refurbishment expenditure incurred on a qualifying premises is deemed to be incurred when the premises is first used as a dwelling following the work.

Is there a de minimis expenditure?

(9) Yes. The amount of the expenditure must be at least 10% of the market value of the building immediately before the expenditure was incurred.

Can a Revenue decision in relation to this relief be appealed?

(10) A claimant can appeal a Revenue decision on any matter related to this relief. The Appeal Commissioners must hhear and determine the matter as if it were an appeal against an income tax assessment. There is a further right of appeal to the Circuit Court and, on a point of law, to the High Court

Section 372AAC Capital allowances in relation to conversion or refurbishment of certain commercial premises

What definitions apply to commercial premises?

(1) The section applies to the conversion (or reconstruction or renewal) of a building into a retail shop or a premises for the provision of services only in the State. The building must be a qualifying premises, that is, a building within a special regeneration area which is not an industrial building. It must be in use for a retail or service business and, if let, must be let on bona fide terms at a market rent. It does not include any part of the building that is a dwelling.

Qualifying expenditure is the expenditure incurred on the conversion or refurbishment subject to a maximum of €400,000 for an individual or €1,600,000 for a company. A property developer is a person whose trade is wholly or mainly the construction or refurbishment of buildings with a view to selling them.

Is there a limit to the tax relief available?

(1A) The maximum amount of tax relief is €200,000. The relief to individuals is expenditure by 50% and to companies is expenditure by 12.5%. Where a combination of individuals and companies incur the expenditure the maximum relief remains €200,000. Note that the maximum relief to individual is 50% but an individual taxed at 20% would get less relief.

Is a qualifying premises deemed to be an industrial building?

(2) A qualifying premises is deemed to be an industrial building under section 268(1)(a). any activity carried on that is not a trade is deemed for this purpose to be a trade.

An allowance is given for qualifying expenditure incurred only in the qualifying period.

Are allowances available for relevant houses?

(3) The allowance is available for expenditure on the ground floor and basement of a relevant house but only if there has been expenditure on the upper floors qualifying for relief under section 372AAB).

How are the capital allowances given?

(4)a writing down allowance is given at the rate of 15% per annum. If the building is sold the purchaser will be entitled to the remaining allowances available over the remainder of the tax life of 7 years from the date when the building was first used after incurring the expenditure.

Can ther be balancing allowances/charges?

(5) No balancing allowance or charge can be made in relation to an event occurring more than7 years from the date when the building was first used after incurring the expenditure.

Is there a de minimis expenditure?

(6) Yes. The amount of the expenditure must be at least 10% of the market value of the building immediately before the expenditure was incurred.

What information must be provided to Revenue?

(6A) Before the first claim is made Revenue must be provided withe the name, address and tax number of the claimant, the address of the premises, details of the expenditure incurred and a description of the business carried on in the premises.

How must the information be provided?

(6B) The information must be provided by electronic means made available by Revenue for that purpose.

What qualifying expenditure is allowed?

(7) Only expenditure on work actually carried out in the qualifying period is allowed.

Are there any exclusions from relief?

(8) Allowances are not given for expenditure by a property developer or a person connected with a property developer where either retains the “relevant interest”.

Allowances are not given for any part of the expenditure that was met, directly or indirectly, by a grant or other assistance.

Can relief be obtained under any other section of the Tax Acts?

(9) Where relief is given under this section no claim for the same expenditure may be made under any other provision of the Tax Acts.

Section 373 Interpretation (Part 11)

Amendments

Legislation spent or repealed

Section 374 Capital allowances for cars costing over certain amount

Amendments

Legislation spent or repealed

Section 375 Limit on renewals allowance for cars

Amendments

Legislation spent or repealed

Section 376 Restriction of deduction in respect of running expenses of cars

Amendments

Section 376 deleted by Finance Act 2002 section 28(1)(c) as respects expenditure incurred in an accounting period ending on or after 1 January 2002, or in a tax year basis period ending on or after 1 January 2002.

This abolishes the motor expenses restriciton where the cost of the car when new excceded the threshold in section 373(2). The restriction continues to apply in respect of car leasing charges (section 377).

Section 377 Limit on deductions, etc for hiring cars

Amendments

Legislation spent or repealed

Section 378 Cars: provisions as to hire-purchase, etc

Amendments

Legislation spent or repealed

Section 379 Cars: provisions where hirer becomes owner

Amendments

Legislation spent or repealed

Section 380 Provisions supplementary to sections 374 to 379

Amendments

Legislation spent or repealed

Section 380A Interpretation (Part 11A)

Amendments

Section 380A repealed by Finance Act 2002 section 24(3)(j).

Section 380B Rented residential accommodation: deduction for certain expenditure on construction

Amendments

Section 380B repealed by Finance Act 2002 section 24(3)(j).

Section 380C Rented residential accommodation: deduction for certain expenditure on conversion

Amendments

Section 380C repealed by Finance Act 2002 section 24(3)(j).

Section 380D Rented residential accommodation: deduction for certain expenditure on refurbishment

Amendments

Section 380D repealed by Finance Act 2002 section 24(3)(j).

Section 380E Provisions supplementary to sections 380B to 380D

Amendments

Section 380E repealed by Finance Act 2002 section 24(3)(j).

Section 380F Provision against double relief

Amendments

Section 380F repealed by Finance Act 2002 section 24(3)(j).

Section 380G Interpretation (Part 11B)

Amendments

Section 380G repealed by Finance Act 2002 section 24(3)(k).

Section 380H Rented residential accommodation: deduction for certain expenditure on refurbishment

Amendments

Section 380H repealed by Finance Act 2002 section 24(3)(k).

Section 380I Provisions supplementary to section 380H

Amendments

Section 380I repealed by Finance Act 2002 section 24(3)(k).

Section 380J Provision against double relief

Amendments

Section 380J repealed by Finance Act 2002 section 24(3)(k).

Section 380K Interpretation and general (Part 11C)

What allowances apply to cars?

(1) As regards cars bought on or after 1 July 2008, this section changes the capital allowance and leasing deductions to a system based on the level of CO2 emissions.

What are the vehicle categories?

(2) The new CO2 emissions system creates seven categories of vehicle, A – G, in line with the relevant EU approval certificate.

Vehicle Category CO2 Emissions (CO2g/km)
A 0g/km up to and including 120g/km
B More than 120g/km up to and including 140g/km
C More than 140g/km up to and including 155g/km
D More than 155g/km up to and including 170g/km
E More than 170g/km up to and including 190g/km
F More than 190g/km up to and including 225g/km
G More than 225g/km

What is the default vehicle category?

(3) A vehicle comes under Category G if Revenue are not satisfied as to the vehicle’s level of CO2 emissions, or no document is provided.

What definitions apply for cars?

(4) CO2 emissions is defined in line with EU law.

The specified amount means €24,000 for capital allowance purposes (see (3)). This replaces the actual expenditure on the vehicle.

Does the new emissions regime replace the old car allowance regime?

(5) The emissions-based capital allowance regime follows on from the previous regime.

Section 380L Emissions-based limits for certain cars

What is the wear and tear allowance for a car?

(1) The wear and tear allowance for a car is the amount as restricted (or increased) under these rules (see (4)).

What is the unallowed expenditure?

(2) The unallowed expenditure is also the amount as restricted (or increased) under these rules.

What is the allowable cost for a car?

(3) The wear and tear allowance is given as if the vehicle’s actual cost were taken to be:

(a) for Category A, B or C vehicles, the specified amount, i.e., €24,000,

(b) for Category D or E vehicles,

(i) If the retail price was less than or equal to €24,000, 50% of that price,

(ii) If the retail price was greater than €24,000, 50% of the specified amount,

(c) for Category F or G vehicles, nil.

How is a balancing adjustment calculated on a car?

(4) Any balancing allowance or charge is to be computed as if the amount received is increased or reduced:

(a) As regards Category A, B, C vehicles in the proportion that the specified amount bears to the vehicle’s cost.

(b) As regards Category D or E vehicles,

(i) If the retail price uses less than or equal to €24,000, by 50%.

(ii) If the retail price was greater than €24,000, in the proportion that half the specified amount (€12,000) bears to the vehicle’s cost.

(c) As regards Category F or G vehicles, nil.

What is the specified amount for a second hand car?

(5) If a vehicle is sold so that the purchaser or successor acquires any remaining allowances, the open market price of the vehicle, or the prior owner’s cost, is treated as the specified amount and restricted accordingly.

Does grant-aid expenditure qualify?

(6)-(7) Expenditure met by grant-aid or subsidy does not qualify.

Section 380M Limit on deductions, etc. for hiring cars

Is the cost of hiring a vehicle tax deductible?

In general, the cost of hiring a vehicle is tax-deductible, but if the vehicle is in Category A, B, or C, the hire cost is scaled back in the proportion which the specified amount bears to the vehicle’s cost.

In the case of a Category D or E vehicle, with a value less than or equal to the specified amount, 50% of the hire cost is allowed.

In the case of a Category D or E vehicle with a value greater than the specified amount, the hire cost is reduced in the proportion which half the specified amount bears to the price.

In the case of a Category F or G vehicle, no cost is allowed.

Section 380N Cars: provisions as to hire-purchase, etc.

What happens if a person defaults on hire purchase payments?

(1)-(2) Where a hire-purchase contract ends without the hirer becoming entitled to the vehicle, (for example, through defaulting on payments,) any expenditure already incurred is disregarded for capital allowance purposes.

How are hire purchase payments already made treated?

(3) The payments already made are treated as straight hire payments.

How are repayments on a repossessed vehicle treated?

(4) Where a vehicle is repossessed by a hire-purchase company, and it is necessary to apportion payments under the contract between capital, interest, etc., the figure for capital expenditure is taken as the price that would be chargeable if the vehicle were being acquired by outright sale.

Section 380O Cars: provisions where hirer becomes owner

How are lease payments treated if the hirer becomes the owner?

If the hirer or lessor of a vehicle becomes the owner, all payments made for the hire and purchase are aggregated, and then apportioned into capital and hiring payments.

Section 380P Provisions supplementary to sections 380L to 3800

Do the emissions restrictions apply to taxis/hackneys?

(1) The restrictions in sections 380L to 380O do not apply to taxis or hackneys.

Do the emissions restrictions apply to vehicles acquired for testing?

(2) These restrictions do not apply to vehicles acquired to be tested, unless within the five year period beginning with the time it was provided, the acquirer substantially uses it for purposes other than testing.

Section 380Q Interpretation (Part 11D)

What tax relief is available for relocating a dangerous facility?

(1)-(2) A person who controls an area containing dangerous substances (i.e. an establishment) may be entitled to claim relief in respect of capital expenditure on removing the old installation from an urban dockland area and relocating it to a new location (relevant expenses).

Section 380R Relocation allowance

What is a relocation allowance?

(1) This is an allowance in respect of relocation expenditure.

How is a relocation allowance made?

(2) A relocation allowance is given against the profits of the owner’s trade.

Must the cost of the new land exceed the cost of the old land?

(3) A person is not entitled to claim the cost of acquiring replacement land unless the aggregate cost of that land exceeds the market value of the establishment land.

Relief is available on the amount by which the cost of the land for the new installation exceeds the market value of the establishment land.

How is relocation allowance calculated?

(4) Relocation allowance is based on the excess of the cost of acquiring replacement land over the consideration received for disposing of the establishment land (net of any enhancement expenditure after the old installations were removed).

How is relocation allowance calculated if there is a loss on disposal of the establishment land?

(5) If the consideration for the establishment land is less than market value of the land at the time it was acquired, relocation allowance applies to the difference.

If the consideration is greater than the market value at the time of acquisition, the difference is taxed as a trading receipt, and the amount treated as a trading receipt must not exceed the aggregate relocation allowances allowed for establishment land in previous chargeable periods.

Must the establishment land be disposed of within two years?

(6) A trader is deemed to have disposed of the establishment land on the last day of the chargeable period in which the two year period ends. He/she is deemed to have received consideration equal to any consideration received for parts already disposed of, plus the market value of the remaining land, less any enhancement expenditure since the old installation was removed.

What happens if land is converted to trading stock?

(7) A trader who converts land to trading stock is deemed to have disposed of the land and immediately re-acquired it at market value.

What happens if trading ceases?

(8) A person who ceases to trade deemed to have disposed of any remaining land at its market value on the date of cessation.

Can establishment land be owned by a connected person?

(9) Establishment land owned by a connected person is deemed to be owned by the claimant.

Section 380S Additional allowance for relocation expenditure

What is an additional relocation allowance?

(1) A person who is entitled to a relocation allowance also gets an additional relocation allowance equal to 50% of the expenditure.

This additional allowance is also given against trading profits.

Can the additional relocation allowance be clawed back?

(2) The additional allowance is clawed back if the relocation allowance is clawed back.

Section 380T Allowance for machinery or plant

Does new installation plant or machinery qualify for accelerated allowance?

(1) Expenditure on plant and machinery in the new installation gets a 100% allowance on qualifying expenditure. There is a separate additional 50% allowance.

Can the additional plant and machinery allowance be accelerated?

(2) The additional allowance is given on an annual basis at 12.5%.

Section 380U Allowances in respect of certain buildings

What allowance is available for a new installation?

A new installation qualifies for a 100% accelerated allowance and a separate additional 50% allowance.

Section 380V Improvement

What is a new installation?

(1) A new installation is one with greater capacity, or improved efficiency or productivity, beyond normal modernisation or upgrading.

What proportion of the expenditure on a new installation is claimable?

(2) A trader can claim the expenditure incurred, minus expenditure representing improvements, in the proportion which appears to the inspector to be just and reasonable as representing increased capacity or improved efficiency.

Section 380W Supplementary provisions

When is the additional relocation allowance clawed back?

(1) The additional relocation allowance is clawed back if the trader sells the plant, machinery or building within two years. The inspector must make an assessment to withdraw the allowance.

Is relocation expenditure tax deductible?

(2) Because it is treated as a capital allowance, relocation expenditure is not a tax-deductible business expense.

Can relocation expenditure be claimed as other capital expenditure?

(3) There is only one capital allowance given in respect of relocation expenditure. It cannot be claimed under any other heading.

Does disposal of a relocation asset give rise to a balancing adjustment?

(4) A disposal of a relocation asset gives rise to a balancing adjustment.

Section 380X Restrictions on relief non-application of relief in certain cases

Does the grant-aided part of relocation expenditure qualify?

To the extent that relocation expenditure is grant-aided or subsidised, it does not qualify for capital allowances.

Section 381 Right to repayment of tax by reference to losses

Can a trading loss be set against other income?

(1) A trader can use a trading loss to reduce his/her income from all sources.

Strictly it is the loss as actually sustained in the year of assessment (not the loss of the basis period) that is the subject of a section 381 claim.

Capital losses, for example on the disposal of shares held as investments, are not deductible: Scottish Investment Trust Co v Forbes (1893) 3 TC 231; Stott v Hoddinott, (1916) 7 TC 85; Jacobs Young and Co Ltd v Harris, (1926) 11 TC 221; Fundfarms Developments Ltd v Parsons, (1969) 45 TC 707; Halefield Securities Ltd v Thorpe, (1967) 44 TC 154; Alliance and Dublin Consumers Gas Co Ltd v Davis, 1 ITR 104.

Losses on share dealing transactions are allowed to a share dealer: Emanuel (Lewis) and Son Ltd v White, (1965) 42 TC 369; Royal Insurance Co Ltd v Stephen, (1928) 14 TC 22; Westminster Bank Ltd v Osler, (1932) 17 TC 381.

Example

You are a pharmacist who has traded for many years. Your results for a tax year were:

Trading loss for year ended 31 December 2012 (10,000)
Interest on Government securities to 31 December 2012 12,000
Rental income to 31 December 2012 5,000
The loss is set off as follows:
Trading income nil
Interest on Government securities 12,000
Rental income 5,000
Income from all sources 17,000
Less loss relief 10,000
“Total income” 7,000

Claims, availability of loss relief, order of relief: Tax Briefing 47.

Example

You carried on pub trade for four years in Cork but ceased trading as the business was never successful. The “terminal loss” is computed at €45,000, but is no use as there are no profits to set it against.

Five months after ceasing, you open a new premises in Dublin and make a first year profit of €40,000.

Can the losses of the ceased trade be used against the profits of the new trade?

No. Under section 381, a loss may only be carried forward against profits of the same trade. It cannot be argued that you are transferring your trade to a new location, as a public house trade depends on the location of the premises.

Can stallion losses be claimed?

(2) Prior to 31 July 2008, income from stallion nominations were exempt. Accordingly, losses from stallion nominations could not be offset against other income.

Can stallion losses be claimed from 1 August 2008?

(2A) This subsection disapplies the disapplication in (2) with effect from 1 August 2008. From that date, losses from stallion nomination are allowable for tax purposes.

The reintroduction of loss relief is time-apportioned to ensure the correct amount of relief applies for the chargeable period in which 1 August 2008 falls.

How is a trading loss applied against other income?

(3) The loss is applied against the appropriate income. This means earned income for the period in which the loss arose, then unearned income for that period. In the case of a jointly assessed couple, any excess is then applied against the appropriate income of the spouse/civil partner.

The full amount of the loss arising in a particular year must be claimed in that year in so far as it can be absorbed by income from all sources for that year.

Example

You are a hardware merchant who has traded for many years. Your results for a year were:

Trading loss (20,000)
Interest on Government securities 12,000
Rental income 5,000
The loss is set off as follows:
Trading income nil
Interest on Government securities 12,000
Rental income 5,000
Income from all sources 17,000
Less loss relief 17,000
“Total income” nil
Balance of loss carried forward 3,000

How are trading losses calculated?

(4) The same rules that are used to compute taxable profits are used to compute a loss.

Can a loss be claimed more than once?

(5) A loss cannot be claimed more than once. This is particularly relevant in the case of a commencing trader: although the basis period for the first and second tax year overlap (section 66), any loss in the overlap period is only relievedonce.

A loss is relieved only once: IRC v Scott Adamson, (1932) 17 TC 679; Westwood Television Ltd v Hart, (1968) 45 TC 1.

Example

You began to trade on 1 January 2011. Your results for your first two years of trading were:

Year ended 31 December 2011
Trading loss (20,000)
Rental income 5,000
Year ended 31 December 2012
Trading profit 20,000
Rental income 5,000
The tax calculations are:
Tax year 2011
Trading income: actual basis nil
Rental income: actual 5,000
Total income 5,000
Less loss relief (5,000)
Assessable nil
Balance of loss relief for carry forward -15,000
Tax year 2012
Trading income: basis – first 12 months (20,000) nil
Rental income: basis – actual 5,000
Total income 5,000
Less loss relief carried forward (5,000)
Unused loss for carry forward:
(€20,000) – (€5000) – (€5,000) = (10,000)
Total loss relief for carry forward (10,000)
Tax year 2013
Trading income: basis -y/e 31.12.2013 (say) 50,000
Rental income: 5,000
Total income 55,000
Less loss relief carried forward (10,000)
Assessable 45,000

What is the time limit for claiming loss relief?

(6) Loss relief must be claimed on the appropriate form within two years of the end of the tax year in which the loss arose. The inspector determines entitlement to the relief. The inspector’s decision may be appealed.

Can a Revenue decision regarding losses be appealed?

(7) There is a right of appeal against a Revenue decision regarding losses. The Appeal Commissioners mus hear and determine the matter as if it were an appeal against an income tax assessment. There is a further right of appeal to the Circuit Court, and on a point of law, to the High Court.

Section 381A Restriction of loss relief in certain cases

To what losses does this section apply?

(1) This section applies to a specified loss which is a loss arising from interest on loans to fund land development and a loss from the write down of the value of development land. A specified trade is a trade of dealing in or development land and a specified trader is an individual engaged in land development who derived less than 50% of his income(as computed for USC purposes) for the tax year and the previous two tax years from that trade.

What restriction applies to development land losses?

(2) Losses arising from interest or from a write down of the value of development land covered by this section can only be claimed against other income if the interest has actually been paid or the loss has been realised prior to the claim being made.

Is there any further restriction?

(3) Yes. If the a specified loss arises from a sale of the land to a connected person the loss cannot be claimed against other income (even if realised).

When is interest deemed to have been paid?

(4) Interest paid is deemed to have been paid in an earlier tax year in preference to a later tax year.

In what order are deductions for interest and losses deemed to be made?

(5) an interest deduction is treated as made after all other deductions and a loss due to a write down in the vale of land is treated as made prior to the deduction for interest.

Section 381B Restriction of loss relief – passive trades

What definitions apply to this restriction?

(1)(a) A relevant loss is a loss from a trade or profession including a loss augmented by capital allowances but does not include losses from

(i) farming and market gardening,

(ii) Lloyds underwriting,

(iii) expenditure on significant buildings,

(iv) any amount arising from capital allowances to which the USC surcharge applies.

(b) A passive trade is one in which an individual spends less than 10 hours per week personally engaged in the trade which must be carried on a commercial basis.

What loss restriction applies to passive trades?

(2)(a) The amount of loss that a person carrying on a passive trade can claim under section 381 is €31,750.

(b) if the basis period is less than 12 months the €31,750 limit is reduced proportionally.

(c) if a person carries on more than one trade the aggregate loss relief for those trades cannot exceed €31,750.

Section 381C Restriction of loss relief – anti- avoidance

What definitions apply to this section?

(1)(a) A relevant loss is a loss in a trade or profession (including a loss augmented by capital allowances) but does not includes losses from

(i) expenditure on significant individuals

(ii) losses from capital allowances that are subject to the USC surcharge;

relevant tax avoidance arrangements are arrangements designed to create a loss.

(b) an individual carries on a trade in a non-active capacity if he or she spends less than 10 hours per week personally engaged in the activities of the trade.

What effect does the section have?

(2) A person who carries on a trade or profession in a non-active capacity is denied loss relief under section 381 where the loss arises from relevant tax avoidance arrangements.

Section 382 Right to carry forward losses to future years

Can unused trading losses be carried forward?

(1) A trader may carry forward any unrelieved trading loss for set off against trading profits of the next tax year.

Carry forward of unrelieved trading or professional losses: Gordon and Blair Ltd v IRC, (1962) 40 TC 358.

How is carried forward loss relieved?

(2) The carried forward loss must be relieved against the assessment for the next tax year in which there are (trading) profits. Any unrelieved balance may then be carried forward against the trading profits of the next tax year, and so on.

Example

You have been trading for many years as a dry cleaner.

Your latest trading results are:
31.12.2011 31.12.2012 31.12.2013
Profit (Loss) (20,000) 15,000 10,000
The assessable profits are: 2007 2008 2009
nil 15,000 10,000
Loss relief (15,000) (5,000)
Assessable nil 5,000
Loss for carry forward (20,000) (5,000)

Section 383 Relief under Case IV for losses

How is a Case IV loss relieved?

(1) A loss arising on miscellaneous (Case IV) income may be carried forward against equivalent income of the next tax year.

How is a partnership Case IV loss relieved??

(2) Each partner is entitled to his/her several share of the partnership Case IV loss, not the entire loss.

How is a carried forward Case IV loss relieved?

(3) A carried forward Case IV loss must be set off against equivalent income in the next tax year. Any unrelieved balance may then be carried forward against equivalent income of the next tax year, and so on.

Section 384 Relief under Case V for losses

How is a Case V loss relieved?

(1)-(2) A Case V loss results where the aggregate of the rental deficiencies exceeds the aggregate of the rental surpluses. Such losses may be carried forward against rental income of the next tax year.

Is loss relief derived from unused section 23 relief claimable?

(2A) If a disposal of a “section 23” property results in a clawback of such relief, the part of the loss derived from such relief cannot be claimed against rental income.

How is a carried forward Case V loss relieved?

(3) A carried forward Case V loss must be set off in the first tax year in which there is rental income. Any unrelieved balance may then be carried forward against the rental income of the next tax year, and so on.

Must capital allowances be claimed before losses carried forward?

(4) Case V capital allowances must be deducted in priority to Case V losses carried forward.

Section 385 Terminal loss

How is a terminal loss relieved?

(1)-(2) A terminal loss arising on the cessation of a trade may, to the extent that it has not already been relieved, be set off against the profits of the trade for the three tax years immediately preceding the tax year in which the trade ceased.

In what order is a terminal loss relieved?

(3) A carried back trading terminal loss must be set off against the latest tax year in which there are trading profits. Any unrelieved balance may then be carried back for set off against the trading profits of the next preceding tax year (within the three year period).

Section 386 Determination of terminal loss

What is a terminal loss?

(1)-(2) A terminal loss is:

(a) a loss incurred in the last 12 months of trading before a permanent cessation,

(b) as increased by any unused capital allowances which are proper to that same 12 month period (the relevant capital allowances).

In other words, it is the loss sustained in the last tax year, as increased by the unused capital allowances for that year, plus the part of the loss sustained in the part of the final 12 months falling within the second last tax year, as increased by the fraction of the capital allowances relating to that part.

This rule also applies to professions.

Example

You ceased to trade on 30 September 2012 because of losses.

Your results to the date of cessation were:

profit (loss) tax year capital allowances
Period
Nine months to 30 September 2012 (36,000) 2012
Year ended 31 December 2011 (24,000) 2011 4,500
Year ended 31 December 2010 6,900 2010 18,000
Year ended 31 December 2009 70,000 2009 20,000
Year ended 31 December 2008 60,000 2008 20,000
The terminal loss (the loss for the final 12 months) is:
Final nine months 36,000
Preceding three months €24,000 x (3/12) = 6,000
42,000
The capital allowances that augment this are:
2011 4,500
2010 x (6/12), i.e., 18,000 x (6/12) 9,000 13,500
Terminal loss to be allocated 55,500

Section 387 Calculation of amount of profits or gains for purposes of terminal loss

What income is relieved by a terminal loss?

(1) The terminal loss may be set against the taxable profits as reduced by capital allowances, annual payments, (and in the case of a body of persons, dividend payments) for each of the three tax years immediately preceding the tax year in which the business ceased.

Example

Continuing with the facts of the example to section 386, the terminal loss of €55,500 is allocated as follows:

Tax year Profit Capital allcs Allocation
2010 6,900 18,000 Nil
2009 70,000 20,000 50,000
2008 60,000 20,000 5,500

Does an annual payment offset the terminal loss relief?

(2) Where a trader makes an annual payment entirely out of non-trading income, the taxable profits (for each of the three tax years immediately preceding the tax year in which the business ceased,) need not be reduced by the amount of the annual payment.

Section 388 Meaning of “permanently discontinued” for purposes of terminal loss

When is a trade “permanently discontinued”?

A trade is permanently discontinued if the business is sold, i.e., if its ownership changes. A partner’s several trade ceases if he/she leaves the partnership.

If there is no real change of ownership (if the same person is carrying on the trade before and after the “cessation”), no terminal loss relief is given.

If there is a real change of ownership, the ceasing trader may claim terminal loss relief on a previous cessation, provided he/she has been carrying on the trade. The trader must have been carrying on the business for at least 12 months between the two cessations.

Meaning of permanently discontinued: Ingram (J G) and Son Ltd v Callaghan, (1968) 45 TC 151.

Section 389 Determination of claim for terminal loss

Must terminal loss relief be claimed?

(1) Terminal loss relief must be claimed. The inspector must determine whether the claimant is entitled to the relief. If the inspector refuses relief, there is a right of appeal to the Appeal Commissioners.

Can a Revenue decision regarding a terminal loss be appealed?

(2) The Appeal Commissioners must hear and determine the matter as if it were an appeal against an income tax assessment. There is a further right of appeal to the Circuit Court, and on a point of law, to the High Court.

Section 390 Amount of assessment made under section 238 to be allowed as a loss for certain purposes

Can an annual payment increase a terminal loss?

(1) A trader may treat an annual payment out of income not charged to tax (section 238) as part of a terminal loss.

Example

You have traded as a consulting engineer for many years. You ceased to trade on 31 December 2012.

The assessable profits are: 2012
Professional loss (20,000)
Patent royalty payable (5,000)
Adjusted profit (loss) (25,000)

If another person bears the tax on the patent royalty income, you may augment your terminal loss (€20,000) by the amount of the section 238 assessment in the final tax year (€5,000).

Can pre-trading charges augment a terminal loss?

(2) Pre-trading charges may be used to augment a terminal loss. Charges used for this purpose may not be used for any other purpose.

What payments cannot be used to augment a terminal loss?

(3) A trader may not augment a terminal loss with any of the following annual payments:

(a) interest paid by a company or to a non-resident (section 246(2)),

(b) a capital sum paid to purchase patent rights (section 757),

(c) rent paid to a non-resident (section 1041).

Section 391 Interpretation (Chapter 2)

What is the year of claim?

(1)-(2) The year of claim is that tax year’s basis year, the year on the profits of which income tax is computed (section 392).

Capital allowances brought forward cannot be used to create or augment a trading loss. They may be used to reduce profits and balancing charges for the year.

Capital allowances brought forward must be absorbed before capital allowances for the current tax year.

Non-effective capital allowances for a tax year are capital allowances that cannot be absorbed against profits because there are insufficient profits.

The capital allowances for a tax year cannot be used to augment a loss in more than one basis year.

Can capital allowances augment a professional loss?

(3) Capital allowances may also be used to augment a loss incurred in a profession or an employment.

Section 392 Option to treat capital allowances as creating or augmenting a loss

Can capital allowances augment a loss?

(1) The capital allowances for a tax year may be used to create or augment a trading loss incurred in the year of claim.

Example

You have been trading for many years.

Your latest trading results are:
Trading profit 10,000
Capital allowances (9,000)
Balancing charge 1,000
Capital allowances brought forward (5,000)
Computation
Trading profit 10,000
Balancing charge 1,000
Capital allowances brought forward (5,000)
Adjusted profit 6,000

The current capital allowances (€9,000) may now be used to create a loss of €3,000:

Adjusted profit 6,000
Capital allowances (9,000)
Trading loss 3,000

In what order should relief on a loss augmented by capital allowances be made?

(2) If a loss as created or augmented under this section exceeds income from all sources, the loss before capital allowances is relieved against trading income.

This allows unused capital allowances to be carried forward to the next tax year.

Section 393 Extent to which capital allowances to be taken into account for purposes of section 392

Can capital allowances augment a loss if there are balancing charges?

(1) Capital allowances for a tax year may be used to create or augment a trading loss but only in so far as they are not needed to reduce balancing charges for that year.

How are capital allowances set against a balancing charge?

(2) The balancing charges needing to be reduced by capital allowances for the tax year must firstly be reduced by capital allowances brought forward.

Section 394 Effect of giving relief under section 381 by reference to capital allowances

Can capital allowances be claimed twice?

Capital allowances cannot be claimed twice. Capital allowances used to create or augment a trading loss (section 392) cannot be used for any other purpose. An inspector may enter an additional assessment to recover any amount claimed twice.

Example

Trading profit 20,000
Capital allowances 28,000
Use of part of capital allowances (section 392(1)) (20,000)
Loss (section 392) (8,000)
Assessment Nil
Balance of loss carried forward (8,000)

The €20,000 used to create the loss cannot be used again.

Section 395 Relief affected by subsequent changes of law, etc

Do subsequent changes in the law affect a claim to augment a loss?

(1) Capital allowances for a tax year may be used to create or increase a trading loss before the Finance Act for that year has been passed.

If the change in law results in excessive capital allowances or a permanent cessation, the inspector may make a Case IV assessment to withdraw the relief.

Must excessive allowances be declared?

(2) To enable the additional assessment to be made, a person who has claimed excessive capital allowances must include the details as Case IV income in his/her return for the tax year.

Section 396 Relief for trading losses other than terminal losses

Can a company carry forward an unused trading loss?

(1) A company can carry forward an unrelieved trading loss for set off against the trading income of the next accounting period.

For the purposes of loss relief, income means the gross statutory income: Navan Carpets Ltd v O’Culacháin, 3 ITR 403.

Can a company carry back a trading loss?

(2)-(3) A company can carry back any part of a trading loss which has not been used against profits of the current period for set off against profits of any kind arising in an immediately preceding accounting period of equal length.

Example

Your company incurred a trading loss of €800,000 in the year ended 31 December 2012.

For the same period it had other trading profits of €340,000. The corporation tax profits of previous accounting periods were:

1 September 2011 to 31 December 2011 (4 months) 120,000
1 April 2011 to 31 August 2011 (5 months) 140,000
1 April 2010 to 31 March 2011 (12 months) 500,000

The trade in which the loss was incurred was carried on throughout the whole of the period from 1 April 2009 to 31 December 2012. You claim relief under section 396(2) to extend to the profits of earlier periods.

Relief is given as follows:
Accounting period to 31 December 2011 340,000
Accounting period to 31 December 2011 120,000
Accounting period to 31 August 2011 140,000
Three months to 31 March 2011 (3/12) x €500,000 125,000
725,000

The balance of the loss, €75,000, is available for carry forward under section 396(1).

How are Case III losses relieved?

(4) A Case III loss from a foreign trade may only be carried forward against Case III profits.

How is a trading loss calculated?

(5) A trading loss is computed in the same manner as trading income.

Life companies may compute their profits on the basis of income and capital gains less management expenses (the “I – E” basis) which is different from the Case I computation. Management expenses used by a life company in computing its income on the I – E basis cannot be “reused” to compute a trading loss in a Case I computation.

How is a loss arising on investment income relieved?

(6) Investment income of a financial concern (for example interest on Government securities, dividends from UK companies) may have been taxed under Case III.

A trading loss arising to such a financial concern may be set off against such investment income if it exceeds Case I income of that or a later period and a loss on such investment income may be set against its trading income.

Trading income includes interest or investment dividends which would be trading income but for the fact that they were received under deduction of tax, for example, in a banking or insurance business: Nuclear Electric plc v Bradley, [1996] STC 405.

Can charges augment a loss?

(7) Company carry forward trading loss relief may be increased by the lesser of:

(a) the excess of total charges on income over profits, and

(b) the amount of charges paid wholly and exclusively for the company’s trade (i.e., trade charges).

If there is a trading loss and there are non-trade profits, section 396(7) operates to ear-mark the charges deducted, so that non-trade charges are set off against profits in priority to trade charges. If profits as reduced by section 396(2) are less than the non-trade charges, the total reliefs allowed will vary according to whether or not section 396(2) relief is claimed.

Where trading income is reduced by the operation of section 396(2) in respect of a loss incurred in the next succeeding accounting period, the reduced figure should be taken into account for the purposes of the section 396(7) computation.

Example

Trading loss 20,000
Total charges on income (including trade charges €10,000) 50,000
(a) Excess of total charges over total profits 50,000
(b) Trade charges 10,000

Subs (7) operates to increase the €20,000 loss available for carry forward under subs (1) by the €10,000 trade charges to €30,000.

Source: Inspector Manual 12.3.1

Trading loss 12,000
Non-trade profits 15,000
Total charges (including trade charges €5,000) 19,000

1. If there is no claim under section 396(2), the trading loss available for carry forward under section 396(1) by virtue ofsection 396(7), increased by €4,000 (the excess of total charges €9,000 over total profits €5,000, which is less than the trade charges €5,000).

Charges 15,000
Loss available for relief under section 396(7) 16,000
31,000

2. If relief is claimed under section 396(2), the total profits become €3,000, i.e., €5,000 – €2,000. The excess of total charges is €6,000, i.e., €9,000 – €3,000 and the section 396(7) addition to the section 396(1) loss is accordingly the amount of the trade charges €5,000.

Charges 3,000
Loss allowed under section 396(2) 12,000
Loss available for relief under section 396(1) 5,000
20,000

The difference between the aggregate reliefs under (i) and (ii) (€31,000 – €20,000 = €11,000) is the amount by which the non-trade profits as reduced by section 396(2) in (ii) (€15,000 – €12,000 = €3,000) fall short of the non-trade charges (€19,000 – €5,000 = €14,000), all of which are allowed under (i).

Where the Case I computation results in a profit, the loss for carry forward should be taken as the lesser of (i) and (ii) above.

Example

Trading income 8,000
Non-trade profits 16,000
Total charges (including trade charges €12,000) 40,000
Excess of total charges over total profits (€40,000 – €24,000) 16,000

This exceeds the trade charges, and the loss available for carry forward under section 396(1) is therefore €12,000.

Trading income 8,000
Non-trade profits 24,000
Total charges (including trade charges €28,000) 40,000
Excess of total charges over total profits (€40,000 – €32,000) 8,000

This is less than the trade charges and the loss available for carry-forward under section 396(1) is €8,000.

Is any company entitled to set losses against income?

(8) Only a company within the charge to corporation tax can offset a trading loss against trading income.

This means, for example, that losses incurred by a foreign company, and pre-trading losses of a resident company, cannot be set against trading income (Inspector Manual 12.3.1).

What is the time limit for claiming company loss relief?

(9) A claim to set a trading loss against other profits must be made within two years of the end of the accounting period in which the loss is incurred.

Where Revenue had for over 20 years accepted informal claims, it was abuse of power to require a formal claim without advance notice: R v IRC ex parte Unilever plc and related appeals, [1996] STC 320.

Section 396A Relief for relevant trading losses

What is a “relevant trading loss”?

(1) Relevant trading income is a company’s trading income for an accounting period which is non-25% taxed income.

A company’s relevant trading loss is a loss in trade which, if it were taxed, would be liable at the standard CT rate, i.e., a non-higher rate loss.

Can a trading loss be offset against total profits?

(2) A company may not take a deduction against total company profits for a relevant trading loss. In other words, a loss in a 12.5% taxed trade cannot be used against 25% taxed profits. Such a loss may be used only against 12.5% taxed profits.

Can a trading loss be set against other income?

(3) Although disallowed under (2) as a deduction against total profits, a relevant trading loss is allowable against:

(a) income from non-life insurance, reinsurance, and from life business, provided the income in question is attributed to shareholders (section 21A(4)), and

(b) non-higher rate taxed income,

of the accounting period.

To the extent that it has not been used, the loss may also be carried back, in accordance with the rule in (4), against similar income of a previous accounting period.

Example

A company with trading and rental income has the following profits and interest payments for the year ending 31 December 2012:

Trading income Rental income Total profits
Tax rate 12.5% taxed trade 25%
1,000 55,000 56,000
Trading loss (12.5% taxed trade) (5,000)

With no “ring-fencing”, the company could deduct €5,000 from its total profits (which includes its 25%-taxed profits).

The ring-fencing ensures the company only gets a deduction for €1,000, i.e., for its relevant trading loss against its non-higher rate taxed income, i.e., the company’s relevant trading income.

Example

A distribution company has the following results for year ending 06.03.2012:

Y/e 6 March 2011 Y/e 6 March 2012
Trading losses (800,000) (800,000)
Rental Income 250,000 250,000
Interest Income received gross 200,000 200,000
Patent royalties paid 100,000 100,000
Tax computation
Case III 200,000 200,000
Case V 250,000 250,000
450,000
Less: Trade charges (section 243) (100,000)
Trade losses (section 396) (350,000)
Taxable Income Nil 450,000
Corporation tax at 25% 112,500
Loss summary:
Trading loss 800,000
Less: utilised year ended 6/3/11 (350,000)
Unutilised loss* 450,000
Relevant trading loss 800,000
Relevant trading charges 100,000
Unutilised losses and charges** 900,000

*This unutilised loss may be carried back to the year ended 6 March 2010 and set off against total profits. Alternatively, it may be carried forward for offset against future trading profits of the company.

**In accordance with section 396A and section 243A, relevant trading losses and relevant trading charges may only be offset against 12.5% taxed profits. They may be carried back (in the case of losses only) to the preceding accounting period and offset against 12.5% taxed profits. Alternatively, these unutilised losses may be carried forward for offset against future trading profits.

Source: Tax Briefing 44.

In what order are losses carried back?

(4) A loss carried back under (3) is first set against the profits of the immediately preceding accounting period. If that period is shorter than the period in which the loss is made, the set-off is reduced proportionately, leaving a residue to be carried back to earlier accounting periods in the same way.

What is the time limit for claiming loss relief?

(5) A loss relief claim within (3) must be made within two years of the end of the accounting period in which the loss occurs.

Section 396B Relief for certain trading losses on a value basis

How is loss relief given on a value basis?

(1) Finance Act 2001 section 90 introduced three new sections:

(a) section 243A which deals with restriction of relief for charges,

(b) section 396A, which deals with restriction of loss relief, and

(c) section 420A which deals with group relief.

The net effect of these sections is to ensure that a loss (or excess charges) in a 12.5% taxed activity cannot be offset against 25% taxed profits. The loss (or excess charges) can only be used (with any excess being carried forward against similar profits) against profits taxed at the same rate. In effect, a 12.5% loss is “ring-fenced” against 12.5% taxed activity.

Finance Act 2002 section 54 introduced three supplementary sections:

(a) section 243B,

(b) section 396B, and

(c) section 420B.

In each instance, the effect is to ensure that where there is a loss (or excess charges) in a 12.5% taxed activity, relief can be given on a value basis.

The relief is given by reducing the relevant corporation tax, i.e., the tax that would be payable before taking into account relief for charges. A life assurance company is not allowed relief on a value basis in respect of corporation tax on profits attributable to shareholders.

A company’s relevant trading income is its trading income for an accounting period which is not chargeable at the higher (25%) rate, i.e., its 12.5% taxed income.

A company’s relevant trading loss is a loss in its trade which, if it were taxed, would be liable at the standard CT rate, i.e., a 12.5% activity loss.

Losses ring-fenced are excluded from relief.

Can a company claim relief on a value basis?

(2) A company may, on making a timely claim, obtain on a value basis for a relevant trading loss.

How is relief given on a value basis?

(3) Relief is given on a value basis as follows:

To the extent to which the excess consists of a “standard rate loss” (i.e., a loss which relates to an activity the profits of which are taxed at 12.5%, the relevant corporation tax is reduced by a figure obtained by the formula:

L   x    R  
100

where L is the loss and R is the standard rate of corporation tax (currently 12.5%).

Example

A company with trading and rental income had the following profits and interest payments for the year ending 31 December 2012:

Trading income Rental income Total profits
Tax rate 12.5% 25%
1,000 55,000 56,000
Trading loss (5,000)

Relevant corporation tax is €1,000 x 12.5% + €55,000 x 25% = €13,875.

Excess is €4,000, because only €1,000 can be used against the 12.5% taxed profits.

Relief on a value basis for €4,000 x 12.5% = €500 can be set against relevant corporation tax.

This reduces the relevant corporation tax from €13,875 to €13,375.

How is relief on a value basis given for a preceding year?

(4) Relief on a value basis is given against relevant corporation tax for an immediately preceding accounting period of equal length. If the preceding accounting period is longer than the period containing the relevant trading loss, the relief is scaled back proportionately.

How is relief carried forward after relief has been given on a value basis?

(5) Where relief was given for “standard rate loss”, the amount treated as received is an amount equal to:

T  x  100
R

where T is the reduction in relevant corporation tax, and R is the standard rate of corporation tax (currently 12.5%).

A further rule applies where a company has a relevant amount, i.e. non-trade charges, management expenses, or other deductions (apart from excess capital allowances under section 308(4)).

In such a case, relief is given as if there were no relevant amount.

This ensures that the correct amount of loss relief is carried forward.

Example

Continuing with the facts of the previous example:

Relief was given on a value basis for €4,000 x 12.5% = €500.

The relevant amount is therefore €500 x (100/12.5) = €4,000.

Therefore, no further relief is available for carry forward.

What is the time limit for claiming loss relief?

(6) A loss relief claim within (2) must be made within two years of the end of the accounting period in which the loss occurs.

Section 396C Relief from corporation tax for losses of participating institutions

Can a banks claim relief on loans transferred to NAMA?

(1) A bank which is transferring loans to NAMA (a group company in a participating institution) may claim relief under (2), provided the available losses do not exceed the relevant limit.

What limit is placed on loss relief in respect of NAMA loans?

(2) The amount which can be offset against trading income may not exceed the relevant limit, i.e:

A x B
C

where

A is the relevant amount, i.e. half the amount by which the aggregate trading income of the participating institution and its group companies exceeds the aggregate trading income of the institution and its group companies,

B is the aggregate trading income of the participating institutions before relief for available losses, and

C is the aggregate trading income of the participating institutions and its group companies before relief for available losses.

How does NAMA loan relief work?

(3) If a participating institution has excess available losses, and a group company can absorb such losses, then the participating institution may surrender those excess losses to the group company.

Can the inspector recover excess NAMA loan relief?

(4) If the inspector believes that excessive relief has been claimed, he/she may recover it by making a Case I assessment.

When is NAMA loan relief available?

(5) NAMA loan relief applies from 22 November 2009 to 31 December 2013.

Section 397 Relief for terminal loss in a trade

What is a terminal loss?

(1) A terminal loss is a trading loss incurred in a company’s final 12 months of trading. Such a loss may, to the extent that it has not already been relieved, be set against the trading income for each of the three years immediately preceding the final 12 months of trading.

How is terminal loss relief given?

(2) If a loss arises for an accounting period that straddles the final 12 months, only the proportion of the loss falling within the final 12 months counts toward the terminal loss.

If trading income arises for an accounting period that straddles the start date of the three year period immediately preceding the final 12 months, only the proportion of the income falling within the three year period may be relieved by the terminal loss.

Example

A company ceases to trade on 31 March 2012. The final accounts figures are as follows:

Trading income (loss) Non- trading profits Total profits
Year to 31.12.2008 12,000 3,000 15,000
Year to 31.12.2009 10,000 2,000 12,000
Year to 31.12.2010 15,000 2,000 17,000
Year to 31.12.2011 (75,000) 3,000 3,000
3 months to 31.03.2012 4,000 1,000 5,000

Relief is claimed under section 397. The loss available for relief is that of the nine months 1 April 2011 to 31 December 2011, in so far as it cannot be otherwise relieved. The loss for the accounting period in which this falls (year to 31 December 2011) can be relieved as follows:

Section 396(2): corporation tax profits of AP 31.12.2011 3,000
corporation tax profits of preceding AP 31.12.2010 17,000
20,000
Section 396(1) trading income of AP 31.03. 2012 4,000
Loss relieved under section 396 24,000

The unrelieved loss of the accounting period is thus €51,000 of which the amount attributable to the nine months to 31 December 2011 (9/12) is €38,250. Section 397 relief is due as follows:

Against:
trading income of AP 31.12.2009 10,000
trading income of 01.04.2008 to 31.12.2008 (9/12) x €12,000 9,000
Loss relieved under section 397 19,000

The balance of the 31.12.2011 loss cannot be relieved in any way.

Source: Inspector Manual 12.3.1 (adapted)

How is a terminal loss calculated?

(3) The trading loss rules in section 396(5)-(8) apply to terminal losses. This means:

A terminal (trading) loss is computed in the same manner as trading income.

Investment income of a financial concern (for example interest on Government securities, dividends from UK companies) may have been taxed under Case III (although strictly taxable under Case I).

A terminal loss arising to a financial concern may also be set off against such investment income.

A terminal loss may be increased by the lesser of:

(a) the excess of total charges over profits, and

(b) the amount of charges paid wholly and exclusively for the company’s trade (i.e., trade charges).

A terminal loss incurred by a foreign company cannot be set against its trading income.

Section 398 Computation of losses attributable to exemption of income from certain securities

How is interest received by a foreign financial company trading through an Irish branch treated?

(1) Interest on Government securities received by a foreign financial company through a branch or agency in the State is taxed as trading income.

Can an Irish branch claim loss relief?

(2) A loss arising to an Irish branch of a foreign company must first be set off against Government security interest income for that period.

Section 399 Losses in transactions from which income would be chargeable under Case IV or V of Schedule D

How is a Case IV loss relieved?

(1) A company may carry forward an unrelieved Case IV loss for set off against profits of that kind in the next accounting period.

A loss arising from dealing in certificates of deposit (section 814) may, if the company is chargeable to tax on such interest, be set against the interest payable on the certificate.

Can I carry back a Case V rental loss to previous periods?

(2)-(3) A company may carry back a Case V loss for set off against profits of that kind in the immediately preceding accounting period of equal length.

Any unrelieved balance may be carried forward for set off against Case V income of the next available accounting period in which such income arises, and so on for subsequent accounting periods.

What is the time limit for claiming Case V loss?

(4) Case V loss claims must be made within two years of the end of the accounting period in which the loss is incurred.

Section 400 Company reconstructions without change of ownership

Who is the owner of a trade?

(1) A trade carried on jointly by one or more persons is regarded as being owned in proportion to each person’s share of the profits.

A trade carried on by a trustee is regarded as being owned by the trust’s beneficiaries.

Who is the owner of a trade carried on by a company?

(2)-(3) A company trade is regarded as owned by the shareholders in proportion to their shareholdings, and the trade of a 75% subsidiary is regarded as owned by its parent’s shareholders.

A company shareholding is regarded as owned by a person who has power to direct that company’s affairs.

Do relatives’ shares count in determining ownership?

(4) In determining how much of a trade a person owns, your relatives’ shares are counted. Relative, in this context, means a spouse, brother, sister, ancestor or lineal descendant.

What constitutes continuing ownership?

(5) For a trade to be regarded as continuously owned by the same person, the successor or its parent must, within one year before the change and two years after the change, own not less than a 75% share in the predecessor’s trade.

The trade must be carried on by a person within the charge to corporation tax.

A successor which takes over a trade may avail of any unused losses or capital allowances of, and is liable for any balancing charges of the predecessor.

In Rolls Royce Motors Ltd v Bamford, [1976] STC 162, the successor was denied the predecessor’s losses because the relative scale of activities indicated a different trade. In such cases, loss relief is denied to the successor (section 401). See also Wood Preservation Ltd v Prior, (1968) 45 TC 112; Pritchard v M H Builders (Wilmslow) Ltd, (1968) 45 TC 360; J H and S Timber Ltd v Quirke, (1972) 48 TC 595; Ayerst v C and K (Construction) Ltd, [1975] STC 345;Wadsworth Morton Ltd v Jenkinson, (1966) 43 TC 479.

In Falmer Jeans Ltd v Rodin, [1990] STC 270, a successor was allowed to carry forward the losses of the predecessor (a former supplier of the successor).

Whether a succession has in fact taken place has been considered in Watson Bros v Lothian, (1902) 4 TC 441; Bell v National Provincial Bank of England Ltd, (1903) 5 TC 1; Laycock v Freeman Hardy and Willis Ltd, (1938) 22 TC 288;Briton Ferry Steel Co Ltd v Barry, (1939) 23 TC 414; Wild v Madame Tussaud’s, (1926) Ltd, (1932) 17 TC 127;Malayalam Plantations Ltd v Clark, (1935) 19 TC 314; Mills from Emelie Ltd v IRC, (1919) 12 TC 73; Thomson and Balfour v Le Page, (1923) 8 TC 541.

Example

You and your brother each own a 50% interest in X Ltd.

Your two sons each own a 50% interest in Y Ltd.

You and your sons are treated as a single person.

The common interest is 50% and section 400 will not apply. If, however, the 50% interest in Y Ltd. after the transfer were owned by your son and a son of your brother respectively, section 400 would apply, since you and your son would be treated as a single person, as would your brother and his son.

Example

Q Ltd. owns 75% of the ordinary share capital of X Ltd. (the predecessor).

Q Ltd. acquires 100% of the ordinary shares in Y Ltd. (the successor).

X Ltd. transfers its trade to Y Ltd.

Q Ltd. is now the parent of the predecessor and the successor.

As Q Ltd. owned not less than 75% of the ordinary share capital in X Ltd. within one year preceding the change, any losses incurred by the predecessor may be carried forward to the successor.

Example

R Ltd. transfers its trade to S Ltd., in which it owns 50% of the ordinary share capital.

S Ltd. subsequently transfers the trade to a third company T Ltd. on 01.12.2012.

P, who owned all the shares in R Ltd. up to 01.07.2010, when he/she sold them acquired 75% of the ordinary shares in T Ltd.

In relation to the first change, P provides the link, and “the period for the comparison” is 01.07.2010 to 01.12.2012.

As the third company took over the trade within this period, both changes are within section 400.

Can capital allowances be transferred to a successor?

(6) A predecessor’s capital allowances and balancing charges can be transferred to the successor without giving rise to a balancing adjustment. The capital allowances are given to the successor as if no change had taken place.

Can a predecessor claim terminal loss relief?

(7) A predecessor cannot claim terminal loss relief – see (9).

The successor can claim the predecessor’s unrelieved trading losses.

How are securities held as stock treated on a reconstruction?

(8) Where there is a succession of a trade of dealing in securities (section 748), any securities held as trading stock are regarded as sold to the successor at market value.

When can a predecessor claim terminal loss relief?

(9) A predecessor is not entitled to terminal loss relief, but:

(a) If the successor ceases to trade within four years, and his/her income is insufficient to absorb any terminal loss, any remaining terminal loss may be allowed against the predecessor’s trading income.

(b) If the successor ceases to trade within one year, any terminal loss is given to the predecessor.

No terminal loss relief is given more than four years before the cessation date.

Can a subsequent successor claim unrelieved losses?

(10) If within two years of a succession, the trade is subsequently taken over by a new successor which meets the ownership test, that successor may claim any unrelieved losses and capital allowances of the original predecessor.

What if a successor carries on only part of the trade?

(11) This relief also applies to:

(a) a trade carried on by a successor as part of another trade,

(b) a part of a trade carried on by a predecessor which is carried on by a successor as a trade (or part of another trade).

How are expenses treated where only part of the trade is carried on?

(12) If a successor carries on only part of a trade, the receipts and expenses of the trade must be apportioned between the part carried on and the part not carried on.

What if there is a dispute regarding apportionment of expenses?

(13) A dispute regarding apportionment of expenses is to be determined by the Appeal Commissioners in the same manner as an appeal against an income tax assessment.

Any interested party is entitled to appear before and be heard by the Appeal Commissioners.

There is a further right of appeal to the Circuit Court, and on a point of law, to the High Court.

Must reconstruction relief be claimed?

(14) Reconstruction relief must be claimed; it is not given automatically.

Section 401 Change in ownership of company: disallowance of trading losses

What is considered to be a major change in the nature or conduct of a trade or business?

(1) This anti-avoidance section prevents “loss buying”. This type of tax avoidance usually involves a near dormant business (one which has become small or negligible) which has accumulated losses. The unused losses of the acquired business might then be used against other profits of the acquirer.

A major change in the nature or conduct of a trade or business would, for example, include a major change in customers, markets, property dealt in, or services provided. It would also include a trading company becoming an investment company, an investment company becoming a trading company, and a major change in the nature of investments made by an investment company.

A company decision to sell its products through a distribution company rather than direct to customers was held not to be a major change: Willis v Peeters Picture Frame Ltd, [1983] STC 453.

The effect on the trade is taken into account in deciding whether the change is “major”: Pobjoy Mint Ltd v Lane, [1984] STC 327; Purchase v Tesco Stores Ltd, [1984] STC 304.

When does reconstruction relief not apply?

(2) This anti-avoidance rule applies if, within any three year period, there is:

(a) a major change in the nature of a company’s business (see (1)) and the company changes ownership, or

(b) in the case of a company whose business has become small or negligible, the ownership changes before the business is revived.

A trading loss incurred before the change of ownership, (including the “accounting period” ending with the change of ownership,) cannot be carried forward.

(2)(a) applies where following a change in ownership, the company’s activities are close enough to its previous business to make it difficult to establish that there has been a cessation of one trade and the commencement of another.

For example, a company which formerly specialised in building houses might be taken over by a building group and fed with factory-building contracts.

A local draper’s shop might, on take-over, be developed into a branch of a multiple general outfitter.

(2)(b) is intended primarily to strike at the integration of a loss-bearing company in a vertical group, but it applies generally where, following a take-over, there is a major change in the company’s customers, outlets or markets.

This section does not prevent the buying of “capital” losses: Bromarin AB and Anor v IMD Investments Ltd, [1999] STC 301. But see Schedule 18A, which does.

Does a change of ownership close an accounts period?

(3) The accounting period in which the change of ownership occurs is regarded as two separate accounting periods: the first ending with the change of ownership and the second beginning on the next day.

Are bona fide reconstructions caught?

(4) These loss buying rules do not apply to a bona fide reconstruction (section 400).

How is a balancing charge calculated on a change of ownership?

(5) Where loss relief is prevented by this section, the disposal of an asset taken over by the successor attracts a balancing charge up to the amount used to reduce the predecessor’s profits.

What is the time limit for making an assessment?

(6) An inspector may make an assessment within 10 years of the change of ownership.

What is a change of ownership?

(7) Detailed rules regarding what constitutes a change of ownership are set out in Schedule 9.

Section 402 Foreign currency: tax treatment of capital allowances and trading losses of a company

This section provides that companies with a functional currency other than the Euro may compute their trading losses and capital allowances in that functional currency.

See also section 79, which deals with computation of profits in the functional currency.

How is a company’s functional currency?

(1) A company’s functional currency is the currency of the primary economic environment in which it operates. A foreign company’s functional currency is the currency of the primary economic environment in which it trades in the State. In both cases, if the accounts are prepared in Irish currency, the functional currency is the Euro.

A company’s primary economic environment is generally determined by the currency in which its net cash flows are generated.

Expenditure is “incurred” on the day on which it becomes payable.

Profit and loss account means a profit and loss account of an Irish resident company or of the business carried on by a foreign company through its Irish branch. The profit and loss account must be audited (Companies Act 1963 section 160).

A representative rate of exchange, i.e., an exchange rate is an arm’s length exchange rate for two different currencies.

Can capital allowances be computed in functional currency?

(2) Capital allowances are to be computed in the company’s functional currency.

Capital expenditure in the non-functional currency must be translated into the functional currency at the representative rate of exchange on the day on which the expenditure was incurred.

If the functional currency changes, capital allowances relating to the expenditure after the change (or expenditure before the charge on which capital allowances have not been computed) are to be computed in the new currency but computations made before the change are not to be recomputed in the new currency.

Where a company’s leasing activities are not sufficient to constitute a trade (Case IV profits), capital allowances and losses may be computed in the functional currency (see (4)).

This means that a company whose functional currency is the Euro must translate its capital expenditure into Euros. Similarly, a company whose functional currency is US dollars must translate its Euro capital expenditure into US dollars.

Example

01.01.2009 Your company’s functional currency changes to the US dollar.

01.01.2009 You bought a new item of plant (€1 = 1.50 US $, say) 100,000
Wear and tear allowance (15%) year ended 31.12.2007 15,000
Tax written down value 31.12.2007 85,000
Wear and tear allowance (15%) year ended 31.12.2008 15,000
Tax written down value (31.12.2008) 70,000
This is 70% of the item’s original cost.
$
Equivalent
Had the original cost been in US Dollars, it would have been 150,000
US Dollar tax written down value (31.12.2008) 150,000 x 70% 105,000

Source: Revenue Guidance Notes (adapted and updated)

Can losses be computed in functional currency?

(3) A trading loss or terminal loss must be computed in your company’s functional currency. The relief is to be translated into euro at the average exchange rate for the period in which the loss is being allowed. (This is the rate for which the set off is being allowed.)

If the functional currency changes, loss relief after the change is to be computed in the new currency but computations made before the change are not to be revised in the new currency.

Example

US$
Year ended 31.12.2008 (€1 = $1.50)
Investment income 100,000
Trading loss 300,000
Company claims (section 396(2)) set off of $150,000 of $300,000 trading loss against investment income 100,000 -150,000
Year ended 31.12.2007 (€1 = $1.40)
Company claims set off of $70,000 of remaining $150,000 trading loss against Investment income 50,000 70,000
Balance of loss for carry forward 80,000

Note

1. The amount required to cover the profits expressed in Euros is calculated on the basis of the average rate of exchange for that year. This amount is then deducted from the dollar losses.

2. The section does not state which losses are to be set off first. In the circumstances, the taxpayer may choose whatever basis suits.

US$
Year ended 31.12.2008 (€1 = $1.50)
Trading loss 300,000
Year ended 31.12.2009 (€1 = $1.30)
Trading income 500,000

If a claim is made under section 396(1) to carry forward the $300,000 loss for set off against the 2009 trading income of €500,000, the exchange rate to be used is the rate for the period of set off, i.e., € = $1.30 (giving a loss relief of €230,770) not € = $1.50 (giving a loss relief of €200,000).

Example

01.01.2009 Your company’s functional currency changes from € to US$.

US$
equivalent
Year ended 31.12.2006 (€1 = $1.50)
Trading loss 500,000 750,000
Relieved as follows:
Year ended 31.12.2007 (€1 = $1.50)
Trading profit 100,000 140,000
Year ended 31.12.2008 (€1 = $1.50)
Trading profit 200,000 300,000
Unused balance of loss for carry forward 200,000 310,000

Assume the company has profits of $200,000 for the year ended 31.12.2009. The company can offset its losses carried forward ($310,000) against the profits, leaving a balance of $110,000 for carry forward to 31 December 2010.

Can leasing activity losses be computed in the functional currency?

(4) Losses in a leasing activity which is insufficient to sonstitute a trade should be computed the loss in the functional currency and then converted to euro by reference to the exchange rate applicable for the accounting period in which the loss is to be set off.

Section 403 Restriction on use of capital allowances for certain leased assets

Note: See also section 298, which deals with capital allowances for lessors of machinery or plant.

This legislation was introduced to confine the set off of accelerated capital allowances on leased machinery against the lease income from that machinery because it was felt that such allowances were being excessively used by financial concerns to reduce their general trading profits.

As accelerated capital allowances were generally withdrawn in 1992 (see sections 271, 273, 283, 285), this section is now spent.

Section 404 Restriction on use of capital allowances for certain leased machinery or plant

See also section 298, which deals with capital allowances for lessors of machinery or plant, and comments regarding leasing in the notes to section 81.

This section is one of the longest in the tax legislation. To understand it, it is important to have a clear idea of what it is trying to combat.

Example

A company leases plant and machinery. It has no other activities.

It structures its seven year lease agreements so that the proportion of the total lease income received in the first four years of the lease period is relatively low but the income for the last three years is relatively high. The income is “back-loaded”.

In this example, an asset worth €700 is leased over seven years. The company recovers €100 of the cost of the asset in the first four years and €600 in the last three years. This type of lease is known as a “balloon lease” because the payments increase or “balloon” towards the end of the lease agreement.

Because the payments are not evenly spread through the lease period, the lessor can use the fact that it will obtain a minimum 15% wear and tear allowance on the plant and machinery in the first six years (10% in the seventh year) to create “artificial losses” in the first few years.

Year Lease income Capital allowances Profit (loss)
2009 300 (70) 230
2008 150 (105) 45
2007 150 (105) 45
2006 25 (105) (80)
2005 25 (105) (80)
2004 25 (105) (80)
2003 25 (105) (80)
Total 700 (700) nil

The early “artificial losses” created by the capital allowances could be set against all lease income, thus allowing a lessor to obtain a temporary cash flow advantage against Revenue. This may represent a significant exchequer loss In the case of aircraft or ship leases worth several million pounds.

The effect of this avoidance is reversed by providing that the capital allowances relating to a relevant lease may only be set against the lease income from that lease.

This means no “artificial losses” can be created for set against general leasing income. Such losses may only be brought forward for set off against income from that lease.

What is a relevant lease?

(1) A lease’s relevant period is the shorter of the following periods (each beginning at the start of the lease):

(a) The period needed for the lessor to recover 90% of the value of the leased asset from the lessee. In the example above it is seven years: at the end of that period, the lessor has recovered the cost of the asset from the lessee. For leases longer than seven years, it is the period needed for the lessor to recover 95% of the value of the leased asset from the lessee.

The future lease payments are to be discounted at a rate which equates their net present value to the cost of the leased asset.

(b) The asset’s predictable useful life.

A lease is a relevant lease if the payments under the terms of the lease, or calculated by reference to the European Inter Bank Offered Rate (the relevant lease payments) are not evenly spread throughout the primary lease period.

W  x  P  x  90 + (10 x W)
100

The first part of the formula, (W x P), ensures that a lease is a relevant lease unless the cumulative lease payments in a chargeable period equal the proportion of total lease payments expired up to that time.

The second part of the formula, ((90 + 10W)/100), relaxes this strict test to 90% at the beginning of the lease, gradually rising to 100% at the end of the primary lease period.

Any balance due at the end of the primary lease period generally must be paid within one ninth of the length of the lease period, or one year if greater.

A lease for longer than 10 years provided for a project approved by the Industrial Development Authority, Shannon Free Airport Development Authority Ltd, or Údarás na Gaeltachta, that is:

(a) on the IDA list (section 133(8)) of projects which qualify for section 130 funding, or

(b) which has been approved for grant aid before 31 December 1990

is not a relevant lease if:

(a) The payments in the first three years of the primary lease period equate to interest that would have been payable had machinery been financed through borrowing. The formula (D/100) x (80/100) does this by multiplying the cost of the machinery by 80% of the six month Dublin Inter Bank Offered Rate (DIBOR). This is proportionately reduced (M/12) for accounting periods shorter than 12 months.

From a date to be appointed by the Minister for Finance the cost is multiplied by 80% of the six month European Interbank Offered Rate instead of DIBOR.

(b) The remaining payments are evenly spread over the remainder of the primary lease period.

(c) Any further balance outstanding at the end of the primary lease period must be paid within one year after that period ends.

In this regard, a nominal payment made at the end of the primary lease period is treated as “inconsequential” if the present value of any future remaining (secondary) lease payments is not greater than the lower of:

(a) 5% of the cost of the asset, or

(b) €2,540.

An accounting period which straddles either the start or the end of a lease’s relevant period is split into two accounting periods so that the tests may be separately applied to the part of the accounting period falling within the lease’s relevant period.

A foreign currency lease is not treated as a balloon lease by reason only of exchange rate variations. The test to be applied in determining whether there is an even flow of lease payments (i.e., the lease is not back-ended) must be made by reference to the currency in which the lease is denominated.

What restrictions apply to a relevant lease?

(2) The capital allowances relating to a relevant lease may only be set against the lease income from that lease.

Capital allowances made by way of discharge or repayment of tax (sections 305(1)(b), 308(4), 420(2)) relating to machinery or plant are also restricted and may only be set off against the income from the leased plant and machinery. The “ring-fencing” also applies to isolated transactions which are not part of a trade of leasing.

Do the lease ring-fencing rules apply to a long term lease?

(2A) The ring-fencing rules are relaxed where an asset is provided under a relevant long-term lease, i.e., a lease of an asset that has a predictable useful life of more than eight years. In such a case, capital allowances relating to the lease assets may be set against income from other relevant long-term leases.

This is achieved by substituting notional revised rules for set off of allowances into section 403(4)(a) so that allowance are given:

(a) against income from the long-term lease concerned,

(b) in the case of a company whose income consists mainly of leasing income, against the company’s leasing income and related income,

(c) against income of any other long-term lease of the company,

(d) against income of a leasing trade of a fellow group company,

(e) in the case of a company whose activities consist mainly of leasing activities, against leasing income and leasing related income of a fellow group company,

(f) against income of a relevant long-term lease of a fellow group company.

Is a lease of agricultural machinery a relevant lease?

(3) A lease of agricultural machinery may have an uneven spread of repayments to allow for seasonal variations.

An agricultural machinery lease is not treated as a relevant lease unless the lease payments in any chargeable period are half of the lease payments in the preceding chargeable period of equal length.

Can a relevant lease be replaced by a normal lease?

(4) This is an anti-avoidance provision. If an existing relevant lease is replaced by a new lease of the same asset between the same lessor and lessee (or a person connected with that lessee) which is not a relevant lease, the replacement lease will continue to be treated as a relevant lease.

Any allowances already given (which should not have been given) to the lessor are then withdrawn and treated as leasing income from the asset in the chargeable period in which the old lease was replaced with the new lease.

The amount of withdrawn allowances (A) is increased by the monthly amount of interest chargeable on unpaid tax (R/100) for each month the allowance should not have been given (M).

Can a change to the terms of a pre-2 February 2006 relevant lease affect its treatment?

(4A) In general, where the terms of a pre-2 February 2006 relevant lease (a lease with an uneven spread of payments) are changed after that date:

(a) the change itself will not result in the lease being treated as a relevant lease,

(b) the change is ignored for tax purposes, unless it results in a reduction in the value of any payment (or part payment) under the lease.

The foregoing rules do not apply if the change results in a payment being deferred by more than 20 years after the time at which it would otherwise have been payable.

What is a sale and leaseback?

(5) A sale and leaseback occurs when a lessor buys an asset and leases it to the seller (or a person connected with the seller).

A sale and leaseback is treated as a relevant lease unless:

(a) the machinery is new, or

(b) the lease payments are evenly spread throughout the lease period.

This is to prevent a sale and leaseback carried out to avail any of tax benefits under this section.

When do the relevant lease restrictions apply?

(6) The rules in this section generally apply from 23 December 1993, but the following lease agreements are not treated as a relevant lease:

(a) A lease for which a binding contract for the letting of the asset was concluded in writing before 23 December 1993.

(b) A lease which meets the following conditions:

(i) the relevant period does not exceed five years,

(ii) the asset’s predictable useful life does not exceed eight years,

(iii) the lease provides that the regular payments in each accounting period equate broadly to one eighth of the original value of the asset,

(iv) where the machinery or plant is not used throughout a chargeable period, the lessor elects to have the capital allowances proportionately reduced on a time basis, so that only the proper portion relating the the amount “used” is allowed.

The capital allowances relating to such leases may be set against other leasing income, i.e., they are not confined to lease income from the specific leased asset.

Section 405 Restriction on use of capital allowances on holiday cottages

Are holiday cottage allowances ring-fenced?

(1) This rule ring-fences capital allowances on holiday cottages. It is subject to the exceptions mentioned in (2) and (3).

Since 24 April 1992, allowance on a holiday cottage may not:

(a) give rise to a repayment of tax,

(b) be surrendered by way of group relief,

(c) be used to create or increase a trading loss, or

(d) be used against non-trading income.

In other words, such a capital allowance may only be set off against trading income to the extent that it does not create a loss. Any excess may be carried forward for relief against future trading income.

When do the holiday cottage ring-fencing rules not apply?

(2) If a written contract was agreed:

(a) to build the cottage, or

(b) to buy the land on which the cottage is to be built and planning application was made to the planning authority,

before 24 April 1992, provided the expenditure was incurred before 6 April 1993, the holiday cottage allowance was notrestricted.

Do the holiday cottage ring-fencing rules apply to resort areas?

(3) The ring-fencing rule in (1) does not apply to a holiday cottage first registered with the National Tourism Development Authority on or after 6 April 2001, if before it was registered:

(a) The holiday cottage qualified for resort area allowances, and

(b) the allowances in question were not required to be ring-fenced against rental income.

Section 406 Restriction on use of capital allowances on fixtures and fittings for furnished residential accommodation

What restrictions apply to furnished letting allowances?

A wear and tear allowance for fixtures and fittings used to furnish a residence may not:

(a) be used to set off against a different class of income, or

(b) be surrendered by way of group relief.

Section 407 Restriction on use of losses and capital allowances for qualifying shipping trade

Amendments

Legislation spent or repealed

Section 408 Restriction on tax incentives on property investment

This section is superseded by sections 409A409B.

Section 409 Capital allowances: room ownership schemes

This section is superseded by sections 409A409B.

Section 409A Income tax: restriction on use of capital allowances on certain industrial buildings and other premises

The excess capital allowances which a passive investor/lessor of an industrial building can set against other income is restricted to €31,750 (or the excess if lower). This restriction does not apply to a tourist building in a resort area, or a hotel (see section 409B).

What restrictions apply to a lessor of an industrial building?

(1)-(2) A lessor’s right to set off excess capital allowances on a specified building is restricted to the excess or €31,750, whichever is lower.

A specified building means an industrial building (section 268), an industrial building or commercial premises in a renewal incentive area (Part 10), a third level college building (section 843), and a childcare facility which qualifies for capital allowances (section 843A). The term does not include a hotel (section 268(1)(d)), or a tourist facility in a resort area (section 355(1)(b)).

The balance may be carried forward for set off against income of the same class in later tax years.

Example

A property lessor bought for letting:
a refurbished commercial premises in a qualifying area 150,000

Before taking into account the restrictions imposed by section 409A:

The lessor could claim in relation to the premises: an initial allowance of €75,000 (50%), with an annual 4% allowance (€6,000) until the maximum allowable expenditure (€150,000) has been fully allowed.

This gives €81,000 in initial and annual allowances for immediate offset primarily against rental income then against other income.

Assume that the lessor’s income is:
Rental income 50,000
Employment income 45,000
Trading income 35,000
120,000

Section 409A restricts the €81,000 capital allowances that may be offset to the lower of the excess (€81,000 – €50,000) = €31,000, or €31,750.

Therefore the maximum excess capital allowances that may be set against other income is €31,000. The balance of the allowances may be carried forward against future income.

Section 409B Income tax: restriction on use of capital allowances on certain hotels, etc

Since 2 December 1997, a lessor of a hotel or passive investor in a hotel can no longer set excess capital allowances against other income (section 409B). This restriction does not apply to a hotel in an area of Cavan, Donegal, Leitrim, Mayo, Monaghan, Roscommon or Sligo which is not a resort area, or a Bord Fáilte recognised holiday cottage.

Can a hotel lessor set allowances against other income?

(1)-(2) Since 2 December 1997, a lessor of or passive investor in a specified building is no longer entitled to set excess allowances against non-rental income.

A specified building means a hotel, but does not include:

(a) a hotel located in an area of Cavan, Donegal (apart from Bundoran), Leitrim, Mayo, Monaghan, Roscommon, or Sligo (apart from Enniscrone) which meets the tourist accommodation guidelines issued by the Minister for Tourism, and

(b) a National Tourism Development Authority registered holiday cottage.

Example

You are a property investor who paid:
Purchase of second-hand hotel (not in areas mentioned above) 100,000
Refurbishment of hotel (section 268(1)) 200,000

The industrial building allowance is given in respect of the refurbishment (section 276).

Before taking into account the restrictions imposed by section 409B:

You could claim 15% annual allowance (€30,000), for six years and €20,000 in the seventh year, i.e., until the maximum allowable expenditure (€200,000) has been fully allowed.

Assume your income is:
Rental income 20,000
Employment income 45,000
Trading income 35,000
100,000

Section 409B restricts the amount of capital allowances (€30,000) that may be offset to the rental income (€20,000). The excess (€10,000) of capital allowances over rental income may be carried forward against future rental income but may not be set against other income.

Can a passive partner augment a trading loss with allowances?

(3) Since 2 December 1997, the maximum amount that may be offset on a specified building by a passive partner (a partner who does not work for the greater part of his/her time in the day-to-day management of the partnership trade) against other income in a tax year is: the amount of his/her income from the trade.

In other words, no loss may be created.

(4)-(5) Legislation spent.

Can a successor to a contract obtain the signatory’s allowance?

(6) A person who takes over the contractual obligations and expenditure of a contract signatory is subject to the same restrictions.

Do the passive investor restrictions apply to professions?

(7) The passive investor restrictions also apply to professions.

Section 409C Income tax: restriction on use of losses on approved buildings

What is an approved building?

(1) A claimant who incurs:

(a) qualifying expenditure

(i) on the repair, maintenance or restoration of an approved building, i.e., a building approved by the Minister for Arts, Heritage, Gaeltacht and the Islands as being of significant historic, scientific, architectural or aesthetic interest, (including the building’s gardens and grounds),

(ii) of up to €6,350 in a chargeable period on the repair or maintenance of an approved object (see (6)), the installation of a security alarm, or the provision of public liability insurance for the approved building, or

(b) relevant expenditure

(i) on the maintenance or restoration of an approved garden, i.e., a garden of significant horticultural, historic, scientific, architectural or aesthetic interest (that is not part of a building within (a)),

(ii) of up to €6,350 in a chargeable period on the repair or maintenance of an approved object in, the installation or replacement of a security alarm in, or the provision of public liability insurance for, an approved garden,

may be entitled to tax relief.

An eligible charity is a charitable body in the State which has an authorisation from Revenue recognising it as such.

A relevant determination is a determination by which:

(a) The Minister for Finance has confirmed that a building is of significant historical, scientific, architectural or aesthetic interest, and

(b) Revenue have confirmed it provides reasonable access to the public, or is in use as a tourist accommodation facility for six months of the year including four months in May to September.

An ownership interest in a building is the interest which entitles the holder to claim relief for expenditure on significant building and gardens (section 482).

What is a “passive investment scheme”?

(2) A passive investment scheme exists where:

(a) an ownership interest in a significant building is transferred from one person (the transferor) to another (transferee),

(b) the building is an approved building at the time of the transfer (or at any time within five years of that date), and

(c) at the time of the transfer arrangements exists whereby the transferor, or any person connected with transferor, may:

(i) determine how the qualifying expenditure on the building is to be incurred,

(ii) obtain a payment for the tax benefit accruing to the transferee in relation to expenditure on the building, or

(iii) reacquire the transferee’s interest in the building,

or the sole or main purpose of transfer is facilitate a claim by the transferee.

Example

A stately Home requires €2m of expenditure to bring it up to standard. The house is open to the public six months per year and is approved by Revenue for significant buildings relief. You have no use for the relief as your income is only €100,000 per annum. You need a further €800,000.

The following scheme is devised:

You will move to the lodge and X, an individual with income of €500,000 will move into the house for five years. X can then entertain clients in the appropriate surroundings. X, as occupier, spends €800,000 on the refurbishment. This gives him/her a tax break of €320,000, i.e.,€800,000 x 40%, over his/her first two years of occupancy.

X then has a further three years of occupancy.

The scheme now fails because it is a passive investment scheme.

When is expenditure on a significant building restricted?

(3) Expenditure on a significant building is restricted where it is made as part of a passive investment scheme.

What is the limit on significant buildings relief?

(4) The loss that would otherwise arise to a transferee under a passive investment scheme is restricted to the lower of:

(a) the amount of the loss, and

(b) €31,750.

Can passive investors obtain significant buildings relief after 2010?

(4A) From 1 January 2010, passive investors are no longer entitled to shelter income with losses. Provided there is a written contract in place before 4 February 2010, work underway on that date will qualify for relief in 2010 and 2011.

Can unused passive investor relief be carried forward?

(5) Unused passive investor relief denied due to the restriction in (3) is treated as not being given due to insufficient income. In other words, it is lost.

what are the transitional rules for significant building passive investor relief?

(6) The restriction of relief does not apply where:

(a) the qualifying expenditure was incurred before 5 December 2001,

(b) the relevant determination was made before 5 December 2001, and the qualifying expenditure is incurred between 5 December 2001 and 31 December 2003,

(c) the qualifying expenditure was incurred before 31 December 2003, both Revenue and the Department of Arts and Heritage have indicated in writing before 5 December 2001 that a favorable determination would be given to the claimant,

(d) the qualifying expenditure is incurred before 31 December 2003, the determination was made before 5 December 2001, and the claimant has undertaken to gift the relief to the transferor (who is an eligible charity).

Section 409D Restriction of reliefs where individual is not actively participating in certain trades

What is a specified trade?

(1) This anti-avoidance section restricts relief for passive investors in a specified trade, i.e., alternative energy schemes, film and music industries and oil and gas exploration. The changes apply for a relevant year of assessment, i.e. 2002 and later tax years in relation to energy schemes, and 2003 and later tax years in relation to other investments.

What restrictions apply to passive investors in specified trades?

(2) A passive investor in a specified trade may not set excess capital allowances or a loss arising in that trade against income other than that from the specified trade. In other words, the allowances or losses are “ringfenced” to income from the specified trade.

Section 409E Income tax: ringfence on use of certain capital allowances on certain industrial buildings and other premises

What is a specified building?

(1) A specified building is a premises which qualifies for capital allowance purposes as an industrial building (section 268), a third level educational premises (section 843), or a child care facility (section 843A).

The specified amount of rent from a specified building is the surplus rent (excess of rent over expenditure) from the property.

How are allowances on specified buildings ring-fenced?

(2) This anti-avoidance section applies where, on or after 1 January 2003:

(a) a person acquires a specified building after a company has incurred capital expenditure on building or refurbishing the property, and

(b) the acquirer is entitled to claim a capital allowance in respect of that expenditure (or the residue of that expenditure) against his/her rental income.

Example

X Ltd owns an industrial building with remaining capital allowances of €800,000.

You acquire the building from X Ltd. X Ltd has a clawback of allowances at 25%. You claim the allowances at 41%. This section counteracts the mismatch by ring-fencing allowances against rental income from the particular building.

In order to get around this, you decide to invest in a company (Y Ltd) which acquires the building. You then claim interest relief on the money borrowed to invest in the company.

Section 250A (anti-avoidance rule) ensures that the interest relief is restricted to the amount extracted from the company by way of dividend or arm’s length interest.

How are allowances on a specified building restricted?

(3) Where the conditions in (2) are met, then the allowance available is ringfenced to such amount of the capital expenditure as does not exceed the specified amount of rent (see (1)).

The rules setting out how a capital allowance is to be given in taxing a person’s trade or in charging his/her rental income to tax (section 278) are to be adjusted as necessary to ensure the ring-fencing applies.

If the capital expenditure exceeds the profit rent from the building, the excess may only be carried forward against future rental surpluses from the same property.

Section 409F Interpretation and general (Chapter 4A)

Are property allowance restrictions subject to other provisions?

(1) These rules relating to abolition of property-related capital allowances override all other provisions of the tax code.

When do the property allowance restrictions take effect?

(2) From the relevant day, the restriction applies to a specified capital allowance and an area-based allowance (seesection 409G).

Broadly, such an allowance cannot be carried forward beyond:

(a) in the case of an individual, the relevant tax year, i.e., the tax year beginning immediately after the tax life of the property has ended, or 2015, whichever is later,

(b) in the case of a company, the relevant accounting period, i.e., the accounting period beginning immediately after the tax life of the property has ended, or 2015, whichever is later,

Section 409G Termination of capital allowances

When do property allowances cease for individuals?

(1) An unused property allowance (a carried forward specified allowance) has no effect (i.e., is reduced to zero) for income tax purposes where the amount is to be carried forward to a relevant tax year (see section 409F).

When do property allowances cease for companies?

(2) An unused property allowance (a carried forward specified allowance) has no effect (i.e., is reduced to zero) for corporation tax purposes where the amount is to be carried forward to a relevant accounting period.

Can an individual carry forward area-based allowances?

(3) An area-based capital allowance must be used up before the relevant tax year.

Can a company carry forward area-based allowances?

(4) An area-based capital allowance must be used up before the relevant accounting period.

Do property allowance restrictions apply to active partners and traders?

(5) The property allowance restrictions in (1) and (3) do not apply to active partners and active traders – they only apply to passive investors.

Can unused carried forward allowances be set against a balancing charge?

(6) Unused property allowances carried forward can be offset against a balancing charge.

Section 409H Retriction on use of capital allowances

Amendments

Section 409H effectively repealed (Chapter 4A substituted for former Chapter 4A) by Finance Act 2012 section 17 from 1 January 2012.

Section 410 Group payments

what is a trading company?

(1) A trading company is a company whose business consists mainly of carrying on a trade.

A holding company is a company whose business consists mainly of holding shares or securities in trading companies which are its 90% subsidiaries.

A company owned by a consortium is a company of which at least 75% of the ordinary share capital is beneficially owned by five or fewer member companies of the consortium, none of which owns less than 5% of the ordinary share capital. The consortium members must be resident for corporate tax purposes in an EU State.

Example

1.

A Ltd. (resident in Ireland) 10%
B Sarl (resident in France) 33%
C Ltd. (resident in Ireland) 6%
D SA (resident in Belgium) 12%
E Corp. (resident in Germany) 14%
75%
F Ltd. (resident in US) 25%
100%

The ordinary share capital of T Ltd, a trading company resident in the State which makes an annual payment which is a charge on its income to A Ltd, is beneficially owned as follows:

Since 75% of T Ltd’s ordinary share capital is owned by not more than 5 companies resident in the State or other Member States of the European Communities, T Ltd is owned by a consortium for purposes of section 410.

T Ltd’s annual payment to consortium and Irish resident company A Ltd must be paid without any withholding tax (section 410(4)).

When is a company treated as having received payments?

(2) A company is treated as receiving payments where a person has received those payments on behalf of or in trust for the company.

A company is not treated as receiving payments where it receives those payments on behalf of or in trust for another person.

Must tax be deducted from a payment to a group member?

(3)-(4) In a 51% group (where one EU company is a 51% subsidiary of another, or both are 51% subsidiaries of a third EU company), income tax must not be withheld from annual payments made between group members.

Share capital owned by a share dealing company or a non-EEA company is not taken into account in calculating the 51%.

Similarly, income tax must not be withheld from annual payments made by a trading or holding company owned by a consortium to a consortium member.

Example

Q Ltd expects to make an annual payment to X Ltd in its 12 months accounting period. X Ltd owns ordinary share capital in Q Ltd both directly and indirectly. Q Ltd’s ordinary share capital consists of 100,000 shares of €5 each, held as follows:

The ordinary shares in your company (resident in the State), are held as follows:

no. of shares
X Ltd (Irish resident) 30,000
U Ltd (Irish resident) 14,000
W Sarl (trading company – resident in France) 11,000
V Ltd (share dealing company – Irish resident) 16,000
Z Inc (trading company – resident in South Africa) 17,000
Various individuals 12,000
100,000

X Ltd owns directly ordinary shares in U Ltd (100%), V Ltd (80%), W Sarl (62%) and Z Inc (35%).

X Ltd’s percentage holding in Q Ltd is calculated as follows:

%
Held directly (30,000 shares) 30.00
Held indirectly through other companies:
U Ltd 100% x 14% (14,000 shares) 14.00
W Sarl 62% x 11% (11,000 shares) 6.82
50.82
V Ltd 80% x 16% (16,000 shares) 12.80
Z Inc 35% x 17% (17,000 shares) 5.95
69.57

Since X Ltd’s 12.8% share is held indirectly through V Ltd and as V Ltd is a share dealing company, that 12.8% is ignored in seeing Q Ltd is a 51% subsidiary of X Ltd. Since X Ltd’s 5.95% owned through Z Inc is held through a company resident outside the EU, that 5.95% is also left of out account.

However, Q Ltd still qualifies as a 51% subsidiary of X Ltd because its ordinary share capital is owned by X Ltd as to 50.82% (more than 50%) by the latter’s other direct and indirect holdings.

Does group payments relief apply to all payments?

(5) This group payments relief applies to payments which would be treated as charges that:

(a) are not deductible in computing profits (because they extend beyond one year),

(b) are not excluded by the rule that limits interest deductibility to situations where the loan is used to acquire shares in another company.

The relief applies to payments to a foreign recipient, provided the payments are taken into account in computing the recipient’s income in another EU State.

This group payments relief does not apply to payments received on investments by a company which would make a trading profit on the investments if it sold them.

Example

R Ltd, a share-dealing company, is a 51% subsidiary of X Ltd.

X Ltd pays R Ltd a year’s interest of €5,000 on a holding of loan stock issued by X Ltd and now held by R Ltd as part of R Ltd’s trading stock.

Since R Ltd is a share etc. dealing company, section 410 does not apply.

Section 246 is not therefore excluded and X Ltd must deduct income tax of €1,000 (€5,000 x 20%) in paying the loan stock interest to R Ltd.

Can Revenue recover payment tax underpaid?

(6) An inspector may make assessments, adjustments or set offs necessary to recover any tax that may be due where group payments relief was incorrectly claimed.

Can a recipient recover unpaid payment tax?

(7) Where income tax assessed under (6) on the basis of non-entitlement to group payments relief is not paid by the paying company within three months of the due date, the tax may be recovered by the recipient company.

Section 411 Surrender of relief between members of groups and consortia

What is a consortium?

(1) A trading company is a company whose business consists mainly of carrying on a trade.

A holding company is a company whose business consists mainly of holding shares or securities in trading companies which are its 90% subsidiaries.

A company owned by a consortium is a company of which at least 75% of the ordinary share capital is beneficially owned by five or fewer member companies of the consortium.

Two companies are regarded as members of a group if one is a 75% subsidiary (section 9) of the other, or both are 75% subsidiaries of a third company and the other or third companies are resident in treaty countries.

Share capital owned by a share dealing company (i.e., owned as trading stock) or owned by a foreign company is not taken into account in calculating the 75% unless, in the latter case the foreign owner of the shares is quoted on a recognised stock exchange.

How does group relief operate?

(2) Group relief allows a group member (a surrendering company) to surrender unused trading losses reliefs to another group member (the claimant company) which can then offset the surrendered losses against its own profits.

An Irish group member can surrender its unused trading losses to a member resident in an EU State or treaty country (relevant territory).

A foreign group member may surrender its unused trading losses and other reliefs in this manner, provided it meets the conditions in (2A).

In Imperial Chemical Industries plc v Colmer, [1998] STC 874, ECJ 264/96, the European Court of Justice held that the UK law which confined group relief to 90% subsidiaries of a UK holding company was held to be incompatible with articles 52 and 58 of the Treaty of Rome. The House of Lords upheld the refusal of the relief on the basis that the section made no distinction between subsidiaries within the EU, and subsidiaries outside the EU: [1999] STC 1089.

The granting by a 75% parent company of an option to another shareholder to buy 5% of its 75% holding did not prevent the grantor from qualifying as a 75% parent: Sainsbury plc v O’Connor, [1991] STC 318.

To obtain group relief the parent company must genuinely control the subsidiary: Pilkington Bros Ltd v IRC, [1982] STC 103; Irving v Tesco Stores (Holdings) Ltd, [1982] STC 881.

Parent company does not include a company in liquidation because such a company is no longer the beneficial owner of its assets: Ayerst v C and K (Construction) Ltd, [1975] STC 345; IRC v Olive Mill Spinners Ltd, (1963) 41 TC 77.

Example

M Ltd and N Ltd, two Irish companies, are each owned more than 75% by K Ltd, a company resident in the UK. M Ltd and N Ltd have each 12 months accounting periods ending 31 March. M Ltd has trading losses in its accounting periods 31 March 2012.

Group relief is available.

What conditions must a foreign group member meet?

(2A) To surrender its trading losses, a foreign surrendering company must:

(i) be resident in another EU State (a relevant Member State other than the State), and

(ii) be a 75% subsidiary of the claimant company.

The claimant company must be resident in the Republic of Ireland.

How does consortium relief operate?

(3) A loss may be surrendered by a trading company (that is not a 75% subsidiary of any company) owned by a consortium (or 90% owned by a consortium-owned holding company) to a member of that consortium.

A consortium member may not claim relief for a loss surrendered by a consortium owned company in which it holds no shares, or in which it holds shares in a share dealing capacity.

Example

T Ltd (an Irish resident trading company) has a trading loss of €120,000 for its 12 months accounting period ended 28 February 2012.

T Ltd’s ordinary share capital is owned by four unconnected companies as follows:

%
A Ltd (resident in Ireland) 40.00
B Ltd (resident in Ireland) 21.50
C SA (resident in France) 36.00
D Ltd (resident in Ireland) 2.50
100.00

Since all T Ltd’s ordinary shares are owned by these 4 companies (all resident in EU States, T Ltd is eligible for group relief. T Ltd may surrender all or a part of its €120,000 loss between these member companies (although a surrender in favour of C SA would not benefit that company unless it has profits chargeable to corporation tax due to trading through a permanent establishment in Ireland).

Each member company of the consortium may only claim the fraction of T Ltd’s surrendered loss proportionate to the member’s share. For example, B Ltd may claim a set off of €25,800 calculated:

21.5% of €120,000 25,800

Example

W BV, a Netherlands resident trading company, with a large trading branch in the State, has an adjusted trading loss of €185,000 for its accounting period ended 30 September 2012. The ordinary share capital of this company is owned as follows:

%
Q Ltd (resident in Netherlands) 90.00
Mr Van Van (a Netherlands resident) 10.00
100.00

Q Ltd is a holding company the business of which is mainly to hold 90% or greater interests in trading companies in a number of countries. Q Ltd’s ordinary share capital is owned by a consortium of 3 Irish resident companies (not connected with each other), as follows:

%
R Ltd 65
S Ltd 20
T Ltd 15

The trading company, W BV, is a 90% subsidiary of the consortium owned holding company (Q Ltd) and it is not a 75% subsidiary of any company.

Consortium group relief may be claimed by each of the 3 consortium members each for its own fractional share of the Irish trading loss of €185,000 available for surrender by W BV.

Assuming that the 3 consortium members have the same accounting period (year to 30 September 2012), the W BV’s loss may be shared between them as follows:

R Ltd 65% x €185,000 120,250
S Ltd 20% x €185,000 37,000
T Ltd 15% x €185,000 27,750
185,000

The sharing of the loss being surrendered by W BV is in proportion to each consortium member’s share in the consortium owning the holding company Q Ltd (section 420(8)). This seems to be so despite the fact that 10% of W BV is owned outside the consortium.

Can group relief be split?

(4) A company may surrender a trading loss among several group recipients.

How is a payment for a surrendered loss treated?

(5) A payment for a surrendered loss is ignored for corporation tax purposes, provided the payment is less than the amount of the loss.

Section 412 Qualification for entitlement to group relief

What other conditions must group members meet?

(1) Two companies do not qualify for 75% group relief unless the parent is entitled to at least 75% of the subsidiary’s profits (section 414) available for its equity holders (section 413), and at least 75% of the assets available for its equity holders on a notional winding up (section 415).

A trading company does not qualify as 90% owned by a consortium-owned holding company unless the parent is entitled to at least 90% of the subsidiary’s profits available for its equity holders, and at least 90% of the assets available for its equity holders on a notional winding up.

How is a consortium member’s share calculated?

(2)-(3) A consortium member’s share of a consortium-owned company is the lower of its percentage share of the company’s:

(a) ordinary share capital,

(b) profits available for equity holders (section 413),

(c) assets available for equity holders on a notional winding up (section 415).

If that percentage share has changed during the course of an accounting period, the average share over that period is taken.

This section prevents abuse of group relief by issuing different classes of shares. Group relief cannot be surrendered unless the parent company genuinely owns the real material interest in the subsidiary’s shares.

This is to prevent unused losses being transferred, for a payment, to a “parent” which holds, say, 80% of the shares in a “subsidiary”. The 80% shares might be non-voting shares carrying no rights to a dividend, while the remaining 20% of the shares carry voting and dividend rights.

Section 413 Profits or assets available for distribution

What are fixed rate preference shares?

(1)-(2) Fixed rate preference shares are shares issued wholly for new consideration (i.e., consideration which has not been provided out of the company’s assets) which:

(a) are non-convertible,

(b) carry a right to a dividend at a fixed percentage of the shares’ nominal value, and

(c) the dividend entitlements of which are not excessive, having regard to the dividend entitlements available for comparable quoted shares.

What is an equity holder?

(3)-(4) A parent company and its subsidiary company do not qualify for 75% group relief unless the parent is entitled to at least 75% of the subsidiary’s profits for the accounting period available for its equity holders.

An equity holder is a person who holds ordinary shares in a company, and also includes a loan creditor, i.e., a person other than a commercial lender who lends money to the company.

Example

P Ltd holds €170,000 out of the total issued ordinary share capital of €200,000 of S Ltd.

The total nominal value of the issued share capital of S Ltd (3 classes of shares) and the amounts held by P Ltd during the whole of the 12 months accounting period ending 30 September 2012 are as follows:

Total P Ltd’s share
Ordinary share capital 200,000 170,000
7% “A” preference shares issued for full consideration with no special rights 40,000 0
6% “B” preference shares with right to be converted into ordinary shares in 2012 30,000 20,000

The “A” preference shares are fixed rate preference shares (this assumes that the entitlement to a fixed dividend of 7% represented a reasonable commercial return at the time the shares were issued). The holders of these shares are notequity holders of S Ltd.

The “B” preference shares carry conversion rights so that they are not fixed rate preference shares. The “B” preference shares are therefore treated as “ordinary shares” so that their holders are equity holders in S Ltd.

Example

Assume also that S Ltd’s creditors (including P Ltd) on 30 September 2012 include:

Total P Ltd’s share
Holders of S Ltd’s 9% convertible
unsecured loan stock 60,000 35,000
B Bank Ltd – fixed term loan
secured on S Ltd’s premises (normal banking arm’s length terms) 111,000
K Ltd – debt for machinery supplied as capital assets to S Ltd on 13 June 2009 (interest being charged from 1 September 2009 at 14%) 22,000
K Ltd – debt for machinery supplied as capital assets
Normal trade creditors
(re expenses and current assets acquired) 217,000 37,000

The normal trade creditors are not loan creditors of S Ltd. All the other creditors above are loan creditors (section 433)(6)(a)), but to what extent are they equity holders?

(1) B Bank Ltd – normal commercial loan so not an equity holder in S Ltd for section 413.

(2) Holders of 9% convertible unsecured loan stock – an equity holder in S Ltd (loan creditor other than for a commercial loan due to the conversion rights).

(3) K Ltd – an equity holder in S Ltd (loan creditor other than for a commercial loan due to debt for capital asset acquired (section 433(6)(a)(I)).

Example

Taking the facts and conclusions from Examples 1 and 2 together, the equity holders in S Ltd – the total amounts and P Ltd’s entitlement in each total amount are now summarised as follows:

Total P Ltd’s share
Holders of “ordinary” shares
Issued ordinary share capital 200,000 170,000
Other shares treated as ordinary shares
6% “B” preference shares with conversion rights 30,000 20,000
Loan creditors (other than normal commercial loans)
Holders of 9% convertible unsecured loan stock 60,000 35,000
K Ltd – debt for machinery supplied as capital assets 22,000 0
Total of equity holders’ interests in S Ltd (book values) 312,000 225,000

Note

The above details of the equity holders in S Ltd are used again in the Examples to section 414 (profits available to equity holders) and section 415 (assets on winding up for equity holders).

Can a person who uses company assets be considered an equity holder?

(5) A shareholder who uses assets (which qualified for capital allowances) of the company in which shares are held can be considered an equity holder.

Can a commercial bank be considered an equity holder?

(6) An equity holder within (5) only includes a commercial lending bank to the extent that the cost of the assets is less than the amount of the loan given by the bank.

Section 414 Meaning of “the profit distribution”

What is the notional profit distribution?

(1) Two companies do not qualify for 75% group relief (section 412) unless the parent is beneficially entitled to at least 75% of the subsidiary’s profits available to its equity holders, whether those profits are distributed or not.

If the subsidiary has no profits, the parent is treated as being entitled to profits of €100.

Does a capital repayment count toward the profit distribution?

(2) A repayment of share capital does not count in determining the recipient’s percentage share entitlement in another company’s profits.

Does an equity holder’s rights count toward the profit distribution?

(3) A payment (other than a distribution) to which an equity holder is entitled counts in determining the recipient’s percentage entitlement in the paying company’s profits.

Example

P Ltd, the parent company in the examples to section 413, has a trade loss of €26,500 for its 12 months accounting period ending 30 September 2012.

It is proposed that P Ltd’s 75% subsidiary, S Ltd, should claim group relief for the full €26,500 loss for set off against S Ltd’s total profits for its 12 months accounting period ending 30 September 2012.

The test as to whether P Ltd is entitled to at least 75% of the commercial (not tax) profits of S Ltd available for the equity holders of S Ltd has to be performed. The equity holders are set out in Example 3 to section 413.

Based on the profit etc. figures as assumed below, this calculation is made from the figures shown in S Ltd’s accounts as follows:

Profits after depreciation, but before deductions shown 55,000
Deduct:
Interest on normal commercial loans 5,550
Dividend on fixed-rate preference shares (“A” prefs)
€40,000 x 7% 2,800 8,350
Profits available to equity holders (= “the profit distribution”) 46,650

The €46,650 profits available to the equity holders are now allocated between the different classes of equity holder according to their respects their respective rights (assuming a full distribution) as follows:

Total P Ltd’s share
Interest to loan creditors (payable first)
Holders of 9% convertible unsecured loan stock
€60,000 x 9% (total) 5,400
€35,000 x 9% (P Ltd’s part) 3,150
K Ltd debt for capital asset supplied
€22,000 x 14% 3,080
Dividends on non-fixed rate preference shares
(payable next)
Dividend to holders of “B” preference shares
€30,000 x 6% (total) 1,800
€20,000 x 6% (P Ltd’s part) 1,200
10,280 4,350
Balance for the holders of real ordinary shares (last)
€46,250 – €10,280 (total) 36,370
€36,370 x P Ltd (170,000/200,000 total shares) 30,915
46,650 35,265
P Ltd’s % share of equity holders’ profits 75.59%

Conclusion

Since P’s percentage share of “the profit distribution” to the equity holders is 75%(+) of the total, the “profits” test of section 414 is passed so that S Ltd may claim group relief for P Ltd’s loss (provided that the “assets” test of section 415 is also passed – see example re: section 415).

Section 415 Meaning of “the notional winding up”

What is a “notional winding up”?

(1)-(2) To qualify for 75% group relief (section 412), the parent must be beneficially entitled to at least 75% of the subsidiary’s net assets available to its equity holders on a notional winding up.

If the subsidiary has no net assets, the parent is treated as being be entitled to net assets of €100.

What assets are included for the purposes of the notional winding up?

(3) All assets to which an equity holder would be entitled on a notional winding up are counted when determining the equity holder’s share.

Is a loan from the company taken into account?

(4) When an equity investor takes a loan from the company, that loan is deducted to arrive at the net investment in the company.

Example

Take again the case of P Ltd (parent) and S Ltd (its 75% subsidiary unless it fails either the profit distribution test or the assets test). The facts are as set out in the examples to sections 413 and 414 supplemented by the additional facts as to assets and liabilities now given in this example.

Before S Ltd’s right to claim the group relief in respect of P Ltd’s loss of €26,500 in its accounting period ended 30 September 2012 can be confirmed, it is also necessary to establish that P Ltd is entitled to at least 75% of the net assets of S Ltd available to its equity holders for that accounting period.

The assets and liabilities of S Ltd on 30 September 2012 (end of relevant accounting period), as valued in its balance sheet are dealt with as follows for this assets test of section 415:

Fixed assets less depreciation 420,000
Current assets 334,000
Total assets (= A) 754,000
Deduct:
Total liabilities (including convertible loan stock) 410,000
Less:
Liabilities to equity holders (note 1)
Holders of 9% convertible loan stock 60,000
K Ltd – debt due for capital assets supplied 22,000 82,000
Liabilities to creditors who are not equity holders 388,000
Also deduct from assets:
“Liability” to fixed-rate preference shares (note 2) 40,000
(7% “A preference shares)
Liabilities as adjusted for section 415 test (= B) 428,000
Net assets available to equity holders (A – B) 326,000

Assuming a notional winding up, the net assets of €326,000 would be distributed between the equity holders, showing the totals and P Ltd’s entitlements as follows:

Total P Ltd’s share
Holders of 9% convertible loan stock 60,000 35,000
K Ltd – debt due for capital assets supplied 22,000 0
Holders of 6% “B” preference shares
with conversion rights 30,000 20,000
112,000 55,000
Balance for the holders of ordinary shares
€326,000 – €112,000 214,000
€214,000 x P Ltd’s 170,000/200,000 shares 181,900
Net assets available to equity holders 326,000 236,900
P Ltd’s % share of assets available to equity holders 72.67%

Conclusion

Since P’s percentage share of the assets available to the equity holders is below 75% of the total, S Ltd cannot be treated as a 75% subsidiary (section 412) so that no group relief can be claimed for P Ltd’s trading loss for the accounting period ending 30 September 2012.

Note

1. For the calculation of the net assets available to the equity holders (including P Ltd), the liabilities to be deducted from total assets must exclude any liabilities to equity holders.

2. The amounts payable to fixed rate preference shares (on the notional winding up) must also be deducted in arriving at the net assets available to equity holders.

Example

Take the same facts as in Example 1, but with the exception that the value of the fixed assets of S Ltd are €500,000 instead of the €420,000 in Example 1.

This increases by €80,000 the balance of the assets available to the holders of the ordinary shares (of which P Ltd holds 85%). The figures are reworked with the following result:

Fixed assets less depreciation 500,000
Current assets 334,000
Total assets (= A) 834,000
Deduct:
Total liabilities (including convertible loan stock) 410,000
Less:
Liabilities to equity holders (note 1)
Holders of 9% convertible loan stock 60,000
K Ltd – debt due for capital assets supplied 22,000 82,000
Liabilities to creditors who are not equity holders 388,000
Also deduct from assets:
“Liability” to fixed-rate preference shares (note 2) 40,000
(7% “A preference shares)
Liabilities as adjusted for section 415 test (= B) 428,000
Net assets available to equity holders (A – B) 406,000

Assuming a notional winding up, the net assets of €406,000 would be distributed between the equity holders, showing the totals and P Ltd’s entitlements as follows:

Total P Ltd’s share
Holders of 9% convertible loan stock 60,000 35,000
K Ltd – debt due for capital assets supplied 22,000 0
Holders of 6% “B” preference shares with conversion rights 30,000 20,000
112,000 55,000
Balance for the holders of ordinary shares
€326,000 – €112,000 294,000
€214,000 x P Ltd’s 170,000/200,000 shares 249,900
Net assets available to equity holders 406,000 304,900
P Ltd’s % share of assets available to equity holders 75.10%

Conclusion

Since P’s percentage share (75.1%) of the assets available to the equity holders is at least 75% S Ltd passes the 75% of available net assets test, so that both conditions of section 412 are met. Group relief may be claimed for P Ltd’s trading loss for the accounting period ending 30 September 2012.

Section 416 Limited right to profits or assets

Is a limitation on an equity holder’s notional winding up share taken into account?

(1)-(2) A limitation on any equity holder’s share of profits or assets on a notional winding up is ignored when determining the percentage entitlement.

Is a limitation on profit share entitlement taken into account?

(3) When ignoring a limitation results in a lesser percentage profit share, the lesser share is taken as the percentage profit share.

Is a limitation net assets entitlement taken into account?

(4) If ignoring the limitation results in a lesser net asset percentage share, the lesser share is taken as the net percentage asset share.

Example

H Ltd, a holding and trading company owns directly 76% of the ordinary share capital of T Ltd, a trading company, so that the latter is its 75% subsidiary. H Ltd has a trading loss of €47,820 for its accounting period ended 31 December 2012 which it wishes to surrender so that T Ltd can claim group relief.

The equity holders (section 413(3)(b)) of T Ltd throughout the accounting period ended 31 December 2012 are as follows:

Total H Ltd Others
7% convertible preference shares 30,000 10,000 20,000
Ordinary share capital 10,000
“A” shares 7,600
“B” shares                           2,400
Total of equity holders 40,000 17,600 22,400

T Ltd’s memorandum and articles of association limit the “A” shareholders to 100% of the first €20,000 of profits, and then allow the “B” shares all the profits in excess of €20,000, but all the convertible preference share dividend has to be paid before any distribution to the “A” and B shares.

In the event of a winding up, the first €250,000 of net assets (after repaying the convertible preference shares) is to be distributed to the “A” shares and any surplus to the “B” shares.

There are no limits in respect of the convertible preference shares (the dividends on which are paid before any dividends on the “A” and “B” shares). Should the company be wound up before these shares are converted into ordinary shares, they are to be repaid in full before the “A” shares are repaid.

Profits available for equity holders

The profits available for the equity holders for the accounting period ended 31 December 2012 are assumed to be €25,000. It is now necessary to determine H Ltd’s percentage share of this amount to see if the company meets the 75% of profits test.

H Ltd’s percentage of profits if limits applied (section 414(1))

The allocation of this €25,000 between the equity holders and H Ltd’s percentage share of it, applying the €20,000 limit to the “A” shares entitlement, would be as follows:

Total H Ltd Others
Dividend on 7% convertible pref shares
€30,000 x 7% 2,100
€10,000 x 7% 700
€20,000 x 7% 1,400
Balance to “A” and “B” shares
€25,000 – €2,100 22,900
“A” shares
First €20,000 20,000
“B” shares
€22,900 – €20,000                           2,900
25,000 20,700 4,300
H Ltd’s % of profit distribution (section 414(1))
€20,700 / €25,000 x 100% 82.8%

If this were the end of the matter, H Ltd would have more than 75% of the equity holders’ share of the notional profit distribution (so that it would meet the test of section 412(1)(a) for group relief).

However, in view of the limit placed on the profit distribution to the holders of the “A” shares, section 416(2) requires the percentage of the distribution to which H Ltd is entitled for the year to 31 December 2012 to be computed assuming that the €20,000 limit were waived. This means that the profits left for the “A” and “B” shares are assumed to be allocated in proportion to the respective nominal values of their holdings.

H Ltd’s percentage of profits if limit waived (section 414(1))

H Ltd’s percentage of the notional full profit distribution and H Ltd’s percentage on this basis is determined as follows:

Total H Ltd Others
Dividend on 7% convertible pref shares
€30,000 x 7% 2,100
€10,000 x 7% 700
€20,000 x 7% 1,400
Balance to “A” and “B” shares
€25,000 – €2,100 22,900
“A” shares
€22,900 x (€7,600/€10,000) 17,404
“B” shares
€22,900 x (€2,400/€10,000)                           5,496
25,000 18,104 6,896
H Ltd’s % of profit distribution (section 416(2)(a))
(€18,104 / €25,000) x 100% 72.42%

Conclusion

Since this percentage (72.42%) based on the limit being waived is lower than the 82.8% from that where the limit is applied, this lower percentage is taken in testing the 75% of profits test for section 412(1)(a). Since the percentage taken is less than 75%, H Ltd is not entitled to any group in respect of the accounting period 31 December 2013.

Note

Since H Ltd does not meet the 75% of profits test for group relief, it is unnecessary to work out the 75% of net assets test. If it were necessary, a similar calculation of H Ltd’s percentage of net assets would be required on the basis of the €250,000 limit being waived.

Section 417 Diminished share of profits or assets

How is a profit share that varies over time calculated?

(1)-(2) If an equity holder’s entitlement to a share of profits or assets varies over time, the lesser share is taken.

How is a profit share which can be varied later treated?

(3) If, in an accounting period, arrangements exist by which a profit or asset share can be varied in a later period, the variation is given effect in deciding the share in that period.

How does a variation in profit share entitlement affect group relief?

(4) If ignoring the variation produces a lesser profit share, the lesser share is taken as the profit share.

If ignoring the variation produces a lesser net asset, the lesser share is taken as the net asset share.

How is a combined limitation/variation on profit or asset share treated?

(5) If the profit or asset share is both limited and varies over time, the lesser share arrived at by applying both tests (section 416 and this section) is taken when determining profit or asset share.

Example

Z BV, a Dutch incorporated and resident company owns 100% of the ordinary share capital of D Ltd and 75% of the ordinary share capital of F Ltd.

Both D Ltd and F Ltd are Irish resident companies. D Ltd has a trading loss of the accounting period ended 31 March 2012 which it wishes to surrender to F Ltd as group relief in the latter’s accounting period to the same date.

Although D Ltd and F Ltd are both 75% subsidiaries of another EU resident company, it is also necessary to see if Z BV (the parent company) is entitled to at least 75% of the equity holders’ profit distribution (section 414) and of the net assets on a notional winding up of each company (section 415). This has to be determined for the relevant accounting period – the 12 months ended 31 March 2012.

Regarding D Ltd, there are no special factors and Z BV is found to meet both the 75% of profits test and the 75% of net assets. In F Ltd’s case, the following facts exist:

(1) The ordinary share capital is divided into “A” shares and “B” shares. Z BV holds 75,000 “A” shares and an unconnected company, K Ltd, holds 25,000 “B” shares.

(2) The “A” and “B” shares are entitled to share pari passu in both distributable profits and net assets in a winding up from 1 April 2009 (when F Ltd set up) until 31 March 2016.

(3) From 1 April 2015 onwards, the dividend entitlements are to change.

Commencing with that year the holders of the “A” shares become entitled to a dividend the holders of the “A” shares are to be entitled to 2/3rds of the distributable profits, with the “B” shares becoming entitled to 1/3rd.

(4) There are no special terms regarding the entitlement of the “A” and “B” shares in the event of a winding up. Each class remains entitled to share pari passu in the surplus assets.

(5) Z BV has also advanced €60,000 on loan to F Ltd at an interest rate of 12% (in excess of commercial rates).

The profits of F Ltd for the accounting period ending 31 March 2012 available for distribution to its equity holders are €105,000. The equity holders are as follows:

Total Z BV K Ltd
“A” shares 75,000 75,000
“B” shares 25,000 25,000
Non commercial loan at 12% interest 60,000 60,000          
160,000 135,000 25,000
Profits available for equity holders – divided per section 414(1) 105,000

In the absence of section 417, the €105,000 profits available to equity holders would be divided as follows:

Total Z BV K Ltd
Interest on non-commercial loan
€60,000 x 12% 7,200 7,200
Balance available for “A” and “B” shares
€105,000 – €7,200 97,800
divided between
“A” shares €97,800 x 75,000/100,000 73,350
“B” shares €97,800 x 25,000/100,000                     24,450
105,000 80,550 24,450
Z BVs % of profit distribution (section 414(1))
€80,550/€105,000 x 100 76.71%

Profits available for equity holders – divided per section 417(2)(a)

Although Z BV’s percentage of 76.71 exceeds 75%, this is not the end of the matter. In view of the basis of Z’s profit share in F Ltd being due to change to a different basis, section 417 requires Z’s percentage to be recomputed as if that different basis were in operation for the relevant accounting period, the 12 months ended 31 March 2012.

The €105,000 profits available to the equity holders for the accounting period to 31 March 2012 are notionally reallocated on this revised basis as follows:

Total Z BV K Ltd
Interest on non-commercial loan
€60,000 x 12% 7,200 7,200
Balance available for “A” and “B” shares
€105,000 – €7,200 97,800
divided between
“A” shares €97,800 x 1/3rd 65,200
“B” shares €97,800 x 2/3rds 32,600
105,000 72,400 32,600
Z BVs % of profit distribution (section 414(1))
€80,550/€105,000 x 100 68.95%

Conclusion

Since this percentage (68.95%) in F Ltd arrived at based on the notional allocation of profits by reference to the different sharing basis (to come into effect later) is lower that Z BV’s percentage (76.71%) on the normal section 414(1) basis, the 68.95% is used for the 75% of profits test of section 412(2)(a).

Since this 68.95% of the equity holders’ profits is less than the minimum 75% required, the profits test is failed and F Ltd cannot be treated as a subsidiary of Z BV for group relief purposes.

Therefore, Z BV’s other Irish subsidiary cannot surrender its loss to F Ltd.

Section 418 Beneficial percentage

How is profit/asset share calculated through layers of companies?

(1) A company’s entitlement to a percentage share of profits, or assets on a notional winding up in another company may be traced through a series of companies.

Example

Consider the following group structure (all companies resident in the State except Q Ltd which is resident in the UK, another EU Member State):

P Ltd
92% 85%
A Ltd Q Ltd
70% 20%
S Ltd

P Ltd’s percentage of the ordinary share capital of S Ltd held indirectly through its holdings in A Ltd and Q Ltd is worked out as follows:

%
Held indirectly through A Ltd 92% of 70% 64.4
Held indirectly through Q Ltd 85% of 20% 17.0
81.4

Since P Ltd holds indirectly 81.4% (at least 75%) of the ordinary share capital of S Ltd, the latter is a 75% subsidiary of P Ltd (normal rules of section 9).

P Ltd wishes to surrender to S Ltd a Case V “loss” – that is an excess of capital allowances over net rents – incurred in its 12 months accounting period ended 31 July 2012.

Before this claim can be processed, it is necessary to check that P Ltd is also directly or indirectly entitled to at least 75% of the S Ltd’s profits (section 414) and of its net assets on a notional winding up (section 415) in relation to that accounting period.

The equity holders of S Ltd throughout the year to 31 July 2012 are as follows:

Total A Ltd Q Ltd Others
€1 Ordinary shares (100,000) 70,000 20,000 10,000
6% convertible pref shares (60,000) 16,000           44,000
160,000 shares 86,000 20,000 54,000

There are no special rights attached to the ordinary shares. The preference shares are entitled to their full dividend before any profits may be distributed to the ordinary shareholders and, also, to be repaid in full before the ordinary shares on a winding up (if not previously converted into ordinary shares).

Allocation of profit distribution of S Ltd

Assume that the profits of S Ltd available for its equity holders for the year ended 31 July 2012 are €120,000. The €120,000 profits are now allocated between the different equity holders as follows:

Total A Ltd Q Ltd Others
6% preference dividend 3,600 960 2,640
Balance for ordinary shares
Divided pro rata to holdings 116,400 81,480 23,280 11,640
Profits of S Ltd 120,000 82,440 23,280 14,280

Assume that the only equity holders in A Ltd are the holders of its ordinary shares (of which P Ltd holds 92%) and assume that the only equity holders in Q Ltd are the holders of its ordinary shares (of which P Ltd holds 85%). On this basis, P Ltd’s share of the profits of S Ltd and its percentage of the total profit distribution (€120,000) of S Ltd is worked out as follows:

Share held indirectly through A Ltd €88,224 x 92% 75,845
Share held indirectly through Q Ltd €23,520 x 85% 19,788
P Ltd’s total (= A) 95,633
Total equity holders’ profits of S Ltd (as above) (= B) 120,000
P Ltd’s % of S Ltd’s profits (A/B x 100) 79.69%

Allocation of net assets of S Ltd

Assume that S Ltd’s net assets for its equity holders on a notional winding up at 31 July 2009 would be €880,000. The allocation of this amount between the different classes of equity holders would be as follows:

Total A Ltd Q Ltd Others
6% convertible pref shares 60,000 16,000 44,000
Balance for ordinary shares 820,000
divided pro rata (A Ltd 70% and Q Ltd 20%) 574,000 164,000 82,000
Total equity holders
net assets of S Ltd 880,000 590,000 164,000 126,000

Assume that the only equity holders in A Ltd are the holders of its ordinary shares (of which P Ltd holds 92%) and assume that the only equity holders in Q Ltd are the holders of its ordinary shares (of which P Ltd holds 85%). On this basis, P Ltd’s share of the net assets on a notional winding up of S Ltd and its percentage of the total net assets (€880,000) of S Ltd is worked out as follows:

Share held indirectly through A Ltd €590,000 x 92% 542,800
Share held indirectly through Q Ltd £164,000 x 85% 139,400
P Ltd’s total (= A) 682,200
Total equity holders’ profits of S Ltd (as above) (= B) 880,000
P Ltd’s % of S Ltd’s profits (A/B x 100) 77.52%

Conclusion

Since P Ltd is entitled to 79.69% (indirectly through A Ltd and Q Ltd) of the profit distribution of S Ltd and to 77.52% (also indirectly through A Ltd and Q Ltd) of the net assets on a notional winding up, the conditions of s section 412(1)(a) and (b) are also met. P Ltd may therefore surrender its Schedule D Case V loss to S Ltd.

Section 419 The relevant accounting period, etc

What is the relevant accounting period?

(1) The relevant accounting period is the current accounting period at the time in question.

How is a loan treated for the purposes of group relief?

(2) For the purposes of group relief, a loan to a company is treated as a security, even if it is unsecured.

Section 420 Losses, etc which may be surrendered by means of group relief

What losses can be surrendered?

(1) A group member may surrender an unused trading loss for set off against the total profits for the corresponding accounting period of a claimant company in the same group.

The following losses may not be surrendered:

(a) a loss arising from a foreign trade (section 396(4)), or from “hobby” farming (section 663),

(b) a loss which would reduce the profits of a life assurance company from its life business below the level of the profits which belongs to the shareholders.

Example

X Ltd and Y Ltd (both resident in the State) are each 75% subsidiaries of Z SA (resident in France). X Ltd and Y Ltd have annual accounting periods ending 30 June. Both companies carry on trades taxable at the normal rate of corporation tax.

In its accounting period, X Ltd has a trading loss of €67,000. For its corresponding accounting period ending on the same date, X Ltd’s total profits chargeable to corporation tax (before any group relief) are made up as follows:

Case I trading profits 2,350
Case V net rental income 11,000
(after capital allowances)
Total income 13,350
Add:
Amount chargeable to corporation tax re. chargeable gains 81,040
Total profits chargeable to corporation tax 94,390

It is assumed that Y Ltd agrees to surrender its full trading loss to X Ltd, X Ltd’s profits finally charged to corporation tax after it claims the group relief are now calculated:

Total profits (before group relief) 94,390
Deduct: Trading loss surrendered by Y Ltd 67,000
Total profits chargeable to tax (after group relief) 27,390

Can excess Case V capital allowances be surrendered?

(2) A group member may surrender current excess Case V capital allowances for set off against the total profits for the corresponding accounting period of the claimant company in the same group.

Can an investment company surrender excess management expenses?

(3)-(4) An investment company may surrender excess management expenses for the current accounting period against the total profits for the corresponding accounting period of a claimant company in the same group.

Example

K Ltd is an investment company which has unused management expenses of €37,640 brought forward from its 12 months accounting period ended 31 May 2012.

For its accounting period ended 31 May 2012, its corporation tax computation is as follows:

Income from investments
(excluding distributions from other resident companies) 22,590
Amount chargeable in respect of chargeable gains 13,555
Total profits 36,145
Deduct:
Management expenses in this accounting period
(including capital allowances) 9,200
Management expenses forward from last AP 37,640
Total management expenses deductible for AP 46,840
Deduction limited to total income 36,145
Total profits chargeable to CT 0
Excess management expenses available to carry forward €46,840 – €36,145 10,695

Assume that K Ltd has a 75% subsidiary, L Ltd, which has trading profits of €66,666 for its accounting period ended 31 May 2012, but no other profits. L Ltd wishes to claim the maximum group relief in respect of K Ltd’s excess management expenses (which K Ltd agrees to surrender).

L Ltd’s corporation tax computation (including group relief) for its accounting period ended 31 May 2012 is as follows:

Case I trading profits 66,666
Deduct:
Excess management expenses surrendered by K Ltd
restricted to its management incurred in current AP 9,200
Total profits chargeable to tax (after group relief) 57,466

Note

K Ltd has actually an overall accounting profit as its income includes distributions from other resident companies totalling €523,560, but these are excluded in arriving at its total profits for corporation tax (section 129).

Can a life company claim group relief on excess Case V allowances?

(5) A life company is not entitled to group relief on excess Case V allowances or excess management expenses.

Can excess charges be surrenderd?

(6)-(7) A group member may surrender its excess charges for the current accounting period for set off against the total profits for the corresponding accounting period of the claimant company in the same group.

Can a consortium-owned company claim group relief?

(8) A consortium-owned company may only surrender to each consortium member its fractional share of the consortium-owned company’s trading loss, excess Case V capital allowances, excess management expenses or excess charges.

Can a life company surrender losses?

(9) A life company (i.e., a company carrying on life business: section 706) may not surrender losses unless the life business is new basis business (section 730A).

Section 420A Group relief: relevant losses and charges

Background: Tax Briefing 44.

What is relevant trading income?

(1) Relevant trading income is a company’s trading income at the non-higher rate, i.e. its non-25% taxed income.

Relevant trading charges on income are charges which relate to a company’s non-higher rate income, i.e., the charges which relate to its relevant trading income.

A relevant trading loss is a non-higher rate loss.

Can a recipient group member deduct a relevant trading loss?

(2) A recipient may not deduct a relevant trading loss. In other words, a loss in a 12.5%-taxed trade cannot be used against 25%-taxed profits. See (3) below.

Can a recipient deduct a relevant trading loss?

(3) Although a recipient group member may not offset a relevant trading loss against total profits, it may use such a loss against:

(a) income from non-life insurance, reinsurance, and from life business, provided the income in question is attributed to the company’s shareholders (section 21A(4)), and

(b) relevant trading income,

of the accounting period.

To the extent that it has not been used, the loss may also be carried back, in accordance with the rule in (4), against similar income of a previous accounting period. This carry back does not apply to:

(a) an unused loss arising from a foreign trade (section 396(4)), or from “hobby” farming (section 663),

(b) a loss which would reduce the profits of a life assurance company beyond the part of the profits which belongs to the shareholders.

In what order must a surrendered trading loss be used?

(4) A surrendered relevant trading loss must be used by the recipient company:

(a) before any terminal loss relief (section 397) from a later period, and

(b) after any loss relief (section 396) from a previous period.

Can a consortium member claim part of a relevant trading loss?

(5) A consortium member may only claim its proportionate fraction of a relevant trading loss.

Section 420B Group relief: Relief for certain losses on a value basis

What is value basis relief?

(1) Finance Act 2001 section 90 introduced:

(a) section 243A which deals with restriction of relief for charges,

(b) section 396A, which deals with restriction of loss relief, and

(c) section 420A which deals with group relief.

The net effect of these sections is to ensure that a loss in a 12.5%-taxed activity cannot be off set against 25%-taxed profits. The loss can only be used against 12.5%-taxed profits. In effect, 12.5% losses are “ring-fenced” against 12.5%-taxed profits.

Finance Act 2002 section 54 modified the effect of section 243A, section 396A and 420A, by introducing three supplementary sections: section 243B, section 396B and section 420B. In each instance, the effect is to ensure that relief can be given on a value basis.

The relief is given by reducing the relevant corporation tax.

Relevant trading income is a company’s trading income at the non-higher rate, i.e. its non-25% taxed income.

A relevant trading loss is a non-higher rate loss.

How does value based group relief apply?

(2) This rule applies where a surrendering company has a relievable loss, i.e., where it has a non-higher rate loss (relevant trading loss) or non-higher rate charges (an excess of relevant trading charges on income). Where a timely claim is made in such a case, the loss may be set against the claimant company’s income for the corresponding period which is:

(a) subject to tax at the standard rate,

(b) surrenderable by way of group relief.

How is value based relief calculated?

(3) A claimant company obtains relief on a surrendered loss (a relievable loss) as follows:

To the extent to which the loss is a “standard rate loss”, i.e., relating to a 12.5%-taxed activity, the relevant corporation tax is reduced by:

L  x    R  
100

where L is the standard rate loss and R is 12.5.

How is carried forward value based relief calculated?

(4) Carried forward value based relief is calculated as follows:

Where relief was given for a “standard rate” loss, the amount treated as relieved is:

T  x  100
R

where T is the reduction in corporation tax and R is 12.5.

Section 420C Group relief: relief for certain losses of non-resident companies

Can losses of a foreign subsidiary qualify for group relief?

(1) This section sets out additional rules in relation to the offsetting of a foreign loss (section 411(2A)). The only type of foreign loss that qualifies for group relief is a relevant foreign loss, i.e., one which meets the following conditions:

(a) It corresponds to the type of loss that could be surrendered by an Irish resident company to another group member (under section 420 or 420A).

(b) It is calculated under the group relief rules of the EU State (the surrendering state) in which the surrendering company is resident for tax purposes.

(c) It is not attributable to an Irish branch or agency (of the foreign company).

(d) It cannot otherwise be surrendered, relieved or offset under Irish tax law.

(e) It is a trapped loss (see (2)).

(f) It cannot otherwise be surrendered, relieved or offset under the law an EU State other than the Republic of Ireland and the surrendering state.

What is a “trapped loss”?

(2) A trapped loss is a foreign loss that cannot, under the laws of the surrendering state, be set off or otherwise relieved for tax purposes against profits of:

(a) the company’s current accounting period, a preceding accounting period, or any later accounting period, or

(b) any other company resident in the surrendering state.

In other words, the loss cannot be used in the surrendering state. It is a loss which is unusable for tax purposes in that State.

How is a relevant foreign loss relieved?

(3) A relevant foreign loss may be treated as a relevant trading loss and surrendered to a group member.

The claimant can claim relief for the relevant foreign loss after all other loss reliefs.

When is a relevant foreign loss not allowed?

(4) Group surrender is not allowed if the relevant foreign loss arose from arrangements designed to ensure the loss would qualify for group relief.

What is the deadline for claiming relevant foreign loss relief?

(5) A claim for relevant foreign loss relief must be made within two years of the end of the accouting period in which the loss was incurred.

Can relief be claimed on a loss which is not a “trapped loss”?

(6) Where:

(a) relevant foreign loss relief is denied on the basis that the loss is not a trapped loss, because relief can be carried forward, and

(b) at a later date, the loss can no longer be carried forward in this manner,

relief may be claimed within two years of the end of the accounting period in which the loss could no longer be carried forward.

What is a foreign company’s accounting period?

(7) A surrendering company’s accounting period is the period that would be its accounting period if it were Irish resident.

What information can an inspector request?

(8) An inspector may, by written notice, request information regarding loss relief claimed from a foreign company.

Section 421 Relation of group relief to other relief

In what order is group relief claimed?

(1)-(2) Surrendered group relief can be claimed after using up any current or carried forward reliefs including relief in respect of charges (section 243(2)).

Excess capital allowances (section 308(4)), trading losses (section 396(2)) and a terminal loss (section 397) that may be carried back from a future accounting period (relief derived from a subsequent accounting period) are ignored.

What are current excess capital allowances/trading losses?

(3) Current excess capital allowances and trading losses are allowed after any excess capital allowances (section 308(4)) and trading losses (section 396(2)) brought back from the next current accounting period.

Must current relief be claimed before carried back relief?

(4) Group relief for a current accounting period must be claimed before any relief carried back from a later accounting period.

Section 422 Corresponding accounting periods

Must group member accounting periods correspond?

(1) A group member may only claim surrendered group relief to the extent that its accounting period and that of the surrendering company overlap.

Example

Y Ltd has a trading loss of €256,000 for its 12 months accounting period ended 31 December 2012.

X Ltd, which owns Y Ltd, also has a 12 months accounting period ended on 31 December 2012.

Y Ltd surrenders its trading loss to X Ltd.

Since X Ltd’s accounting period for 2012 coincides exactly with Y Ltd’s, the whole of X Ltd’s accounting period ended 31 December 2012 is the corresponding accounting period to which Y Ltd’s loss of €256,000 is surrendered.

How is group relief calculated where the accounting periods do not correspond?

(2) If the accounting periods do not coincide, the claimant may only claim group relief for the part of the loss that is common to both accounting periods.

In such cases, the surrendered group relief must be scaled back in proportion to the lower of:

(a) A/B, i.e., the length of the common period (A) divided by the length of the surrendering company’s accounting period (B), or

(b) A/C, i.e., the length of the common period (A) divided by the length of the claimant company’s accounting period (C).

Example

H Ltd has a 75% subsidiary, Y Ltd (owned 100%). H Ltd, an investment company, has a €100,000 excess management expenses for its 12 months accounting year to 31 March 2012. It wishes to surrender this excess to Y Ltd.

Y Ltd has a 12 months accounting period to 31 December 2011. Its next accounting period runs for 9 months from 1 January 2012 to 30 September 2012.

Y Ltd, the claimant company has 2 accounting periods which correspond (each in part) to H Ltd’s 12 months accounting period ending 31 December 2011 in which the €100,000 excess occurs, as follows:

(1) 9 months (1/4/2011 to 31/12/2011) of Y Ltd’s 12 months AP to 31 December 2011, and

(2) 3 months (1/1/2012 to 31/3/2012) of Y Ltd’s 9 months AP to 30 September 2012.

The part of H Ltd’s €100,000 excess management expenses which may be set off against Y Ltd’s total profits for its accounting period ended 31 December 2011 is calculated:

Period common to H Ltd’s “loss” AP and Y Ltd’s AP to 31/12/2011
Period from 1/4/2011 to 31/12/2011 9 months
Length of relevant AP of H Ltd (surrendering company) 12 months
Excess for set off against Y Ltd’s total profits for AP to 31/12/2011
€100,000 x 9/12 months €75,000

The part of H Ltd’s €100,000 excess management expenses which may be set off against Y Ltd’s total profits for its accounting period ended 30 September 2012 is calculated:

Period common to H Ltd’s “loss” AP and Y Ltd’s AP to 30/9/2012
Period from 1/1/2012 to 31/3/2012 3 months
Length of AP of H Ltd (surrendering company) 12 months
Excess for set off against Y Ltd’s total profits for AP to 30/9/2012
€100,000 x 3/12 months €25,000

Example

Continue with the facts of the previous example from which it is established that H Ltd has excess management expenses of €100,000 for its AP to 31 March 2012 available to surrender against Y Ltd’s total profits for 2 accounting periods as shown in above.

Y Ltd’s total profits for these 2 accounting periods are as follows:

12 months AP to 31 December 2011 110,000
9 months AP to 30 September 2012 63,000

Group relief for AP to 31 December 2011

The period common to H Ltd’s accounting period in which its excess management expenses occurs and the first of Y Ltd’s accounting periods for which the group relief is claimed is the period of 9 months from 1 April 2011 to 31 December 2011. This first accounting period of Y Ltd is 12 months in length from 1 January 2011 and 31 December 2011.

The profits of Y Ltd against which the €75,000 of H Ltd’s excess attributed to the 9 months ended 31 December 2011 may be offset is calculated:

€110,000 x 9/12 months 82,500

This €82,500 is sufficient to cover the full €75,000 of the excess so that the group relief for that amount is allowed in full in Y Ltd’s 12 months accounting period to 31 December 2011.

Group relief for AP to 30 September 2012

The period common to H Ltd’s accounting period in which its excess management expenses occurs and the second of Y Ltd’s accounting periods for which the group relief is claimed is the period of 3 months from 1 January 2012 to 31 March 2012. This second accounting period of Y Ltd is 9 months in length from 1 January 2012 to 30 September 2012.

The profits of Y Ltd against which the €25,000 of H Ltd’s excess attributed to the 3 months ended 31 March 2012 may be offset is calculated:

€63,000 x 3/9 months 21,000

This €21,000 is not sufficient to cover the full €25,000 of H Ltd excess so that Y Ltd’s group relief deduction in its accounting period ended 30 September 2012 cannot exceed €21,000.

Section 423 Company joining or leaving group or consortium

What rules apply when a company joins or leaves a group or consortium?

(1) For group relief to apply, the surrendering company and the claimant company must be members of the same 75% group (section 411).

For consortium relief to apply, the surrendering company and the claimant company must fulfil the consortium relief conditions (section 411).

What happens if companies join or leave the group?

(2) If any two companies join or leave a group, unless an actual accounting period ends, an accounting period is deemed to end and a new one to begin for each company.

Losses (and other amounts) of the two companies are apportioned between the period up to the date of departure and the period after that date.

What happens if the surrendering and claimant companies leave together?

(3) If the two companies leaving the group are a surrendering company and a claimant company, only losses up to the date of departure may be surrendered and claimed.

What happens if companies join or leave a consortium?

(4) If any two companies join or leave a consortium, unless an actual accounting period ends, an accounting period is deemed to end and a new one to begin for each company.

Losses (and other amounts) of the two companies are apportioned between the period up to the date of departure and the period after that date.

If the two companies leaving are a surrendering company and a claimant company, only losses up to the date of departure may be surrendered and claimed.

Example

A plc owns 100% of the ordinary share capital of C Ltd and 81% of the ordinary share capital of D Ltd – all are resident companies. A plc, C Ltd and D Ltd have therefore comprised a 75% group.

During the accounting period common to the three companies, the 12 months ended 31 December 2012, C Ltd has total profits before any group relief deduction of €195,000. D Ltd has a trading loss available for group relief of €79,000, as well as €7,000 in excess charges on income for its accounting period ended 31 December 2012.

A plc’s profits for that accounting period are nil.

If the 75% group relationship had continued, D Ltd could have surrendered its trading loss and excess charges on income – a total of €86,000 – to be set off in full by C Ltd against its total profits of €195,000 in its corresponding accounting period ended 31 December 2012. However, two further events occur during 2012, as follows:

(1) On 28 February 2012, A plc sold its entire 81% shareholding in D Ltd to B Ltd, a UK resident but unrelated company, thereby causing the 75% group relationship between C Ltd and D Ltd to cease from that date.

(2) On 1 September 2012, B Ltd also acquired A plc’s 100% holding in C Ltd. This restores the 75% group relationship between C Ltd and D Ltd (but this time under a new parent company, B Ltd).

The effect of these changes is that the rules of section 423 are applied on the basis of D Ltd (the surrendering company) leaving the first group on 28 February 2012 and of C Ltd (the claimant company) joining the second group (B Ltd, D Ltd and C Ltd) on 1 September 2012.

Both C Ltd and D Ltd did not make any change in their actual accounting periods, but section 423(2) assumes, for group relief purposes, that each company has an accounting period ending 28 February 2012 (from 1 January 2012) and a new accounting period beginning 1 March 2012. Then, when C Ltd joins the new group on 1 September 2012 to restore its group relationship with D Ltd, section 423(2) assumes that each company commences a new accounting period on 1 September 2012.

The profits and losses of C Ltd and D Ltd, of their respective actual accounting periods each for the 12 months ending 31 December 2012 are then assumed to be apportioned between the assumed accounting periods as follows:

C Ltd D Ltd
12 months AP’s to 31 December 2012 (total figures)
C Ltd (claimant company) – total profits 195,000
D Ltd (surrendering company)
– trading loss excess charges -86,000
Assumed AP: 2 months to 28 February 2012 (1st group)
C Ltd – 2/12ths of total profits 32,500
D Ltd – 2/12ths x trading loss excess charges -14,333
Assumed AP: 6 months to 31 August 2012 (no group)
C Ltd – 6/12ths of total profits 97,500
D Ltd – 6/12ths x trading loss excess charges -43,000
Assumed AP: 4 months to 31 December 2012 (2nd group)
C Ltd – 4/12ths of total profits 65,000
D Ltd – 4/12ths x trading loss excess charges -28,667

Group relief claims

C Ltd and D Ltd are each 75% subsidiaries of A plc throughout each company’s assumed accounting period from 1 January 2012 and 28 February 2012. D Ltd may therefore surrender its €14,333 loss (trading loss plus excess charges) for that 2 months period to be offset against C Ltd profits of €32,500 for the same 2 months period.

C Ltd and D Ltd are each 75% subsidiaries of B Ltd throughout each company’s assumed accounting period from 1 September 2012 to 31 December 2012. D Ltd may therefore surrender its €28,667 loss (trading loss plus excess charges) for that 4 months period to be offset against C Ltd profits of €65,000 for the same 4 months period.

C Ltd’s corporation tax computation for its actual 12 months accounting period ended 31 December 2012 is then finalised as follows:

Total profits (before group relief) 195,000
Deduct:
Group relief* for 2 month AP to 28 February 2012 14,333
Group relief** for 4 month AP from 1 September 2012 28,667 43,000
Total profits (after group relief) for assessment 152,000

Note

*The deduction for the 2 months to 28 February 2012 could not have exceeded €32,500 (C Ltd’s profits for those 2 months).

**The deduction for the 4 months from 1 September 2012 could not have exceeded €65,000 (C Ltd’s profits for those 4 months).

Section 424 Effect of arrangements for transfer of company to another group, etc

Can group relief be denied in the case of a temporary group?

(1)-(3) Where one of two group companies (the first company and the second company) has group relief to surrender (section 411(2)), and arrangements exists whereby:

(a) the first company could leave the group and join a group which contains a third company (i.e., a company which is not a member of the same group as the first company and the second company),

(b) any person could obtain control of the first company (but not the second company) (control in this context meaning the power to ensure that the company’s affairs are conducted in accordance with the controller’s wishes),

(c) a third company could begin (in that accounting period, or later) to carry on the trade carried on by the first company,

the first company is not treated as a member of the same group as the second company.

If “arrangements” exist whereby a group company may be artificially moved from a group which cannot use that company’s tax losses to another group which can, the moved company is not treated as a member of the first group. The denial of group relief applies only for the period during which the arrangements exist: Shepherd v Land Law plc, [1990] STC 795. See also Scottish and Universal Newspapers Ltd v Fisher, [1996] SWTI 1229.

Can group relief be denied in the case of a temporary consortium?

(4)-(5) Where a trading company owned by a consortium has group relief to surrender (section 411(2)), and arrangements exist whereby:

(a) the company (or its successor) could become a 75% subsidiary of a third company,

(b) a shareholder owning less than 50% of the company’s ordinary share capital could obtain control of the company,

(c) any person either alone or acting with connected persons, can control, or obtain control of not less than 75% of the votes cast at a general meeting of the trading company,

(d) a third company could begin (in that accounting period, or later) to carry on the trade carried on by the trading company,

Similarly, if arrangements exist whereby a consortium-owned company may be artificially moved from one consortium which cannot use the company’s tax losses to another group or consortium (which can), the company may not surrender any group relief.

Section 425 Leasing contracts: effect on claims for losses of company reconstructions

Legislation spent – accelerated allowances on plant and machinery were generally withdrawn in 1992.

Section 426 Partnerships involving companies: effect of arrangements for transferring relief

Can group partners claim purchased partnership losses?

(1)-(3) A group company that is also a member of a partnership (a partner company) may not avail of partnership losses, excess capital allowances, excess management expenses, or excess charges which it buys from another partner.

Similarly, a partnership that contains a group company may not avail of partnership losses excess capital allowances, excess management expenses, or excess charges which it buys from the group company.

The partnership losses etc may only be set against the profits of the partnership trade.

As a member of a partnership, how do I deal with share profits and losses from the partnership?

(4) A group member that is also a partnership member can only set excess Case V capital allowances against the trade’s profits.

This confines the company’s share of excess Case V capital allowances to the “several trade” from the partnership.

Section 427 Information as to arrangements for transferring relief, etc

Can an inspector seek information from a claimant in relation to schemes to transfer group relief?

(1)-(3) An inspector who believes arrangements of any kind exist whereby:

(a) an equity holder’s entitlement to a share of profits (section 414), or assets on a notional winding up (section 415) can be varied in a later accounting period (section 417(3)),

(b) a company may be artificially moved from one group which cannot use the company’s tax losses to another group which can (section 424(3)-(4)),

(c) a connected company (the successor) may take over a lessor’s leasing obligations (section 425(1)(c)),

(d) a group company that is also a member of a partnership may avail of partnership losses which it buys from another partner (section 426(2)),

may ask you as the claimant to provide a written declaration as to whether such arrangements exist, together with any other information the inspector may reasonably require.

Can an inspector seek information from a surrendering company?

(4) The inspector may also ask the surrendering company to provide a written declaration as to whether such arrangements exist together and any other information the inspector may reasonably require.

Can an inspector seek information from a partnership?

(5) Where arrangements may exist for a group company that is also a member of a partnership to avail of partnership losses, the inspector may also ask the other partnership members to provide a written declaration as to whether such arrangements exist together with and any other information the inspector may reasonably require.

Section 428 Exclusion of double allowances, etc

Can group relief be claimed more than once?

(1) Group relief for the same amount may only be used once.

Can group relief be shared among claimant companies?

(2) Two or more claimant companies may share, but each may not claim all of, the same group relief.

What happens if a claimant was not in the group for the entire period?

(3) Where there are several claimant companies, one or more of which were not in the group for the entire period, the surrendering company’s loss is reduced by the part of the loss for the part of the period during which there was no claimant company in a group relationship with it.

What happens if a subsidiary company was not in the group for the entire period?

(4) Where there are several surrendering companies, one or more of which were not in the group for the entire period, the claimant’s group relief is reduced by the part of the loss for the part of the period during which there was no surrendering company in a group relationship with it.

Can group relief and consortium relief be claimed for the same accounting period?

(5) Group relief and consortium relief cannot both be claimed for the same accounting period of a surrendering company unless there are two separate claims for different (non-overlapping) parts of the accounting period.

In this context, consortium claims dealt with by (3) and (4) are ignored.

Can unused group relief be carried forward?

(6) An unused capital allowance may be carried forward against profits of future accounting periods.

Section 429 Claims and adjustments

What is the deadline for a group relief claim?

(1) A group relief claim, which need not be for the full amount available, must be made within two years of the end of the surrendering company’s accounting period to which the claim relates.

The claimant must notify the inspector of the surrendering company’s consent.

See section 1085, which imposes sanctions for late claims.

Once the two year time limit has expired, a company may not withdraw a claim for group relief and substitute a new one in its place: Farmer v Bankers Trust, [1990] STC 564.

Once the claim has been made within the two year period, there is no time limit on when the relief can be surrendered, and accepted: Gallic Leasing Ltd v Coburn, [1991] STC 699.

A claim for group relief may be made after a company has left the group: A W Chapman Ltd v Hennessey, [1982] STC 214.

See also Tax Briefing 14, May 1994.

How does a consortium member claim group relief?

(2) A consortium member claimant must notify the inspector of the consent of the surrendering company, and the consent of each consortium member.

Can group relief be withdrawn?

(3) The inspector may withdraw group relief that has been wrongly claimed by making a Case V assessment on the company.

Can incorrectly claimed group relief be recovered?

(4) The inspector may make any other assessments, adjustments or set offs necessary to recover tax due where group relief was incorrectly claimed (section 919).

Section 430 Meaning of “close company”

What is a “close company”?

(1) A close company is a company controlled by:

(a) five or fewer participators (shareholders or loan creditors of the company (section 433)),

(b) participators who are directors.

The following are not close companies:

(a) a non-resident company,

(b) a registered industrial and provident society (section 698),

(c) a building society (section 702),

(d) a State-controlled company that is not otherwise a close company,

(da) a foreign State-controlled company, i.e. one controlled by an EU Member State other than Ireland, or a country with which Ireland has a tax treaty (section 826),

(e) a company controlled by a quoted company.

What is “State-controlled”?

(2) A company is regarded as State-controlled if it is controlled directly by the State or by persons acting on behalf of the State.

Is a foreign State-controlled company close?

(2A) A foreign State-controlled company is not regarded as close if controlled by another EU Member State, or a country with which Ireland has a tax treaty. In this regard, “control” includes control via persons acting on behalf of that EU State or territory.

Is distributable income relevant when deciding if a company is close?

(3) A company is also regarded as a close company if more than half of its distributable income is paid to five or fewer participators, or to participators who are directors.

Is a company controlled by a quoted company “close”?

(4) A company controlled by a non-close company is not regarded as a close company.

If a company can only be treated as close by including a non-close company as a loan creditor entitled to more than half the company’s assets on a winding up, the company is not regarded as close.

Example

The issued ordinary capital of a trading company (other issued capital having no voting rights) is held as follows:

A Ltd (not a close company) 280
B Ltd (a close company 270
C Ltd (not a close company) 230
D (director) 40
E (director) 30
F (an individual) 30
20 others 120
Total issued ordinary shares 1000

Control: The requirements of section 430(4)(a) are regarded as satisfied because:

(a) upon one combination of shareholdings, control is in the hands of A Ltd and C Ltd, and

(b) it cannot be treated as a close company except by taking either A Ltd or C Ltd as one of the five or fewer participators requisite for its being treated as a close company.

Source: Inspector Manual 13.2.5

When is a foreign company treated as close?

(5) In (4), a close company includes a foreign company which, if resident in the State, would be a close company.

Is a company controlled by five pension trustees close?

(6) Company shares, that would otherwise be regarded as closely held by trustees of a Revenue approved pension trust scheme are to be regarded as owned by the beneficiaries and not by the trustees, provided the scheme is established for the employees’ benefit.

In other words, a company that would be regarded as close because the company is controlled by five or fewer pension scheme trustees or trustees who are directors, is not generally regarded as “close”.

Section 431 Certain companies with quoted shares not to be close companies

Who is a “principal member”?

(1)-(2) A person is a principal member of a company if:

(a) he/she holds more than 5% of the company’s voting power, or

(b) he/she holds one of the five largest percentage holdings of voting power,

but if two of the five largest holdings of voting power are equal, a person is regarded as a principal member if he/she holds one of the six largest percentage holdings of voting power.

Voting power includes any voting power that can be exercised through a nominee, an associate, or a controlled company.

Example

Shareholder In X Ltd in Y Ltd
% voting power % voting power
A holds 12 10
B holds 11 9
C holds 10 8
D holds 9 8
E holds 8 7
F holds 7 7
G holds 6 6
H holds 6 6

In the case of X Ltd, although 8 persons hold more than 5%, only the first 5, A to E, count as principal members but not F to H.

In the case of Y Ltd, there is equality between some of the largest holdings and, therefore, the first 6, A to F, count as principal members but not G and H.

Source: Notes for Guidance (modified)

Is a quoted company a close company?

(3)-(4) A quoted company is not regarded as a close company if its ordinary shares carrying not less than 35% of the company’s voting power are held by the public, and these shares have been traded on a stock exchange in the preceding 12 months.

A quoted company is regarded as a close company if the company’s principal members hold more than 85% of the voting power.

What shares in a quoted company are held by the public?

(5)-(6) Shares held by a non-close company or Revenue approved pension fund, which are not part of a principal member’s holding, are regarded as held by the public.

What shares in a quoted company are not held by the public?

(7) Shares held by:

(a) the company’s directors or their associates,

(b) a company controlled by the company’s directors or their associates,

(c) an associate company of the company,

(d) a benefit fund for directors or employees (or past directors or employees) of the company,

are not regarded as held by the public. Where shares are held by a nominee, the beneficial owner is regarded as the owner.

Section 432 Meaning of “associated company” and “control”

What is an associate company?

(1) A company is an associate of another company if at any time, or within one year previously, one controls the other or both are controlled by a third person.

When does a person control a company?

(2) A person controls a company if he/she:

(a) directly or indirectly controls, or can obtain control of, the company’s affairs,

(b) can obtain more than half the company’s share capital or voting power,

(c) is entitled to shares which enable him/her to receive more than half of the company’s distributable income,

(d) is entitled to more than half of the company’s assets on a winding up.

Meaning of control: IRC v Harton Coal Co Ltd, (1960) 39 TC 174.

Control is determined at the end of the accounting period: C H W (Huddersfield) Ltd v IRC, (1963) 41 TC 92.

Control means at shareholder level (not board level): Steele v EVC International NV, [1996] STC 785.

Example

The €1 issued shares in a company are owned as follows:

Ordinary shares Total
Directors
A 4
B (cousin of A) 4
Others
12 individuals, none of whom is a nominee, associate, etc.,
of any other shareholder 4,992
Total issued ordinary shares 5,000
5% preference shares
A (above) 5,000
Total nominal and issued capital 10,000

The company is a close company because A possesses more than half the share capital, whether issued or not.

Can several persons jointly control a company?

(3) If two or more persons together satisfy the conditions in (2), they are regarded as controlling the company.

Example

X Ltd has 1,000 issued shares of €1 held as follows:

The two trustees of A’s settlement 449
Mrs A 60
10 other shareholders 491
Total issued ordinary shares 1000

The 10 shareholders are not associated with each other or with A or Mrs A.

Mrs A and the two trustees of A’s settlement are associated and as the one composite person controls the company (section 432(2), (6)), it is a close company.

Source: Inspector Manual 13.2.5

Do future interests count in deciding control?

(4) In the context of (2), shares or voting power obtainable at some future date are counted as part of a present shareholding or voting power.

Example

A company has authorised capital of €4,500 in €1 ordinary shares, of which €3,000 is issued as follows:

A (director) 150
B (director) 150
C (director) 150
D 250
E 250
F 250
20 other shareholders
(no one holder having over 100 shares) 1800
Total issued ordinary shares 3000

The 20 other shareholders are individuals and none of the shareholders is an associate of any other.

A, B, and C each enter into a service agreement providing that they are to remain directors for five years from 1 January 2012, they shall each have the right to purchase 500 €1 shares in the company at par.

Control: A, B, and C each exercises or is entitled to acquire rights in 650 shares (section 432(2)(a), (4)).

Thus A, B, C, D and E together constitute a group which is “able to exercise or is entitled to acquire, control” of the company (with 2,450 shares out of 4,500) (section 432(2), (3)). The company is a close company as from 1 January 2012.

Source: Inspector Manual 13.2.5 (updated)

Do nominee-held shares count in deciding control?

(5) In the context of (2)-(3), shares or voting power held by a person through a nominee count as part of that person’s shareholding or voting power.

Do rights and powers count in deciding control?

(6) In the context of (2)-(3), rights and powers held by:

(a) a person’s associates, or

(b) a controlled company,

count toward the control test.

If this results in the company being under the control of five or fewer participators, the company is regarded as being under their control (and therefore close).

Example

The issued ordinary shares in a company carry one vote each but the A ordinary shares do not confer voting rights. The shareholders are as follows:

Ordinary “A” ordinary
A (director) 280
A’s spouse 100
B (A’s sibling, and director) 10
Trustees of A’s settlement 40
X Ltd (controlled by A)   80
510
C (director) (child of B) 20
10 other equal holdings – total   470 500
Total issued shares 1,000 500

The shares carry equal rights to dividend. A’s spouse has made a loan of €20,000 to the company at 15% per annum interest. There is no share premium account or other comparable account.

Control by voting rights (section 432(2)(a)):

A’s associates are: A’s spouse and sibling (section 433(3)(b)(i)) and the trustees of A’s settlement (section 433 (3)(b)(ii)).

The rights and powers attributable to A are: the rights and powers of A’s associates, and the rights and powers of X Ltd.

As a total 510 votes are possessed by or attributable to A, the company is a close company controlled by one composite person.

Example

The authorised and issued share capital of X Ltd is €1,000 in the form of 1,000 ordinary shares of €1 each, held as follows:

A (works manager) 200
B (director) 100
C (director) 50
D 50
E 40
Y Ltd 99
“Other shareholders”   461
Total issued ordinary shares 1,000

The issued capital of Y Ltd is €100 in the form of 100 ordinary shares of €1 each, held by

F (son of E) 60
G   40
Total issued shares 100

The shareholders in X Ltd, other than Y Ltd, are all individuals and none are related or otherwise associated. No “other shareholder” holds more than 50 shares.

Control: The rights in the shares held by Y Ltd in X Ltd, may be attributed to F who controls that company (section 432(6)).

F is an associate of E but the rights attributed to F cannot be further attributed to E (section 432(6)).

No group of five persons or fewer can control X Ltd nor do the director-participators control it.

X Ltd is not a close company.

Example

The facts are the same as in the previous Example except that F is the holder of one share in X Ltd, and is, thereby, a participator in X Ltd.

B, C and F are directors of X Ltd.

Rights can be attributed to F as follows:

Shares held in own right 1
Shares held by E (an associate) 40
Shares held by Y Ltd (controlled by F)   99
140

Because A, B, C, D and F hold (or have attributed to them) the rights in 540 shares and control X Ltd, X Ltd is a close company.

Source: Inspector Manual 13.2.5

Section 433 Meaning of “participator”, “associate”, “director” and “loan creditor”

What is a participator?

(1)-(2) A participator is a shareholder or loan creditor of the company.

The term also includes a potential participator, i.e., a person holding present or future rights to company shares, voting rights, loan capital and premium on redemption of loan capital, and profits.

It also includes any person who can direct that the company income or assets be applied for his/her benefit.

Who is an associate?

(3) A person’s associate is:

(a) that person’s relative (spouse/civil partner, brother, sister, ancestor or lineal descendant) or partner.

(b) a trustee of a settlement made by that person, or a relative of that person. A testator of a will is not a settlor: IRC v Buchanan, (1957) 37 TC 365.

(c) any person also interested in shares held on trust (or as part of a deceased person’s estate) in which that person has an interest.

“Interested” includes fiduciary interests and beneficial interests: Willingale v Islington Green Investment Co, (1972) 38 TC 460. The words “interest in” have a wide meaning and, for example, where shares are held by trustees, the beneficiaries and the remainderman (if any) of the trust have an interest in the shares. Where shares are held by trustees under a will for persons in succession, the life tenant and the remainderman, as well as the trustees, have an “interest in” the shares: IRC v Park Investments Ltd, (1966), 43 TC 200, IRC v Tring Investments Ltd, (1939) 22 TC 679, and Alexander Drew and Sons Ltd v IRC, (1932), 17 TC 140.

A participator is not necessarily regarded as an associate of any other person entitled to benefit under a Revenue approved employee pension scheme trust. A participator is however regarded as associated with a person entitled to benefit under an employee pension scheme trust (the benefits of which are confined to employees or directors of the employer company) if that person, either alone or through relatives, owns more than 5% of the company’s ordinary share capital.

Who is a director?

(4) A director includes:

(a) any person who occupies the position of director,

(b) any person whose instructions the directors are accustomed to follow,

(c) a manager involved in the day-to-day running of the company’s business,

(d) any person who, alone or together with associates, can control 20% or more of the company’s ordinary share capital.

Example

The facts are the same as in Example 2 to section 432(6), but the share capital is held as follows:

A (works manager, not a director in name) 1
B (sibling of A, director) 100
C (child of A, director) 100
D (director) 100
E (director) 50
F (director) 50
G (director) 50
H (director) 50
“Other shareholders”   499
Total issued ordinary shares 1,000
Rights can be attributed to A as follows:
Shares held in own right 1
Shares held by B (an associate) 100
Shares held by C (an associate) 100
Total 201

A, with his/her associates, controls 20% of the ordinary shares, and, being a manager of the company, is a “director”.

The shares held by “participators” who are directors (section 430(1)) are:

Shares held by (or attributed to) A 201
Shares held by D 100
Stares held by E 50
Stares held by F 50
Shares held by G 50
Stares held by H   50
501

Thus, the company is controlled by “participators” (more than five in number) who are “directors”, and is therefore a close company.

Source: Inspector Manual 13.2.5

When am I classed as a director?

(4) A director includes:

(a) any person who occupies the position of director,

(b) any person whose instructions the directors are accustomed to follow,

(c) a manager involved in the day-to-day running of the company’s business,

(d) any person who, alone or together with associates, can control 20% or more of the company’s ordinary share capital.

Can voting powers be attributed to an associate?

(5) In the context of (4)(d), shares or voting power may be attributed to a person’s associate, even though that person is not a participator.

What is a loan creditor?

(6) A loan creditor includes any person (but not a commercial lending bank):

(a) holding redeemable loan capital issued by the company,

(b) to whom the company is in debt for money borrowed or capital assets it has acquired.

It also includes any person who on repayment will receive substantially more than what he/she has given the company.

Does a loan creditor include a person with an interest in loan capital?

(7) A loan creditor also includes a person who has a beneficial interest in the debt or loan capital.

Example

The authorised and issued capital of an investment-holding company is €33,000 and is owned equally by 11 individuals who are not associated, etc.

Two of them are directors.

There are two loan creditors as follows:

A (director) – €35,000 at 16%.

B (not a shareholder) – €13,500 at 14%.

Neither A nor B is a banker. B is not an associate of a director.

In a winding-up, the value of the net assets distributable among members, including loan creditors (section 433(1)(b)) would be €120,000 as follows:

Deposits with finance houses, etc. 30,000
Market value of quoted investments
(representing the remainder of the assets) 110,000
140,000
Deduct sundry creditors for
management expenses 300
bank overdraft 19,700   20,000
Value of net assets 120,000

Control: The company cannot be shown to be controlled by five or six participators under section 432(2)(a). In a liquidation, the assets would, however, be distributed as follows:

A as loan creditor 35,000
B loan creditor 13,500
Shareholders (€6,500 each)   71,500
120,000
More than half of this sum would be received by three persons, i.e.:
A (€35,000 €6,500) 41,500
B 13,500
Any shareholder other than A   6,500
Distribution to three persons 61,500

The company is therefore a close company by reference to section 432(2)(c) because the inclusion under section 433(1)(b) of loan creditors as participators shows that it is controlled by three participators.

Source: Inspector Manual 13.2.5

Section 434 Distributions to be taken into account and meaning of “distributable income”, “investment income”, “estate income”, etc

What is “estate income” and “investment income”?

(1) A company’s estate income is its income arising from ownership of land whether charged under Case III (foreign property) or Case V (Irish property).

A company’s investment income is its “unearned income”, i.e., its income from interest, dividends, and investments. However, it does not include such income if:

(a) it is received as trading income, for example, in the case of a share dealing company, or

(b) it would qualify for the CGT participation exemption available when a holding company disposes of shares in a subsidiary (section 626B).

A trading company is a company that exists mainly to carry on a trade. The term also includes any company whose income does not consist wholly or mainly of investment income.

Trading company includes a company that intends to acquire a business: Lord v Tustain, Lord v Chapple, [1993] STC 755.

In deciding whether a company is a “trading company”, it is necessary to consider the nature of the company’s business over a representative period: FPH Finance Trust Ltd. (in liquidation), v IRC (No 1), (1944), 26 TC 131).

What are distributions for an accounting period?

(2) A company’s distributions for an accounting period means the total declared dividends paid or payable during the accounting period (or within 18 months of the end of the accounting period) together with any distributions made in the accounting period.

How is a dividend paid outside an accounting period treated?

(3) Where a company makes up accounts and pays a dividend for a period which is not an accounting period, but part of which falls into an accounting period, the part of the dividend relating to the accounting period is calculated on the basis of the fraction which the overlap period is of the whole accounting period.

Can companies jointly elect that a distribution not be subject to surcharge?

(3A) Where an Irish close company pays a distribution to another, the paying company and the recipient may jointly elect that the distribution not be treated as a distribution for surcharge purposes.

The election must be made with the company’s self-assessment return for corporation tax purposes.

From the Finance Bill Explanatory Memorandum:

This allows an Irish-resident holding company and an Irish resident company that pays a dividend to the holding company to elect that the dividend be afforded the same treatment as dividends received from a non-resident subsidiary. If such an election is made, the dividend will be treated as not being a distribution received by the holding company and as not being a distribution made by the subsidiary.

What is the income of a company?

(4) For surcharge purposes, the income of a company is its income after deducting:

(a) a Case I or II loss incurred in the current period,

(b) a Case III or IV loss incurred in the current period,

(c) a Case V loss incurred in the current period,

(d) excess charges (section 243(2)) of the current period,

but before deducting:

(a) a Case I or II loss carried forward from an earlier or carried back from a later accounting period,

(b) a Case III or IV loss, excess management expenses, or excess charges carried forward from an earlier period,

(c) a Case V loss carried forward from an earlier or carried back from a later period.

What is “estate and investment income”?

(5) A company’s estate and investment income is the total of:

(a) the company’s franked investment income for the period, and

(b) the amount arrived at by applying to the company’s income the fraction A/B where:

A is the aggregate of the company’s estate income and investment income for the period, and

B is the company’s income before losses.

A company’s trading income is its income for the period less:

(a) its estate and investment income,

(b) the amount (if any) by which the total of the relevant charges and management expenses exceeds the total franked investment income and the aggregate of the company’s estate and investment income for the period, and

(c) charges relating to a trade that consists of land dealing, mining, activities or petroleum activities (i.e., anexcepted trade).

What is distributable estate and investment income?

(5A) In calculating a surcharge on undistributed investment and estate income:

(a) A company’s distributable estate and investment income is:

(i) its estate and investment income for that period, less

(ii) the corporation tax that would be payable on that income if it were the company’s only income.

(b) A company’s distributable trading income for an accounting period is:

(i) its trading income for that period, less

(ii) the corporation tax that would be payable on that income if it were the company’s only income.

If the company is a trading company, the figure for distributable estate and investment income is further reduced by 7.5%.

Example

A company has the following income for the year ending 31 December 2012:

Irish trade 1 – income 75,000
Irish trade 2 – loss in current period (Case I) (8,000)
National loan interest 15,000
Rents 20,000
Franked investment income (no DWT) 10,000
Computation
Case I 75,000
Case III – Investment income 15,000
Case V – Estate income 20,000
Total income 110,000
Less: Case I loss (8,000)
Income of the company 102,000
Relevant charges Nil
Allowable management expenses Nil
Aggregate of estate and investment income 35,000
Franked investment income 10,000
= Estate and investment income 45,000
Less CT on that income €35,000 x 25% 8,750
36,250
Less 7.5% because it is a trading company 2,718
= Distributable estate and investment income 33,532
Income of the company for the period 102,000
Less
Estate and investment income 45,000
Excess of relevant charges and mgt expenses over estate and investment income Nil
Charges relating to excepted trade Nil
= Trading income of the company 57,000
Less CT on that income €57,000 x 12.5% 7,125
Distributable trading income 49,875

Is a company that was not close for the full accounting period limited to surcharge?

(6) If a company is not close for the entire accounting period, the surcharge may be time apportioned to the part in which the company was close.

Is a company that is restricted by law from distributing its income subject to surcharge?

(7)A surcharge (section 440) is not imposed on estate and investment income which a company is prohibited by law from distributing.

Revenue’s view on a claim by the company that the Companies Act prohibits it from paying dividends: Inspector Manual 13.2.5.

Section 435 Information

What information can an inspector request from a close company?

(1) An inspector may write to a close company asking it to provide within 30 days any information he/she needs concerning its close company status.

For example, names and addresses of participators, directors, and loan creditors.

What information can an inspector request from the close company’s shareholders?

(2)-(3) If requested by an inspector, a shareholder must state whether he/she is the beneficial owner of the shares, and if not, must provide the name and address of the beneficial owner. A loan creditor may be required to provide the name and address of the beneficial owner of a debt.

What information can an inspector request from a company that has issued bearer securities?

(4) An inspector may write to a close company that has issued bearer securities (including shares, bonds, debentures or other debt instrument) asking it to provide details of the name and address of each person to whom the securities were issued, and the

amount in each instance.A bearer who sells his/her security, must, if requested, provide the name and address of the buyer.

Section 436 Certain expenses for participators and associates

How are benefits provided to a participator treated?

(1)-(3) A close company that provides a benefit to:

(a) a participator,

(b) an associate of a participator,

(c) a participator in a company that controls the close company,

is treated as having made a distribution equal to the amount of the expense incurred in providing the benefit.

In this context, benefit includes accommodation, entertainment, and other services, but does not include expenses already taxed as BIK (section 118) or a pension provided by an employer to the spouse/civil partner, children or dependants of a deceased/retired employee.

How are dual purpose expenses treated?

(4) Expense incurred in providing a benefit partly for the company’s (business) purposes and partly for private purposes may be apportioned.

The BIK valuation rules (section 119) apply in placing a value on a benefit provided.

How are transfers of assets between close companies treated?

(5) The treatment of a benefit as a distribution does not apply to a transfer of an asset or liability from a company to a participator which is a resident company if one of the companies is a subsidiary of the other or both are subsidiaries of a third resident company.

What is a subsidiary?

(6) In the context of (5), a company is a subsidiary of another company if it is a 51% subsidiary, i.e., if the second company owns, directly or indirectly, more than 50% of the first company’s ordinary share capital.

When deciding whether a company is a 51% subsidiary, any part of the company’s share capital that is owned directly or indirectly by a share dealing company or a foreign company is ignored.

How are cross benefits treated?

(7) This is an anti-avoidance provision. Where arrangements exist for cross benefits to be provided by two or more close companies to each other’s participators, each benefit is treated as a distribution made by the company providing the benefit.

Section 436A Certain settlements made by close companies

What rules apply to settlements made by close companies?

(1) The rule in (2) applies where a close company makes a relevant settlement, i.e., a settlement other than one:

(a) made exclusively for the benefit of non-members, and

(b) which excludes members from benefiting.

In this regard, a member means a participator other than a loan creditor, and any participator in a company that controls another company is to be treated as a participator in the controlled company.

How is a settlement by a close company treated?

(2) A settlement made by a close company is deemed to be a distribution by the close company to the trustees of the settlement.

How is a beneficiary of a relevant settlement taxed?(3) If a member of a close company receives a benefit from a relevant

settlement, that benefit is taxed under Case IV.

When are beneficiaries of a relevant settlement not taxed?

(4) The beneficiaries of a relevant settlement are not taxed if it can be shown to the satisfaction of the inspector (or on appeal, the Appeal Commissioners or a Circuit Court judge) that the settlement was not part of a tax avoidance scheme.

Section 437 Interest paid to directors and directors’ associates

What is “interest”?

(1) Interest includes any form of consideration paid for the use of money advanced or credit given by any person.

The reference to “credit given” is designed to counteract the effect of the decisions in Potts’ Executor v IRC, (1950), 32 TC 211, IRC v Bates, (1966), 44 TC 225, and Ramsden v IRC (1957), 37 TC 619. (Inspector Manual 13.2.5).

What is a “material interest”?

(2) A person has a material interest in a company if either alone or together with associates, he/she can control more than 5% of the company’s ordinary share capital.

When is interest regarded as a distribution?

(3)-(4) Excessive interest paid by a close company to:

(a) a director of the company, or of a company which controls, or is controlled by the close company, or the associates of any such director, or

(b) a person with a material interest in the company, or a company which controls that company,

is treated as a distribution.

When is interest regarded as “excessive”?

(5)-(6) Interest is excessive and is treated as a distribution, if it exceeds the payee’s share of the overall limit, i.e., 13% per annum of:

(a) the total amount lent by the directors and persons with material interests in the company in the period, or

(b) the amount of the company’s nominal issued share capital together with any share premium, at the start of the period,

whichever is lower.

If two or more persons have been paid interest, the overall limit is apportioned between them in proportion to the interest paid to each person.

Example

Continuing with the facts of Example 1 to section 432(6).

Loan made by A’s spouse to the company: €20,000 at 15% per annum interest.

As the company is close, the excess of the loan interest paid to A’s spouse over 13% interest is a distribution. Such excess interest is not allowed as a deduction in arriving at the corporation tax profits for the accounting period.

Therefore, in the first year of the loan, interest in excess of €2,600 (13% x €20,000) per annum is regarded as a distribution. In other words, €400 interest (2% x €20,000, 2% being 15% – 13%) is treated as a distribution.

Example

In the Example to section 433(7), B (who is not a shareholder, nor a banker, nor an associate of a director) advanced €13,500 at 14% to the company.

Interest in excess of 13% paid to B is not treated as a distribution.

Do the excessive interest rules apply to cross payments?

(7) These rules dealing with excessive interest are subject to the anti-avoidance provisions (section 436(7)) designed to counter cross payments by close companies to each other’s participators.

Section 438 Loans to participators, etc

How is a loan to a participator treated?

(1) A loan to a participator is treated as a net annual payment (after deduction of standard rate income tax) in the tax year in which it is made.

The income tax on the “annual payment” is treated as corporation tax for tax collection purposes (section 239) and is not treated as a charge for offset against the company’s total income from all sources for that period (section 243).

A loan includes any form of credit: Grant v Watton, [1999] STC 330. It does not include a sum of money stolen from the company by a participator: Stephens v T Pittas Ltd, [1983] STC 576.

The making of loans to a single associate of a participator on eight occasions over 14 years does not amount to a business: Brennan v Deanby, [2001] STC 536.

Section 883 obliges a company to notify Revenue of its section 438 liability: Earlspring Properties Ltd v Guest, [1995] STC 479; Joint v Bracken Developments Ltd, [1994] STC 300.

Example

X Ltd, a close company, made a loan of €8,000 to Y a participator in X.

The company must account for income tax as if the loan were a net annual payment after deduction of tax:

Net loan 8,000
Grossed-up loan €7,600 x (100/100 – 20) 10,000

The income tax deemed to have been “deducted”, i.e., €2,000, must be paid to the Collector-General on or before the preliminary tax due date.

Is a trade debt a loan?

(2) A loan includes the incurring of a debt to, and the assignment of a debt to, the close company. It does not include a trade debt, unless the credit period exceeds the normal credit terms, or six months.

Example

Q, a 25% owner-director, wishes to obtain a loan of €30,000 from A Ltd.

Instead of taking a loan from A Ltd, Q arranges for A Ltd to take over a €30,000 debt which Q owes.

The assignment of the debt from Q to A Ltd is regarded as equivalent to the granting of a loan by A Ltd to Q.

Example

T is a training provider who is a participator in X Ltd, a close company.

In the accounting period ended 31 March 2012, T invoiced X Ltd €18,000 for training services provided. The invoice was paid on 31 August 2012 (i.e., within six months).

The trade debt is not regarded as a “loan” (requiring income tax to be withheld).

When is an employee loan not taxed as an annual payment?

(3) A loan made to a director or employee is not taxed as an annual payment if:

(a) the total amount lent by the company is less than €19,050, and

(b) the borrower does not have a material interest (section 437(2)) in the company.

If the borrower subsequently acquires a material interest, any loan balance owed by him/her is taxed as an annual payment made at the time he/she acquires that interest.

Example

Continuing with the example to subs (1), if Y, the recipient of the €8,000 loan, is a full-time director or employee, and doesnot own more than 5% of the company’s ordinary share capital, the loan is not treated as an annual payment. X Ltd has no income tax liability in relation to the loan.

If Y is a full-time director or employee and owns more than 5% of the company’s ordinary share capital, X Ltd is accountable for income tax on the amount of the loan.

Can a close company reclaim income tax paid on a loan?

(4) If a loan to a participator is later repaid, any income tax paid must be repaid. Such a repayment must be claimed within 4 years of the end of the tax year in which the loan was repaid.

Example

Continuing with the previous example, if Y repays the loan on say 31 December 2012, X Ltd may claim relief in respect of the income tax (€2,000) already accounted for (in accounting period ended 31 December 2011) against its CT liability for the accounting period ended 31 December 2012.

Is a loan to an intermediary subject to income tax?

(5) If arrangements exist whereby the company lends money to an intermediary (not a participator) who passes the money to the participator, then unless the money is already taxed as income of the participator (or an associate of that participator), the loan advance is treated as an annual payment from which income tax must be withheld.

Example

F Ltd, a close company, instead of making a loan to G, an individual participator, makes it to an associated company, H Ltd, which then passes the loan to G.

The loan by F Ltd to H Ltd is treated as if it had been made direct to G.

Example

K Ltd, a close company, makes a loan to M, an individual who is a participator in N Ltd, but not in K Ltd. N Ltd, acting in concert with K Ltd, then makes a loan to P, an individual who is a participator in K Ltd but not in N Ltd.

K Ltd and N Ltd are treated as if they had made loans to their own participators, i.e., M and P respectively.

Are all participators subject to the loan rules?

(6) This is an anti-avoidance provision.

A loan made by a company to a participator includes a loan made to a participator who is:

(a) an individual,

(b) a trustee company, and

(c) a company which is tax-resident outside the EU.

Is a participator in a controlling company a participator in the controlled company?

(7) A participator in a company which controls a close company is regarded as a participator in the close company.

Example

R Ltd, holds all the issued share capital of S Ltd and S Ltd makes a loan to T, a shareholder in R Ltd, that loan is within section 438, since T as well as being a participator in S Ltd is deemed also to be a participator in R Ltd.

Is an industrial and provident society subject to the participator loan rules?

(8) A loan of more than €19,050 made by an industrial and provident society to a participator is subject to income tax at the standard rate.

Section 438A Extension of section 438 to loans by companies controlled by close companies

Is a loan made by a controlled company subject to income tax?

(1)-(2) This section counteracts potential tax avoidance following the extension of section 438 to companies that are tax resident outside the EU.

In theory, it would be possible to avoid the charge by having a subsidiary of the close company (instead of the close company itself) make the loan.

Therefore, if a close company’s subsidiary makes a loan which in the absence of this section would escape the charge under section 438, the loan is caught by section 438, i.e., income tax must be charged on the grossed up amount of the loan.

Is a loan to a company which later becomes a controlled company subject to income tax?

(3) The income tax charge also applies where the loan is made by a company which, although not a subsidiary of the close company, subsequently becomes a subsidiary.

Is a loan made by a jointly controlled company subject to income tax?

(4) The income tax charge also applies where the loan is made by a company which, although not controlled by the close company, is controlled by it together with one or more other companies.

In such a case, the loan is apportioned among the lending company’s joint owners in proportion to their respective interests.

When is a loan by a controlled company not subject to income tax?

(5) The income tax charge does not apply if it is shown that the making of the loan is not connected with:

(a) the acquisition of control, or

(b) the provision of funds by the close company to the lending company.

What must be considered in calculating the income tax charge on a loan by a subsidiary?

(6) In calculating the income tax charge on a loan made by a subsidiary, the following must be taken into account:

(a) whether the loan was made in the ordinary course of business,

(b) whether the loan or any part of it has been repaid,

(c) whether any part of the debt has been released or written off.

What is a loan?

(7) A loan includes the incurring of a debt to, and the assignment of a debt to, the close company.

Section 439 Effect of release, etc of debt in respect of loan under section 438

What happens when a loan to a participator is written off?

(1) If a loan to a participator is written off, the written-off amount is regrossed at the standard rate of income tax and treated as income of the participator for the tax year in which it is written off. The loan write off is deemed to be income, from which tax has been deducted, of the participator.

Although the income is treated as income of the participator, the income tax deducted by the company:

(a) may not be repaid to the participator,

(b) is not available for set off against annual payments made by the participator.

The participator must include the gross payment in his/her tax return as Case IV income.

The income tax deducted from the deemed annual payment cannot be used to create a tax repayment. It may only be offset against the income tax payable by the individual at the standard or higher rate, as the case may be.

In Collins v Addies, [1992] STC 746, the company novated a loan, i.e., substituted another person as debtor for a loan in place of the participator. The participator argued that as the company had received good consideration, the debt had not been released. The court held that “release” included release for consideration, i.e., the term was not restricted to gratuitous release. See also Greenfield v Bains, [1992] STC 746.

What happens when a loan to a deceased participator is written off?

(2)-(3) If a loan is written off after the participator’s death, the deemed income is assessed on the deceased participator’s personal representative.

If income tax on a pre-detah write-off is a debt due from the deceased participator’s estate, that income may, if necessary, be taxed at the higher rate.

If a loan made to a trustee is written off after the trust has ceased, the deemed income is assessed on the beneficiary of the trust.

Section 440 Surcharge on undistributed investment and estate income

How is the investment and estate income surcharge calculated?

(1) Where a close company’s distributable investment and estate income exceeds the distributions made for a period, the excess is liable to a 20% surcharge.

No surcharge applies if the excess is less than or equal to €2,000 (or €2,000 divided by one plus the number of associated companies).

A company is counted as an associate even if it is an associate for only part of an accounting period. Companies are treated as associates, even if they are associated at different times in a period.

The €635 is proportionately reduced for an accounting period that is shorter than 12 months.

By way of marginal relief, the surcharge on the excess over €2,000, proportionately reduced as necessary for a shorter accounting period, is limited to 80% of the excess.

Payments made during a liquidation were held not to be distributions giving rise to surcharge in Rahinstown Estate Co Ltd (In liquidation) v Hughes, 3 ITR 517.

Surcharge is calculated after carried forward “section 23” relief: Tax Briefing 25.

Example

Continuing with the facts to the examples in section 434(5A). Assume the company makes no distributions for the period.

Estate and investment income 45,000
Distributable estate and investment income 33,532
Distributions Nil
Excess 33,532
20% surcharge 6,706

If a distribution of €33,200 is made, the position is:

Distributable estate and investment income 33,532
Distribution 33,200
Excess 332
As this is less than €2,000, there is no surcharge.

Can a surcharge be avoided by capitalising undistributed reserves?

(2)-(4) A surcharge cannot be avoided by transferring undistributed income to capital reserves, or by issuing bonus shares.

How is the surcharge paid?

(6) The surcharge is payable on a self-assessment basis within 18 months of the end of the current accounting period.

How is unpaid surcharge collected?

(7) The tax collection procedures (Part 42) are used to enforce payment of any unpaid surcharge and interest.

The tax appeal procedures (Part 40) are available to a taxpayer who disputes any amount of surcharge due. This means a taxpayer is entitled to appeal to the Appeal Commissioners on any matter relating to his/her surcharge liability. The Appeal Commissioners must hear and determine such an appeal in the same manner as an appeal against an income tax assessment. There is a further right of appeal to the Circuit Court, and, on a point of law, to the High Court.

Section 441 Surcharge on undistributed income of service companies

What is the service company surcharge?

(1) A service company is a close company that:

(a) carries on a profession, or provides professional services,

(b) exercises an employment,

(c) provides services or facilities to a person or partnership that carries on a profession, or to a person connected with such a person or partnership.

The surcharge cannot be avoided by interposing a company between the service company and the recipient of the services provided.

The surcharge applies (see (4)) to the service company’s undistributed income. This is to discourage professional persons from using a company to provide their services, and thereby being taxed at lower corporate tax rates.

In MacGiolla Mhaith v Brian Cronin and Associates Ltd, 3 ITR 211, a company providing advertising services was not regarded as a service company.

What is not a service company?

(2) A company whose income is not mainly derived from:

(a) carrying on a profession,

(b) providing professional services,

(c) exercising an employment,

(d) providing services to a person or partnership that carries on a profession or exercises an employment, or to a person connected with such a person or partnership, or

(e) any combination of these,

is not a service company.

When is a partnership connected to a person or company?

(3) A partnership is connected with an individual or company if any of its partners is connected with the individual or company.

A partnership is connected with another partnership if any of its partners are connected with any of the other partnership’s partners.

How is the service company surcharge calculated?

(4) The surcharge applies at 15% to the company’s:

(a) distributable estate and investment income for an accounting period, and

(b) half of its distributable trading income for that period,

exceeds its distributions for that period.

No surcharge applies if the excess is less than or equal to €2,000 or €2,000 divided by one plus the number of associates if there are several companies.

A company counts as an associate even if it is an associate for only part of an accounting period. Companies are treated as associates, even if they are associated at different times in an accounting period.

The €2,000 is proportionately reduced for an accounting period shorter than 12 months.

By way of marginal relief, the surcharge on the excess over €2,000 is limited to 80% of the excess.

Example

(No investment or estate income)

Accounting period ending on 31 December 2012:
Professional services income 120,000
Distributions made within 18 months of accounting period 30,000
Trading income of the company 120,000
Less CT on that income 120,000 x 12.5% 15,000
Distributable trading income 105,000
Half of distributable trading income = surchargeable amount 52,500
Surcharge on balance 15% x 52,500 7,875

Example

(With investment and estate income)

Professional services income 120,000
Deposit interest 20,000
Property rental income 10,000
Distributions made within 18 months of accounting period 3,000
Calculate the distributable income
Professional services income 120,000
Deposit interest 20,000
Property rental income 10,000
Total income 150,000
Estate and investment income 30,000
Less CT on that income 30,000 x 25% 7,500
22,500
Less 7.5% because it is a trading company 1,687
= Distributable estate and investment income 20,813
Surcharge on excess of distributable estate and investment income over distributions for period: 20% x (20,813 – 3,000) 17,813
Income of the company for the period 150,000
Less
estate and investment income 30,000
Excess of relevant charges and mgt expenses over franked investment income and (A/B) multiplied by the company’s income
Charges relating to excepted trade Nil
= Trading income of the company 120,000
Less CT on that income 120,000 x 12.5% 15,000
Distributable trading income 105,000
Half of distributable trading income 52,500
Plus distributable estate and investment income 20,813
= Surchargeable amount 73,313
Surcharge on balance 15% x (73,313 – 17,813) 8,325
Total surcharge 11,887

Can a surcharge be avoided by capitalising reserves?

(5) A surcharge cannot be avoided by transferring undistributed income to capital reserves, or by issuing bonus shares.

The surcharge is payable on a self-assessment basis within 18 months of the end of the current accounting period. The tax collection procedures and appeal procedures apply in relation to surcharge.

Application of surcharge: Tax Briefing 48.

What is distributable trading income?

(6) In calculating a surcharge:

(a) A company’s distributable estate and investment income for a period is:

(i) its estate and investment income for that period, less

(ii) the CT payable on that income if it were the company’s only income.

(b) A company’s distributable trading income for a period is:

(i) its trading income for that period, less

(ii) the CT payable on that income.

In the case of a trading company, the figure for distributable estate and investment income is further reduced by 7.5%.

A company’s distributions for an accounting period means the total declared dividends paid or payable during the period (or within 18 months of the end of the period) together with any distributions made in the period.

Where a service company makes up accounts and pays a dividend for a period which is not an accounting period, but part of which falls into an accounting period, the part of the dividend relating to the accounting period is calculated on the basis of the fraction which the overlap period is of the whole accounting period.

If the company is not a close company for the entire accounting period, the surcharge is time-apportioned to the part in which the company was a close company.

A surcharge cannot be imposed on income which a company is by prohibited by law from distributing.

Section 442 Interpretation (Part 14)

Amendments

Section 442 deleted by Finance Act 2012 section 54 and Schedule 1 para 20.

Section 443 Meaning of “goods”

Amendments

Section 443 deleted by Finance Act 2012 section 54 and Schedule 1 para 20.

Section 444 Exclusion of mining and construction operations

Amendments

Section 444 deleted by Finance Act 2012 section 54 and Schedule 1 para 20.

Section 445 Certain trading operations carried on in Shannon Airport

Amendments

Section 445 deleted by Finance Act 2012 section 54 and Schedule 1 para 20.

Section 446 Certain trading operations carried on in Custom House Docks Area

Amendments

Section 446 deleted by Finance Act 2012 section 54 and Schedule 1 para 20.

Section 447 Appeals

Amendments

Section 447 deleted by Finance Act 2012 section 54 and Schedule 1 para 20.

Section 448 Relief from corporation tax

Amendments

Section 448 deleted by Finance Act 2012 section 54 and Schedule 1 para 20.

Section 449 Credit for foreign tax not otherwise credited

Amendments

Section 449 deleted by Finance Act 2012 section 54 and Schedule 1 para 20.

Section 450 Double taxation relief

Amendments

Section 450 deleted by Finance Act 2012 section 54 and Schedule 1 para 20.

Section 451 Treatment of income and gains of certain trading operations carried on in Custom House Docks Area from investments held outside the State

Amendments

Section 451 deleted by Finance Act 2012 section 54 and Schedule 1 para 20.

Section 452 Application of section 130 to certain interest

Can a company elect not to treat interest as a distribution?

(1)-(2) A company may elect to have interest paid not treated as a distribution if the recipient:

(a) is based in a tax treaty country, or

(b) is regarded by another country as tax-resident in that country.

The interest is then deductible as a business expense of the payer.

Is interest paid to a non-resident 75% parent deductible?

(3A) A company may elect that section 130(2)(d)(iv) is not to apply to interest it pays. The only requirement is that the interest be trading interest, which would otherwise be tax deductible to the company.

In many cases the Irish classification of a distribution of as interest had the effect of taxing the distribution in the recipient State. This subsection thus allows the recipient of the interest (through agreement with the paying company) the freedom not to be taxed in its own country of residence on the interest.

How does a company elect to have interest not treated as a distribution?

(4) To claim this relief, a company must make a written election when filing its corporation tax return for the accounting period in which the interest was paid.

Section 452A Application of section 130 of Principal Act to certain non-yearly interest

What companies can disapply section 130?

(1) A qualifying company (one that lends money in the course of its Irish lending trade,) may elect to disapply section 130(2)(d)(iv) to interest paid to other group members (the specified amount).

Additional tax (in relation to a territory) means notional tax that would be payable on the specified amount paid by the qualifying company to companies in a particular territory for an accounting period. It is calculated as A x B/100 where A is the specified amount in respect of the qualifying company for that territory for the accounting period, and B is 12.5%.

Deductible amount (in relation to a territory) means C x D/E where:

C is the non-deductible interest paid to that territory for the accounting period,

D, (the specified tax), is the lower of the notional Irish tax and the foreign tax paid paid on that interest in that territory, and

E is the notional Irish tax on that interest.

Foreign tax (n relation to a territory) means F x G/100 where:

F is the interest payable to a company carrying on a business in a territory, and

G is the tax rate chargeable in that territory on interest received from sources outside that territory, or where the interest is taken into account in computing business profits of that company, on business profits of a company.

What interest is deductible to a qualifying company?

(2) A qualifying company can disapply section 130(2)(d)(iv) to the deductible amount for a territory for an accounting period.

Example

Treasury Company pays €100,000 interest to country A, a non-treaty country.

The tax rate in country A is 30%.

The deductible amount in respect of country A is C X D/E where:

C (the specified amount) is €100,000,

D (specified tax in relation to the specified amount) is €12,500, the lesser of –

E (additional tax in relation to the specified amount, i.e., A X B/100 = €100,000 X 12.5/100 = €12,500), and aggregate foreign tax, i.e., €100,000 X 30/100 = €30,000.

Therefore D, the lesser of €12,500 and €30,000, is €12,500.

Therefore the deductible amount is €100,000 X €12,500/€12,500 = €100,000.

As the foreign rate is higher than the Irish rate, a full deduction is available for interest paid by Treasury Company.

Source: Revenue Guidance Notes

Example

Treasury Company pays €50,000 interest to country B, a non-treaty country.

The tax rate in country B is 10%.

The deductible amount in respect of country B is C x D/E where

C (the specified amount) is €50,000,

D (specified tax in relation to the specified amount) is the lesser of –

E (additional tax in relation to the specified amount) which is calculated as A X B/100, i.e., €50,000 X 12.5/100 = €6,250, and aggregate foreign tax, i.e., €50,000 X 30/100 = €5,000,

Therefore D, the lesser of €6,250 and €5,000, is €5,000.

Therefore the deductible amount is €50,000 X €5,000/€6,250 = €40,000.

As the foreign rate is lower than the Irish rate, the deduction available for interest paid by Treasury Company is restricted.

Source: Revenue Guidance Notes

Section 453 Transactions between associated persons

Amendments

Section 453 deleted by Finance Act 2012 section 54 and Schedule 1 para 20.

Section 454 Restriction of certain charges on income

Amendments

Section 454 ceased to have effect from 1 January 2003: Finance Act 2001 section 90(3). See now sections 243A, 243B.

Section 455 Restriction of certain losses

Amendments

Section 455 ceased to have effect from 1 January 2003: Finance Act 2001 section 90(3). See now sections 396A, 396B.

Section 456 Restriction of group relief

Amendments

Section 456 ceased to have effect from 1 January 2003: Finance Act 2001 section 90(3). See now sections 420A, 420B.

Section 457 Application of section 448 where profits are charged to corporation tax at the reduced rate

Amendments

Section 457 deleted by Finance Act 2001 section 90(1)(c)(v) as respects an accounting period ending on or after 6 March 2001. An accounting period which straddles 6 March 2001 is split into two accounting periods: one beginning when the accounting period begins and ending on 5 March 2001, and the other beginning on 6 March 2001 and ending when the accounting period ends: Finance Act 2001 section 90(4)(a).

Section 458 Deductions allowed in ascertaining taxable income and provisions relating to reductions in tax

What is taxable income?

(1) Taxable income is an individual’s total income (see section 3) as reduced by any of the deductions listed in (2).

On filing an income tax return, the filer is entitled to have his/her taxable income reduced by the tax credits listed in (2) to which he/she is entitled.

How is a tax credit applied?

(1A) The income tax liability of an individual entitled to a tax credit listed in (2) must be reduced by the lower of:

(a) the amount of the tax credit,

(b) the amount which reduces the tax to nil.

A tax credit may not be used to reduce tax withheld from annual payments (section 16(2)).

Are PAYE taxpayers obliged to file a tax return?

(1B) Normally, to substantiate a claim to relief, a person must file a return. This requirement does not apply unless Revenue direct otherwise in relation to:

(a) claims for deduction or relief by PAYE taxpayers, or

(b) claims to repayment of tax by PAYE taxpayers.

This is designed to facilitate claiming of reliefs by approved electronic communications.

What deductions can be claimed against total income?

(2) The deductions from total income that may be made in arriving at taxable income for the tax year 2014 are:

Single Married Reference
Owner-occupier allowance section 372AR
Relevant houses allowance [Section 372AAB]
Carer for incapacitated person 50,000 section 467
Medical expenses Variable section 469
Permanent health contributions 10% of income section 471
Previously long-term unemployed person section 472A
Tax year in which employment begins 3,810
Potential increase for each child 1,270
Second tax year 2,540
Potential increase for each child 850
Third tax year 1,270
Potential increase for each child 425
Seafarer allowance 6,350 section 472B
Employee share purchase schemes 6,350 section 479
Film investment 50,000 100,000 section 481
Expenditure on heritage buildings 31,750 section 482
Gifts to the Minister for Finance Variable section 483
EIIS investment 150,000 section 489
Seed capital relief Section 493
Foreign earnings 35,000 section 823A
Gifts to approved bodies Variable section 848A

For the tax year 2014, the tax credits that may be used to reduce tax chargeable are:

Single Married Reference
Basic personal tax credit 1,650 3,300 section 461
Single person child carer credit 1,650 section 462B
Widowed person (bereavement year) 3,300 section 461
Widowed person (other years) 500 section 461A
Widowed person with dependent child section 463
First year after bereavement 3,600
Second year after bereavement 3,150
Third year after bereavement 2,700
Fourth year after bereavement 2,250
Fifth year after bereavement 1,800
Person aged 65 or more 245 490 section 464
Incapacitated child (per child) 3,300 section 465
Dependent relative (per relative) 70 section 466
Home carer 810 section 466A
Blind person 1,650 3,300 section 468
Employee 1,650 section 472
Rent paid by persons aged 55 or more 640 1,280 section 473
Widowed person 1,280
Rent paid by other persons 320 640 section 473
Widowed person 640
College fees (max) 1,000 section 473A
Training course fees (max) 254 section 476
Local authority service charges section 477

Section 459 General provisions relating to allowances, deductions and reliefs

Can I deduct an allowance or tax credit from covenanted income?

(1) An allowance, relief or tax credit (section 458) may not be set off against tax on covenanted income.

How are allowances and reliefs given?

(2) An allowance, relief or tax credit (section 458) is given by reducing or discharging an income tax assessment. Where allowances or reliefs exceed income, any resulting overpayment of tax must be repaid. Tax credits cannot be used to create a tax repayment.

How are allowances and reliefs claimed?

(3) An allowance, relief or tax credit is claimed by completing the prescribed Revenue form, i.e., the income tax return. The claimant must set out details of:

(a) his/her sources of income, and the amount from each source,

(b) any reduction in that income due to annual payments,

(c) other payments from which he/she has withheld tax.

Must a claim for an allowance or relief be proved?

(4) A claim for an allowance or relief must be proved. The claimant must sign the declaration stating that the return is a full and true account of the details included therein. If the claimant is non-resident, an affidavit attesting the truth of the return’s details may be sworn before a person authorised to administer oaths in the country of residence.

The declaration for an incapacitated person may be made by a trustee, agent or guardian.

Does a PAYE taxpayer have to file a tax return?

(5) The requirement to file a return does not apply unless Revenue direct otherwise for-

(a) claims for deduction or relief by PAYE taxpayers, or

(b) claims to repayment of tax by PAYE taxpayers.

This is designed to facilitate claiming of reliefs by approved electronic communications.

Can Revenue refund tax in the absence of a return?

(6) Revenue may refund tax if they have information (for example, from third parties) to hand which enables them to satisfy themselves that a refund is due.

Section 460 Rate of tax at which repayments are to be made

What tax rate applies to an overpayment?

(1) If an excess of allowances or reliefs result in an overpayment, the overpaid tax must be repaid at the higher rate of tax if necessary. In other words, the level of repayment is not limited to the standard rate.

Can a person with no taxable income reclaim tax?

(2) A person who has no taxable income for a tax year must be repaid all income tax paid in that year, including any tax paid by deduction at source.

Repayment of DIRT is restricted to charities (section 266) and persons who are aged over 65, or incapacitated (section 267).

Is there a limit to the amount of tax repayable?

(3) The amount of tax to be repaid must not exceed the difference between the amount of tax actually paid or deducted and the amount of tax which would be payable if the income had been charged to tax in accordance with the Income Tax Acts.

Section 461 [Basic personal tax credit]

What is the basic personal tax credit?

A person is entitled to a tax credit (basic personal tax credit), depending on personal circumstances, as follows:

(a) In the case of a married couple/civil partners living together and assessed jointly (section 1017), or in the case of a separated spouse who maintains the spouse from whom he/she has separated, €3,300.

(b) In the case of a widowed person for the bereavement year (i.e., the year in which his/her spouse/civil partner has died) but not if the claimant has remarried and is jointly assessed in that year, €3,300.

(c) In any other case (i.e., a single person, or widowed person for a year other after the bereavement year), €1,650.

The fact that the State gives different allowances to different categories of individuals was held not to be, in itself, unconstitutional: MacMathúna v Ireland and the Attorney-General, SC, 14 July 1994 (a social welfare case) [1995] ILRM 69.

Example

2012: A single individual receives royalties of €40,000 from which tax of €4,000 has been deducted at source at 20%:

Total income 40,000
Tax
32,800 at 20% 6,560
7,200 at 41% 2,952
40,000 9,512
Less: tax credits
Tax withheld 4,000
Basic personal tax credit 1,650 5,650
Tax due 3,862

Section 461A Additional tax credit for certain widowed persons

What is the widowed person’s additional tax credit?

The widowed person’s or surviving civil partner tax credit is €540. It applies to a widowed person who is not entitled to the single person child carer credit (section 462B). The tax credit does not apply in the bereavement year.

Example

Your spouse died on 30 September 2001. You had no children. Your main income for the tax year 2012 arose from your full-time employment in a private company.

You also had rental income from an apartment.

You paid €4,500 tax through the PAYE system.

Your 2012 tax liability is calculated as:

Employment income 34,000
Net income from rented apartment 3,200
Total income 37,200
Tax
32,800 at 20% 6,560
4,400 at 41% 1,804
37,200 8,364
Less tax credits:
PAYE tax paid 4,500
Basic personal tax credit (section 461) 1,650
Widowed person additional tax credit (section 461A) 540
Employee tax credit (section 472) 1,650 8,340
Tax due 24

Section 462 [One-parent family tax credit]

What is a qualifying child?

(1) A qualifying child is a child of whom the claimant has custody, and who is maintained by the claimant at his/her own expense for part of the tax year. The child must be aged under 18 at the start of the tax year, but the tax credit is also given in the case of a child, who, although aged 18 or over:

(a) is at college or university on a full-time basis, or is undergoing full-time training in a trade or profession (see (4)), or

(b) became permanently incapacitated before reaching the age of 21, or became so incapacitated after reaching 21 years of age while in full-time education or undergoing full-time training in a trade or profession.

The one-parent family tax credit is only given to a claimant who is not entitled to:

(a) the married person’s tax credit (section 461(a)), or

(b) the tax credit given to a widowed person in the bereavement year (section 461(b)).

What is the one-parent family tax credit?

(2) A single parent (see (2)) may be entitled to a one parent family tax credit of €1,650.

To qualify, the claimant must have a qualifying child (see (1)), living with him/her for all or part of the tax year, and must be “single”, i.e., must not be:

(a) living with an ex-spouse,

(b) living with an ex-civil partner,

(c) cohabiting with anyone.

A separated or divorced parent can claim one-parent family credit, provided the child is living with him/her for part of the tax year.

A guardian or person with custody of a child can claim, provided the child lives with him/her for some part of the tax year.

This legislation is not unconstitutional: MacMathúna v Ireland, [1995] ILRM 69.

Example

2012 A is a single parent (not widowed) with two children, X and Y. X is aged 14 and is in secondary school. Y is aged 18 and is in the first year of a university course.

A’s main income for the year arose from your shop. A also received dividends from shares in an Irish company.

A paid €16,000 preliminary tax by monthly direct debit.

A’s tax liability is calculated as:

Profits from shop (tax adjusted) 52,000
Dividend income (gross) 3,200
Total income 55,200
Tax
32,800 at 20% 7,360
22,400 at 41% 9,184
55,200 16,544
Less tax credits:
Preliminary tax paid 16,000
Basic personal tax credit (section 461) 1,650
One parent family tax credit (section 462) 1,650
DWT withheld (section 172J) 800 20,100
Refund due 3,556

Can a person claim several one parent family credits?

(3) This means, for example, that a mother of two children by different men cannot claim a separate credit for each “family”.

What is full-time training?

(4) Where a qualifying child (see (1)) is undergoing full-time training in a trade or profession, the training period must last at least two years. The inspector may require the child’s employer to provide, on the appropriate Revenue form, details of the training being provided to the child.

Can Revenue verify whether a course is full-time?

(5) In deciding whether a college or course is regarded as full-time education, the Revenue Commissioners may consult with the Department of Education.

Section 462A Additional allowance for widowed parents and other single parents

Amendments

Section 462A deleted by Finance Act 2000 section 6(b) for 2000-01 and later tax years. Originally inserted by Finance Act 1999 section 5(a) for 1999-2000 and later tax years.

Section 462B Single person child carer credit

What is a qualifying child?

(1) A qualifying child is a child of whom the primary claimant has custody, and who is maintained by the primary claimant at his/her own expense for the whole or greater part of the tax year. The child must be aged under 18 at the start of the tax year, but the tax credit is also given in the case of a child, who, although aged 18 or over:

(a) is at college or university on a full-time basis, or is undergoing full-time training in a trade or profession (see (4)), or

(b) became permanently incapacitated before reaching the age of 21, or became so incapacitated after reaching 21 years of age while in full-time education or undergoing full-time training in a trade or profession.

The single person child carer tax credit is only given to a claimant who is not entitled to:

(a) the married person’s tax credit (section 461(a)), or

(b) the tax credit given to a widowed person in the bereavement year (section 461(b)).

The allowance does not apply to cohabitants or to spouses or civil partners unless they are genuinely separated.

How are claimants defined?

(2)(a) The primary claimant is an individual who proves that the qualifying child resides with him or her for the greater art of the year. Where there is an order that the child should reside with each parent for equal parts of the year the primary claimant is the parent who is entitled to child benefit payment.

(b) The secondary claimant is an individual with whom the child resides for not less than 100 days in the year of assessment.

Who gets the single person child carer credit?

(3) The primary claimant receives the credit which amounts to €1,650.

Can the secondary claimant get the credit?

(4) yes, if the primary claimant relinquishes his or her entitlement and so informs Revenue.

Can more than one credit be obtained?

(5) No. Only one credit is given no matter how many qualifying children reside with the claimant.

Can children who are trainees or apprentices qualify?

(5) A child who is a full time trainee or apprentice for a period of at least 2 years is a qualifying child. An Inspector may require the employer to provide details of the training being provided.

Who can Revenue consult regarding what is full-time education?

(7) If any question arises as to whether or not a child is in full-time education Revenue may consult with the Minister for Education and Skills.

When is a child resident with a claimant?

(8) A child is resident with an individual if her or she resides for the greater part of the day with the individual.

Section 463 [Widowed parent tax credit]

What is the widowed parent tax credit?

(1) This tax credit is given to a widowed person who has a qualifying child (section 462B). Rules that apply in relation to the one parent family tax credit (section 462B(5)-(7)) also apply for this tax credit.

How much is the widowed parent credit?

(2) A widowed parent who does not remarry or cohabit is entitled to an additional tax credit for each of the five tax yearsfollowing the year of bereavement as follows:

First year after bereavement 3,600
Second year after bereavement 3,150
Third year after bereavement 2,700
Fourth year after bereavement 2,250
Fifth year after 00bereavement 1,800

Example

2012 C is a widowed single parent with one child who is aged 5 and is in primary school. C’s spouse died on 31 December 2010.

Your main income for 2011 arose from your employment.

You paid €3,400 PAYE tax in the year.

Your tax liability is calculated as:

Employment income 45,000
Total income 45,000
Tax
36,800 at 20% 7,360
8,200 at 41% 3,362
45,000 10,722
Less tax credits:
PAYE tax paid 3,400
Basic personal tax credit (section 461) 1,650
One parent family tax credit (section 462) 1,650
Employee tax credit (section 472) 1,650
Widowed parent (second year after bereavement) (section 463) 3,150 11,500
Refund due 778

Section 464 [Age tax credit]

What is the age credit?

An elderly person may be entitled to an age tax credit as follows:

(a) If single and aged 65 or over, €245.

(b) If married and assessed jointly, with one aged 65 or over, €490.

Example

2012 D is a retired widow(er) aged 66.

D’s main income for the year arose from his/her pension and some part-time work. D’s children are grown up and are living abroad.

D paid €1,000 PAYE tax in the year.

D’s tax liability is calculated as:

Total income 40,000
Tax
32,800 at 20% 6,560
7,200 at 41% 2,952
Total 9,512
Less tax credits:
PAYE tax paid 1,000
Basic personal tax credit (section 461) 1,650
Widowed additional tax credit (section 461A) 540
Age tax credit (section 464) 245
Employee tax credit (section 472) 1,650 5,085
Tax due 4,427

Section 465 [Incapacitated child tax credit]

What is the incapacitated child tax credit?

(1) A parent of a child who is permanently incapacitated mentally or physically (i.e., a qualifying child,) may claim foreach such child a tax credit of €3,300.

The child must be aged under 18 at the start of the tax year but the tax credit is also given in the case of a child, who, although aged 18 or over:

(a) is in third-level education on a full-time basis, or is undergoing full-time training in a trade or profession (see (4)) or

(b) became permanently incapacitated before reaching the age of 21, or became permanently incapacitated after reaching 21 years of age while in third-level education or undergoing full-time training in a trade or profession.

Example

2012 A married couple, E & F, have two children, X aged 10 and Y aged 12. Y suffers from kidney failure and requires ongoing dialysis treatment.

E’s main income for the year arose from employment. F stays at home and looks after the children.

E paid €6,500 PAYE tax in the tax year.

Their tax liability is calculated as:

Employment income 58,500
Tax
41,800 at 20% 8,360
16,700 at 41% 6,847
58,500 15,207
Less tax credits:
PAYE tax paid
Basic personal tax credit (section 461) 3,300
Incapacitated child tax credit (section 465) 3,300
Home carer tax credit (section 466A) 810
Employee tax credit (section 472) 1,650 12,360
Additional liability 2,847

They can make a separate claim for medical expenses incurred in treating Y, including travel to hospital, etc. See section 469.

This legislation is not unconstitutional: MacMathúna v Ireland, [1995] ILRM 69.

What is “permanently incapacitated”?

(2) A child is regarded as permanently incapacitated if there is a reasonable expectation that if the child were over 18 years of age, he/she would be incapable of supporting him/herself. See Revenue leaflet IT 18, Incapacitated child allowance.

An incapacitated child credit and a dependent relative credit (section 466) cannot be claimed for the same child.

Deafness is a permanent incapacity if there is a severe and permanent hearing loss affecting both ears: Inspector Manual 15.1.7.

Can a guardian claim an incapacitated child credit?

(3) A guardian who maintains an incapacitated child is entitled to the incapacitated child tax credit provided no one else is entitled to it.

What is full-time training?

(4) In the case of a child who was undergoing full-time training in a trade or profession when he/she became incapacitated, the training period must last at least two years. The inspector may require the child’s employer to provide, on the appropriate Revenue form, details of the training being provided to the child.

Can Revenue verify whether a course is full-time?

(5) In deciding whether a college or course is regarded as full-time education, the Revenue Commissioners may consult with the Department of Education and Science.

Can two people claim incapacitated child credit for the same child?

(6) Only one tax credit is given per child per tax year. It is given to the person who bears the expense of maintaining the child. If, for example, two parents who are separated or divorced from each other share the expense of maintaining an incapacitated child, the tax credit is shared in proportion to the amount spent by each parent in maintaining the child.

In this regard, a maintenance payment made under deduction of tax from one parent to another, which is deductible from the total income of the payer, is not counted as an expense of maintaining the child.

Section 466 [Dependent relative tax credit]

What reliefs can be claimed in respect of a dependent relative?

(1) To be able to claim a tax credit in respect of a dependent relative, the relative’s own income must not exceed the maximum individual contributory old age pension for an 80 year old (i.e., the specified limit) by more than €280 for the tax year.

A person with a dependent relative may also be able to claim:

(a) Medical expenses relief (section 469) in respect of fees paid by the claimant to a Revenue approved nursing home.

(b) Home loan interest relief (section 244) in respect of interest paid on the dependent relative’s residence, provided he/she lives there rent-free and without consideration.

(c) Medical insurance premiums (section 470) paid on behalf of the relative.

What is the dependent relative tax credit?

(2) A person may be able to claim a tax credit of €70 in respect of each dependent relative:

(a) an incapacitated relative who, due to old age or infirmity, cannot maintain him/herself,

(b) a widowed parent or parent-in-law,

(c) a child who resides with an old or infirm claimant, where the child resides with you and depends on you.

This tax credit cannot simultaneously be claimed with a housekeeper tax credit (section 467(3)).

A claim must be supported by a certificate signed by a medical practitioner to the effect that the relative was incapacitated by infirmity from maintaining him/herself during the tax year.

Example

2012 G is a young business person who is married to a creative artist since 31 December 2004.

G supports her widowed mother who is aged 69, and also pays for hospital treatment for her spouse’s uncle, aged 66.

G’s main income for the year arose from her employment.

G paid €1,900 PAYE tax in the year.

G’s combined tax liability with that of her spouse for the year is calculated as:

Your spouse’s artistic income (exemption granted: section 195) 19,000 Ignored
Your employment income 37,500
Total income for tax purposes 37,500
Tax
37,500 at 20% 7,500
Less tax credits:
PAYE tax paid 1,900
Basic personal tax credit (section 461) 3,300
Dependent relative tax credit (mother) (section 466) 70
Dependent relative tax credit (uncle) (section 466) 70
Employee tax credit (section 472) 1,650 6,090
Additional tax due 1,410

Can dependent relative tax credit be claimed for a civil partner’s relative?

(2A) Dependent relative tax credit may be claimed for a civil partner’s relative, provided the relative is:

(a) incapacitated by reason of old age or infirmity from maintaining himself or herself,

(b) the widowed parent of the civil partner, or

(c) a child of the civil partner on whose services the claimant is compelled, through old age or infirmity, to depend.

Is credit apportioned where a dependent relative is jointly maintained?

(3) If two or more individuals jointly maintain a dependent relative, the tax credit is shared in proportion to the amount spent by each in maintaining the relative.

Section 466A Home carer tax credit

What is a “dependent person”?

(1) A dependent person means:

(a) a child in respect of whom the claimant (or his/her spouse/civil partner) is entitled to Social Welfare child benefit,

(b) an individual who was aged 65 or more during the tax year,

(c) an individual who is permanently incapacitated, physically or mentally.

A qualifying claimant is a person who is jointly assessed (section 1017) to tax for the tax year and who, or whose spouse/civil partner (the carer spouse or carer civil partner) cares for a dependent person during the tax year

What is the home carer tax credit?

(2) A qualifying claimant (see (1)) who cares for a dependent person who resides with him/her may claim a tax credit of €1,000.

See also Revenue Leaflet IT66, Home Carer’s Allowance.

Example

2012 H and J are a jointly assessed married couple with three children X (aged 1), Y (aged 3) and Z aged 5. H also cares for her spouse’s mother P, aged 69, who resides in the next street.

H is the main earner. J has made a decision to spend two to three years as the home carer.

H paid €10,300 PAYE tax in the year.

H and J’s combined tax liability is calculated as:

J’s telesales commission 3,800
H’s employment income 59,500
Total income for tax purposes 63,300
Tax
41,800 at 20% 8,360
21,500 at 40% 8,600
63,300 16,960
Less tax credits:
PAYE tax paid 10,300
Basic personal tax credit (section 461) 3,300
Home carer tax credit (section 466A) 1,000
Employee tax credit (section 472) 1,650 16,250
Tax due 710

Note

See Example to (8) which considers claiming the higher rate band as opposed to the home carer tax credit.

Can the home carer tax credit be claimed in respect of a relative?

(3) A dependent relative is treated as residing with the claimant if:

(a) they live in close proximity to each other, i.e.:

(i) next door or in adjacent residences,

(ii) on the same property, or

(iii) within 2km of each other,

and

(b) there is a direct communication link between the two homes.

The term relative includes a relation by marriage and a person for whom the claimant is legal guardian.

Example

Take the facts of the Example to (2):

Assume instead however that H and J have no children.

H can still claim the home carer credit in respect of P, J’s aged mother who resides in the next street (assuming there is a direct phone or other link between the two homes).

Can home carer tax credit be claimed for multiple dependents?

(4) A claimant is entitled to only one tax credit under this section for a tax year, irrespective of the number of dependent persons he/she has in that year.

Example

In the Example to (2), H can claim the home carer tax credit for looking after any one of her children or her spouse’s mother.

H can claim only one credit, even though she has four “dependent persons”.

How does a claimant qualify for home carer tax credit?

(5) To qualify for the tax credit:

(a) the claimant must reside with the dependent person, or

(b) the claimant or his/her spouse (see (3)) must care for the dependent person.

Example

In the Example to (2), the relief is given to J, i.e. the home carer spouse who looks after the children.

Does a home carer’s affect the tax credit claimable?

(6) The tax credit is reduced by one half of the amount by which the carer’s income exceeds €7,200.

In this regard, social welfare carer’s allowance does not count as income.

Example

In the Example to (2), assume that the carer’s telesales commission was €7,600 instead of €3,800.

The home carer’s tax credit is reduced by €200, i.e., half of €7,600 – €7,200.

In net terms, the tax credit is €800 instead of €1,000.

Example

Take the facts of the Example to section 466(2):

It is arguable that you could claim the home carer’s tax credit in respect of your artist spouse (if your spouse is looking after your mother) because artistic income is disregarded for the purposes of the Income Tax Acts (section 195(2)).

Can home carer credit be claimed if the carer takes up full time work?

(7) Notwithstanding the limit mentioned in (6), a carer spouse who takes up full time work may claim the home carer credit for the tax year in which the new job begins, provided he/she was entitled to the home carer tax credit for the previous tax year.

This relief may be automatically given up to the amount of relief given to the claimant for the immediately preceding tax year.

Can a person claiming home carer credit claim married rate band?

(8) A home carer may not also claim the increased rate band available to a dual income married couple (section 15(3)).

However, such a person may opt to take the increased rate band instead of the home carer tax credit.

Example

Continuing with the facts of the Example to (2):

The couple may opt to calculate their tax liability as:

Spouse’s telesales commission 3,800
Employment income 59,500
Total income for tax purposes 63,300

Your standard rate band becomes: €41,800 plus the lower of €23,800 or €3,800 (the lower of the two incomes), i.e., €45,600.

Tax
45,600 at 20% 9,120
17,700 at 40% 7,080
63,300 16,200
Less tax credits:
PAYE tax paid 10,300
Basic personal tax credit (section 461) 3,300
Employee tax credit (section 472) 1,650 15,250
Tax Due 950

Section 467 Employed person taking care of incapacitated individual

Employed Person Taking Care of Incapacitated Individual: Tax Briefing Issue 65 – 2006

Who is a relative?

(1) In the context of (2), relative includes a relation by marriage, and a person in respect of whom the claimant is the legal guardian.

What is the incapacitated person carer allowance?

(2) The cost of employing a carer for a person who is totally incapacitated by a physical or mental infirmity throughout the tax year is tax deductible.

The deduction is the lower of:

(a) the amount payable in employing the carer, and

(b) €75,000.

When can the incapacitated person carer allowance be claimed?

(2A) The incapacitated person carer allowance can be claimed for the year in which the incapacity exists (and later years).

Can two incapacitated person care allowances be claimed for the same home?

(3) A person gets one incapacitated person care allowance even if he has two carers.

Revenue also interpret this as meaning that only one allowance is given in respect of a married couple both of whom are incapacitated and in need of a carer. This position may be unsustainable on constitutional grounds: see introductory notes to Part 44 (Married, separated and divorced persons).

Can other allowances be claimed in addition to the incapacitated person carer allowance?

(4) This allowance cannot simultaneously be claimed with an incapacitated child allowance (section 465) or a dependent relative allowance (section 466).

Section 468 [Blind person’s tax credit]

What is the blind person’s tax credit?

(1) A person is considered to be a blind person if his/her central visual acuity (wearing glasses or contact lenses) is 6/60 or less in the better eye. If his/her central visual acuity is greater than 6/60 in either eye, he/she may qualify as blind if the angle of your field of vision is not greater than 20 degrees.

How much is the blind person’s tax credit?

(2) The blind person tax credit is:

(a) €1,650,

(b) in the case of a jointly assessed married couple where both spouses/civil partners are blind, €3,300.

The claim should be accompanied by a certificate from an ophthalmologist, i.e., a medical practitioner with an additional qualification in ophthalmic medicine or ophthalmic surgery: Revenue leaflet IT 35.

Example

2012 A single individual aged 34 who works as a blind telephonist for a Government Department.

His income from the employment is €30,000 per year.

He lives in a rented apartment and pays rent of €6,000 per year.

He paid €1,000 tax through the PAYE system.

His income tax liability is:

Employment income 30,000
Tax
30,000 at 20% 6,000
Less tax credits:
PAYE tax paid 1,000
Basic personal tax credit (section 461) 1,650
Blind person tax credit (section 468) 1,650
Employee tax credit (section 472) 1,650
Rent paid tax credit (section 473) 400 6,350
Refund due 350

Section 469 Relief for health expenses

What are health expenses?

(1)-(2) If a person has defrayed health expenses, i.e., expenses on health care for a tax year, he/she is entitled to a deduction for the amount.

Health care essentially means the diagnosis, prevention or treatment of illness, injury, infirmity or disability. It includes cosmetic surgery necessary to ameliorate a physical deformity arising from a congenital abnormality, a personal injury or a disfiguring disease.

It does not include:

(a) routine ophthalmic treatment, i.e., relating to eye testing, and the provision or repair of spectacles or contact lenses, or

(b) routine dental treatment, i.e., extractions, cleaning and filling of teeth, bridgework, and the provision of dentures.

Health expenses include the cost of:

(a) Fees of a qualified practitioner, i.e., a doctor or dentist who is properly registered in the State (or, in the case of foreign health care expenses, who is entitled to practice medicine or dentistry in the foreign country). This excludes, for example, the costs of a faith healer who is not a qualified medical practitioner.

(b) Diagnostic procedures.

(c) Maintenance or treatment necessarily incurred in connection with (a) or (b).

(d) Drugs and medicines prescribed by a doctor.

(e) A prescribed medical, dental or nursing appliance.

(f) Prescribed physiotherapy treatment.

(g) Prescribed orthoptic treatment.

(h) Ambulance transport.

(i) Educational psychological assessment carried out by an educational psychologist.

(j) Speech and language therapy provided by a speech and language therapist.

From 28 March 2003, health expenses consisting of educational psychological assessment and speech and language therapy only qualify where the dependant is aged over 18 years, or if over 18 years of age is in full-time education or permanently incapacitated.

A list of approved hospitals and nursing homes is available at www.revenue.ie under publications/lists.

Defrayed

Although the health care expenses need not have been paid in the tax year they were incurred, they must be borne by the claimant at some time.

Expenses are not regarded as having been defrayed by the individual insofar as they are recouped in any way, by the individual or by any dependant of the individual from a public or local authority or under a contract of insurance or by way of compensation or otherwise.

Where a person receives damages for personal injury, the amount awarded may cover a variety of items including medical expenses. The medical expenses involved may comprise:

(a) a specific award for known expenses,

(b) a lump sum award to cover potential expenses.

Generally, a specific award will be vouched amounts incurred before the award is made. A lump sum will not be related to specific expenses but will be given in anticipation of the claimant having to incur medical expenses in the future on account of his/her injury.

In dealing with claims for medical expenses no relief is given in so far as the expenses are covered by a specific award. Usually a lump sum award will be invested and the expenses paid out of the income generated by the investment. Medical expenses other than those covered by a specific award are treated as being paid primarily out of the claimant’s income (from whatever source) and accordingly a medical expenses claim in respect of expenses incurred after the date of the award, and which are not covered by a specific award, would not be restricted on account of a lump sum award.

Permanent incapacity

Any claim that supported by a certificate signed by a medical practitioner to the effect that the relative was incapacitated by infirmity from maintaining him/herself during the tax year to which the claim relates will be allowed (Revenue Precedent, 10 November 1999).

Qualifying dental treatment: Tax Briefing 37.

Maternity care: Caesarean section operation: Tax Briefing 37.

Health expenses: Revenue Leaflet IT 6, Medical expenses relief.

Health Expenses – Guidelines and Procedures on claims: Tax Briefing Issue 68 – 2008

Example

X stayed in hospital for two weeks in May 2012. The cost was €2,000. €1,500 was paid in August 2012 (tax year 2012) and the remaining €500 was paid in May 2013 (tax year 2013).

You may claim:

(a) relief for €1,500 in the tax year 2012,

(b) relief for €500 in the tax year 2013.

Who claims health expenses?

(3) Health expenses of a jointly assessed spouse are deemed to have been paid by the spouse who is responsible for submitting the tax return.

Health expenses paid by a deceased person’s executor or administrator are deemed to have been paid by the deceased person immediately before his/her death. The health expenses incurred by a person prior to his/her death may, therefore, reduce his/her income tax liability for the year of death.

Health expenses reimbursed by health insurance, for example through the VHI, do not qualify for relief.

Can health expenses be claimed twice?

(5) In so far as health expenses defrayed in a later tax year are relieved against the total income of an earlier tax year, they cannot also be relieved against the total income of later tax years.

In other words, a deduction is only given once for the same expenditure.

How is relief for health expenses claimed?

(6) A claim for health care expenses must be made on the official form together with the necessary supporting documents, receipts, etc.

Any tax overpaid must be repaid.

Can health expenses be claimed under another heading?

(7) If relief is given for expenditure on health expenses, relief may not be claimed on such expenditure under any other part of the tax code.

Can the Minister prevent treatments contrary to public policy?

(8) The Minister for Finance may prescribe that treatments “contrary to public policy” do not qualify for tax relief. It is understood that this term refers to abortion treatment.

The Minister for Finance must not make such an order without first consulting the Health Minister. Any such order must also be laid before, and passed by, Dáil Éireann.

Section 470 Relief for insurance against expenses of illness

What is health insurance relief?

(1) An individual is entitled to a tax credit equivalent to the appropriate percentage of the amount (relievable amount) of an insurance premium to an authorised insurer (for example, the VHI or BUPA) under an insurance contract (relevant contract) which provides cover for health expenses (section 469), and non-routine dental expenses, of:

(a) the claimant,

(b) the claimant’s spouse/civil partner,

(c) the claimant’s children or dependants.

The standard rate credit will be net of any “risk equalisation credit” under the permanent health insurance risk equalisation scheme.

From 16 October 2013 the relievable amount (allowable premium) is a maximum of €1,000 per adult covered by the health insurance policy and €500 per child.

What is the health insurance tax credit?

(2) The tax credit is given for the lesser of:

(a) the amount of the premium paid in the tax year multiplied by the standard rate of tax, or

(b) the amount which reduces the claimant’s tax liability to nil.

In other words, the reduction in tax cannot be used to create a tax repayment.

The tax credit may not be used to reduce tax withheld from annual payments made (section 16(2)).

A list of authorised insurers is available at www.revenue.ie under publications/lists.

Example

You paid a premium of €1,150 to the VHI in a given tax year.

You get a tax credit of €1,150 x 20% against your tax liability for the tax year in question. This is given at source.

How is the health insurance credit given?

(3) Relief for health insurance premiums is given at source by the insurer. A person who pays a premium to an authorised insurer is entitled to withhold standard rate income tax from the amount of the payment.

The authorised insurer receiving the premium must accept the payment net of standard rate income tax, and may recover from Revenue the tax that was withheld from the payment.

Can relief for health insurance be claimed twice?

(4) If relief is given under this section for a health insurance payment, relief cannot be claimed for the same payment under any other section. For example, the same payment may not qualify as a business expense.

Can Revenue make regulations relating to health insurance?

(5) The Revenue Commissioners must make regulations dealing (in more detail) with the administration of health insurance relief at source. These regulations may provide:

(i) that a claim by an authorised insurer must be made at the time and in the manner set out in the regulations,

(ii) that an authorised insurer must make an annual information return containing details of:

(I) each individual making payments under a health insurance contract,

(II) the total premiums paid by the individual in the tax year,

(III) the tax deductible by the individual in respect of the insurance premiums,

(iii) rules regarding information to be provided to Revenue for the purposes of the regulations.

Any regulations made under this section in relation to health relief at source must be laid before and passed by Dáil Éireann.

Can Revenue recover excessive tax credits?

(6) An inspector may make any assessments or adjustments necessary to recover any excessive amount repaid by Revenue.

Section 470A Relief for premiums under qualifying long-term care policies

Amendments

Section 470A ceased to have effect for 2010 and later years.

Section 470B Age-related relief for health insurance premiums

What is the age-related health insurance tax credit?

(1)-(2) The age-related tax credit is given where a person pays insurance under a relevant contract entered into between 1 January 2009 and 1 January 2012.

Is the age-related tax credit an additional relief?

(3) The age-related tax credit applies in addition to the normal credit for health insurance.

How much is the age-related tax credit?

(4) The age-related tax credit for 2012 is as follows:

aged 60 to 65: €600 (previously €625);

aged 65 to 69: €975 (previously €625);

aged 70 to 75: €1,400 (previously €1,275);

aged 75 to 79: €2,025 (previously €1,275);

aged 80 to 85: €2,400 (previously €1,725);

aged 85 and over: €2,700 (previously €1,725).

What is the credit if the employer pays the premium?

(5) The age-related tax credit cannot exceed the payment made to the insurer for the tax year in question.

The combined age-related tax credits for 2012 and 2011 cannot exceed age-related tax credit that would have been due if the premium had been paid in 2011.

If the employer pays the insurance premium, and the aggregate of the age-related tax credit and the “normal” tax credit in respect of the premium exceeds the income tax chargeable on that “benefit-in-kind” (BIK), the excess may not be credited against any other income tax.

How is the age-related tax credit claimed?

(6) Relief is given at source by the insurer. A person who pays a premium to an authorised insurer is entitled to withhold standard rate income tax from the amount of the payment.

The authorised insurer receiving the premium must accept the payment net of standard rate income tax, and may recover from Revenue the tax that was withheld from the payment.

Can Revenue make regulations relating to the age-related health insurance credit?

(7) The Revenue Commissioners must make regulations dealing (in more detail) with the administration of health insurance relief at source. These regulations may provide:

(i) that a claim by an authorised insurer must be made at the time and in the manner set out in the regulations,

(ii) that an authorised insurer must make an annual information return containing details of:

(I) each individual making payments under a health insurance contract,

(II) the total premiums paid by the individual in the tax year,

(III) the tax deductible by the individual in respect of the insurance premiums,

(iii) rules regarding information to be provided to Revenue for the purposes of the regulations.

Any regulations made under this section in relation to health relief at source must be laid before and passed by Dáil Éireann.

Can Revenue recover excessive tax credits?

(6) An inspector may make any assessments or adjustments necessary to recover any excessive amount repaid by Revenue.

Section 471 Relief for contributions to permanent health benefit schemes

What is a permanent health benefits scheme?

(1)-(2) A permanent health benefit scheme is a scheme which, in return for payment of a regular premium (contribution), provides a contributor with income.

In the event of prolonged illness, a contributor is entitled to a deduction in respect of premiums paid to a permanent health benefit scheme during that tax year.

The maximum allowance is 10% of your total income for the tax year.

Can relief be claimed on permanent health contributions paid by an employer?

(3) Where an employer pays contributions on behalf of an employee, the employee may still obtain the relief, but is taxed on the BIK (section 125) received.

Section 472 [Employee tax credit]

What is the employee credit?

(1) An employee who pays tax through the PAYE system can claim the employee tax credit (PAYE credit).

In the case of a married couple assessed jointly (section 1017), each spouse is entitled to the tax credit to which he/she would have been entitled as a singly assessed person (section 1016).

The PAYE credit is not given in respect of excluded emoluments, i.e, emoluments paid to:

(a) a self-employed individual, or a proprietary director, i.e., a director who can control more than 15% of the ordinary share capital of a private company, or

(b) a spouse or child of a self-employed individual/proprietary director.

In this context, a director of a body corporate means:

(a) a member of the body’s board of directors,

(b) the sole manager, or director, of a body corporate the affairs of which are managed by that manager or director,

(c) a member of a body corporate the affairs of which are managed by the members themselves.

A specified employed contributor means an employed contributor for social welfare purposes, other than:

(a) an individual who is regarded as an employed contributor simply because all individuals who are in insurable employment for occupational injuries purposes are employed contributors, or

(b) certain public servants appointed before 5 April 1995.

See also Employee (PAYE) Credit: Tax Briefing Issue 68 – 2008

Can a business owner’s child claim the employee credit?

(2) In general, a child employed in the business of a parent who is self-employed or a proprietary director cannot claim the PAYE credit unless the child is not a proprietary director, and:

(a) is a specified employed contributor, or pays tax and PRSI through the PAYE system,

(b) is a full-time employee of the company throughout the tax year, and

(c) receives emoluments of not less than €4,572 in the tax year.

Can an individual subject to foreign PAYE claim the employee credit?

(3) An individual subject to a foreign PAYE system is entitled to the employee credit. For example, the allowance would be available to a person who pays UK PAYE, but is also assessed to tax in the Republic of Ireland.

The PAYE credit also applies to foreign social security pensions received by Irish residents from EU Member States notwithstanding that they have not been subjected to a PAYE type system of tax deduction (Inspector Manual 15.1.10).

How much is the employee credit?

(4) The employee tax credit is the lesser of:

(a) the emoluments (see (2)) multiplied by the standard rate of tax for that tax year (the appropriate percentage), or

(b) €1,650.

A jointly assessed (section 1017) gets a double credit if the spouse is also in PAYE employment.

Example

2012 You and your spouse are a jointly assessed married couple had the following income for the year:

You (income from PAYE-taxed employment) 40,000
Your spouse (income from PAYE-taxed part-time work) 1,100
Joint income 41,100
Income tax
41,100 at 20% 8,220
41,100 8,220
Less tax credits:
Basic personal tax credit 3,300
Employee tax credit (you) 1,650
Employee tax credit (your spouse) €1,100 x 20% 220 5,170
Net liability 3,050

How does a business owner’s child get the employee credit?

(5) A child of a self-employed individual/proprietary director gets the employee credit by repayment of tax following an end-of-year review.

Section 472A Relief for the long-term unemployed

What allowance can a previously long term unemployed person claim?

(1)-(2) A person who prior to employment was long-term unemployed (a qualifying individual)is entitled in the first three tax years of a qualifying employment to an additional deduction as follows:

Basic allowance Potential increase for each qualifying child
Tax year in which employment begins 3,810 1,270
Second tax year 2,540 850
Third tax year 1,270 425

The deduction may only be used against the income from the qualifying employment.

The employee may elect in writing to the inspector to defer claiming the deduction until the second tax year. That tax year is then treated as the tax year in which the employment began.

Long-term unemployed means continuously out of work for not less than 12 months immediately before the employment begins, while also in receipt of unemployment benefit or assistance (unemployment payment), or one parent family allowance. The period of long-term unemployment includes periods of participation in FÁS courses and certain sponsored social welfare schemes. Payments received for such participation count as unemployment payment. The period of unemployment does not include each Sunday in a period of consecutive days.

The relief also applies to any other special category of persons approved for relief by the Minister for Social, Community and Family Affairs with the consent of the Minister for Finance.

A qualifying employment is one for at least 30 hours per week, and is capable of lasting one year. It does not include:

(a) an employment in place of a person who was unfairly dismissed,

(b) an employment with an employer who in the six months preceding the employment made any of his employees redundant,

(c) an employment for which more than 75% of the pay is in the form of commission.

Under Revenue Job Assist, claimants can retain their medical card (and other secondary benefits such as rent/mortgage subsidy, fuel allowance, etc.) for 3 years from the date they return to work (Tax Briefing 31).

See also section 88A which gives the employer a double deduction in respect of the salary or wages paid to the employee.

Is the long term unemployment deduction higher if there are qualifying children?

(3) As shown in (2), the basic deduction may be augmented (see (2)) for each qualifying child (section 462). Only one increase is given in respect of each child.

If both parents are now working and both were previously long-term unemployed, both may claim the basic deduction but any increase in respect of a qualifying child is split between the parents. If only one parent maintains the child, that parent is entitled to the increase. If both parents maintain the child, the increase is split between them in proportion to their maintenance contributions.

A maintenance payment that is deductible from the payer’s total income is not treated as a payment towards the child’s maintenance.

What happens if the qualifying employment ceases?

(4) If the qualifying employment ceases within the first three tax years, the claimant may carry forward the unused part of the deduction for set off against the income from the next qualifying employment (and only that employment). The total brought forward deduction to be given for any tax year may not exceed the deduction that would otherwise be due for that year.

Can the previously long term unemployed deduction be withdrawn?

(5) The deduction is withdrawn if the claimant or your his/her obtain any State grant or subsidy (an employment scheme) in respect of the employment. FÁS grants already received do not count in this regard.

How is a claim for previous long term unemployment made?

(6) A claim for this deduction must be made on the official Revenue form. The claimant must make a written statement, and provide any information that Revenue may request on the form.

When will the relief end?

(7) The scheme will not apply to employments commencing after a date to be appointed by the Minister.

Section 472AA Relief for long-term unemployed starting a business

What definintions apply to “start your own business” relief?

(1) Continuous period of unemployment is defined in the Social welfare Consolidation Act 2005. Section 141(3) provides that where an individual works 3 days a week this may still be counted as a period of unemployment. It also provides that if an unemployed person obtains employment but becomes unemployed again within 12 months the period of unemployment is not interrupted.

New business is a new trade or profession set up between 25 October 2013 and 31 December 2016. It cannot be a business or part of a business that was previously carried on by another person.

A qualifying individual is one who has been continuously unemployed for the previous 12 months and signed on for contribution credits or was in receipt of benefits for at least 312 days prior to setting up the business.

What other definitions apply?

(2) A qualifying individual includes an individual who is on any State training or FáS course and any payments received are deemed to be job seekers allowance. Sundays are disregarded incomputing periods of unemployment.

What is the relief?

(3) a qualifying individual is entitled to claim a deduction from the profits of the new business during the qualifying period of an amount determined in accordance with subsection (4)

What deduction is allowed?

(4) is the lesser of-

A x B
——-
C

or

€40,000 x B
——-
C

where A is the profits for the year of assessment, B is the number of months or fractions of months of the year of assessment falling in the qualifying period and C is the number of months or fractions of months in the basis period.

In effect the maximum amount that can be claimed is €80,000 or €40,000 per year.

What is the order of set-off?

(5) The deduction is given before losses forward and capital allowances.

Can an individual set up more than one new business?

(6) Yes but the maximum deduction the individual can claim for a year is €40,000

Must a qualifying individual make a tax return?

(7) Yes. An individual claiming this relief is a chargeable person.

Section 472AB Earned income tax credit Commentary

What definitions apply to this section?

(1) The “appropriate percentage” is the standard rate of tax;

 “qualifying earned income” is earned income other than income subject to PAYE.

(2) Where an individual has earned income other than PAYE income a tax credit of €550 or, if less, 20% of the earned income will be given.

(3) Where a claimant is entitled to both this tax credit and employee tax credit the two together cannot exceed €1,650.

Section 472B Seafarer allowance, etc

What is a seafarer?

(1) This relief applies to you as a seafarer (a qualifying individual):

(a) who is taxed under Schedule D or E on pay for working on board a sea-going ship (i.e., who holds a qualifying employment) while the ship is on an international voyage (one beginning or ending in a foreign port), and

(b) who has entered into articles of agreement with the master of that ship.

A sea-going ship is a ship (other than a fishing vessel) used solely for carrying passengers or cargo for reward which is registered in an EU member State.

When is a seafarer regarded as absent from the State?

(2) A seafarer is regarded as absent from the State (see (4)) for a day if he/she is outside the State at the end of that day.

A foreign port includes an offshore rig or platform of any kind in a maritime area.

Do all seafarers qualify for allowance?

(3) The seafarer allowance applies only to private sector employments, i.e., non-public sector employments. It does not apply to:

(a) foreign source income taxed on the remittance basis (section 71(3)),

(b) income relieved under the split year residence rules (section 822).

The relief does not therefore apply to public servants, semi-State employees or navy personnel.

How much is the seafarer allowance?

(4) A seafarer who is absent from the State (see (2)) for 161 days of the (calendar) year is entitled to a deduction of €6,350 for the year in question.

The deduction may be used only against the income from the qualifying employment.

The Minister for Finance, after consulting with the Minister for the Marine and Natural Resources, may alter the number of days required at sea to qualify for this deduction.

Can a seafarer claim foreign earnings deduction?

(5) A seafarer is not also entitled to relief under section 823 (deduction for income earned outside the State).

Do incidental duties in the State affect the seafarer allowance?

(6) In deciding whether an employment qualifies (i.e., is performed wholly on board a sea-going ship), incidental duties performed in the State are treated as performed on the ship.

Section 472C Relief for trade union subscriptions

Amendments

Section 472C spent for 2011 and for later tax years.

Section 472D Relief for key employees engaged in research and development activities

What relief is available to key R & D employees?

(1) This relief applies to relevant emoluments paid by a relevant employer to a key employee, i.e., an employee who is not a director of, and does not have a material interest in, the company which employs him. In this regard, a material interest means ownership of, or the ability to control more than 5% of the company’s ordinary share capital. Not less than 50% of his work time must be spent on the conception or creation of new knowledge, products, processes, methods or systems.

How does employee R & D credit work?

(2) The employer surrenders an amount for the benefit of a key employee, and the employee can make a claim to have his tax liability reduced by the amount surrendered. In simple terms, the employer can surrender part of its R & D tax credit to the employee.

The employee gets the tax credit for the tax year following the year in which the accounting period giving rise to the tax credit ends.

An individual who is no longer a key employee can claim the credit provided he remains an employee of the company.

Can the R & D credit eliminate the employee’s tax?

(3) The surrendered tax credit cannot be used to reduce the employee’s tax below the amount that would be payable if his total income were taxed at 23%.

Can excess employee R & D credit be carried forward?

(4) If, after having reduced the employee’s tax to an effective rate of 23%, further R & D tax credit remains available, that balance can be carried forward for credit against the tax liability of the next and subsequent tax years.

Does BIK apply to employee R & D credit?

(5) The value of the R & D tax credit is exempt in the hands of the employee.

Can an employer with PAYE/PRSI arrears surrender R & D credit?

(6) The employer is not allowed to surrender an R & D credit to an employee unless he is up to date with PAYE/PRSI obligations.

Is an employee who claims R & D credit subject to self-assessment?

(9) An employee who claims and R & D tax credit must file a self-assessment return for income tax purposes.

Section 473 Allowance for rent paid by certain tenants

‘Rent-to-Buy’ (and similar) Schemes: Tax Briefing Issue 73 – 2009

What is rent tax credit?

(1) Residential premises means a privately rented flat, apartment or house, together with any yard or garden considered part of the rented dwelling.

Rent includes any payment for the use of the residence but does not include a payment:

(a) for maintenance or repairs for which the tenant is liable,

(b) for other goods or services supplied by the landlord (for example, a payment to purchase a cooker from the landlord),

(c) other than which relates to the right to use the residence,

(d) which is subsidised or may be reimbursed.

The tenancy must be a short-term letting (not greater than 50 years), and the terms of the tenancy or letting agreement must not be capable of being enlarged to create a greater interest in the let property or any other property.

Rent paid under a tenancy with a local authority, a government department, a housing authority or the Office of Public Works does not qualify for relief.

In so far as rent is subsidised, for example, by a health board, it does not qualify for tax relief.

The specified limit (see (2)) is as follows:

Persons aged 55 or over:

2011: €3,200 (individual), €6,400 (married/widowed).

2012: €2,400 (individual), €4,800 (married/widowed).

2013: €2,000 (individual), €4,000 (married/widowed).

2014: €1,600 (individual), €3,200 (married/widowed).

2015: €1,200 (individual), €2,400 (married/widowed).

2016: €800 (individual), €1,600 (married/widowed).

2017: €400 (individual), €800 (married/widowed).

Persons aged under 55:

2011: €1,600 (individual), €3,200 (married/widowed).

2012: €1,200 (individual), €2,400 (married/widowed).

2013: €1,000 (individual), €2,000 (married/widowed).

2014: €800 (individual), €1,600 (married/widowed).

2015: €600 (individual), €1,200 (married/widowed).

2016: €400 (individual), €800 (married/widowed).

2017: €200 (individual), €400 (married/widowed).

Whether a rent-a-room payment (section 216A) is rent within the meaning of section 473 depends on the facts of each case: Tax Briefing 44.

When does rent tax credit cease?

(1A) In general, rent tax credit ceases as respects rent paid from 8 December 2010.

For tenancies in existence on 7 December 2010, the relief is phased out as detailed in (1).

How is rent tax credit calculated?

(2) The standard rating of the allowance means the claimant gets a credit equivalent to the lesser of:

(a) the actual rent paid multiplied by the standard rate of tax for that tax year (the appropriate percentage),

(b) the specified limit (see (1)) multiplied by the appropriate percentage, or

(c) the amount which reduces tax liability to nil.

The credit may not be used to reduce tax withheld from annual payments made (section 16(2)).

Example

2012 You are a married couple assessed jointly (section 1017). You are aged 60 and retired with a pension from your former employment. Your spouse is aged 53 and works part-time in a local hotel.

Your income from your pension is €40,000 per year.

Your spouse’s income from his/her part-time job is €7,500 per year.

You live in rented accommodation and pay €8,000 rent per year.

You paid €800 and your spouse paid €495 tax through the PAYE system.

Your income tax liability is:

Your pension income 40,000
Your spouse’s employment income 7,500
47,500
Tax
47,500 at 20% 9,500
Less tax credits:
PAYE tax paid (€800 + €495) 1,295
Basic personal tax credit (section 461) 3,300
Employee tax credit (section 472) 2 x 1,650 3,300
Rent paid (section 473) €6,400 x 20% 1,280 9,175
Tax due 325

What is the rent tax credit for a married couple?

(3) In the case of a married couple assessed jointly (section 1017), any rent paid by the non-claimant spouse is deemed to have been paid by the claimant spouse.

Example

Take the facts of the Example to (2):

Assume that your entire rent (€8,000) for the year was paid by your spouse.

As you are the claimant spouse chargeable in respect of your joint assessment return, you are deemed to have paid the rent.

When is rent tax credit restricted?

(4) A payment that relates partly to rent and partly to some other expense is to be apportioned between the part relating to rent and the other part. The inspector must decide how the expenditure is to be apportioned.

When is a rent payment deemed to have been made?

(5) A payment of rent is deemed to have been made in the calendar year to which it relates.

A payment on account for rent for a period that straddles two years is apportioned as necessary between the two years.

Example

12.01.2012 You pay €900 to your landlord as rent for December 2011.

The payment relates to the year 2011.

Example

12.12.2012 You pay €2,700 to your landlord as rent for November 2012 (€900), December 2012 (€900) and January 2013 (€900 paid on account).

The payment is apportioned as to €1,800 for 2012, and €900 for 2013.

How is rent tax credit claimed?

(6) To obtain the relief, the claimant must include with his/her tax return:

(a) His/her name, address and tax reference number.

(b) The name, address and tax number of his/her landlord. The inspector may give the relief if the claimant is genuinely unable to obtain this information.

(c) The address of the rented residence.

(d) A copy or details of the letting agreement.

(e) The receipt for rent paid. If the claimant cannot obtain a receipt from the landlord, he/she need only provide proof of payment together with the name and address of the person to whom the rent was paid.

It is not essential that the property for which rent is paid be situated in the State, or that the landlord be resident in the State.

Can a decision regarding rent tax credit be appealed?

(7) An inspector’s decision as to entitlement to rent credit may be appealed to the Appeal Commissioners in writing within two months of the date of receipt of notice of the decision.

The Appeal Commissioners must hear and determine such an appeal in the same manner as an appeal against an income tax assessment. There is a further right of appeal to the Circuit Court, and, on a point of law, to the High Court.

Must a landlord provide a receipt for rent paid?

(8) Your landlord must, on request, provide each tenant with a written receipt for rent stating:

(a) the tenant’s name and address,

(b) the landlord’s name, address and tax reference number,

(c) the amount of rent paid in the tax year, and the period within that year in respect of which the rent was paid.

Can Revenue make regulations regarding rent tax credit?

(9) The Revenue Commissioners are empowered to make regulations detailing the kind of proof required to verify a claim for this allowance, disclosure of information by landlords, and related matters.

Such regulations must be laid before and passed by Dáil Éireann.

See: Income Tax (Rent Relief) Regulations 1982 (SI 318/1982).

Can rent also be claimed as a business expense?

(10) The same rental payment may not also qualify, for example, as a business expense.

Section 473A Relief for fees paid for third level education, etc

What is an approved college?

(1) This section gives a tax credit to you where you pay qualifying fees to an approved college (for an academic yearbeginning not earlier than 1 August in the tax year) in respect of an approved course.

An approved college means:

(a) a college or higher education institute in the State which provides courses that are eligible for State-funded higher education grants, or which operates within a code of standards established by the Minister for Education,

(b) a university or higher education institute in an EU State other than Ireland which is publicly funded by an EU member State, or which is duly accredited in the EU State in which it is situated,

(c) a college or institution in another EU State which provides distance education courses in the State which are eligible for (Irish) State-funded higher education grants, or which operates within a code of standards established by the Minister for Education,

(d) a university or similar higher education institute in a non-EU country which is publicly funded in that country, or which is duly accredited as a university or similar higher education institute in that country.

An approved course is:

(a) a full-time or part-time undergraduate course at an approved college within (a)-(c) above, which:

(i) lasts at least two academic years, and

(ii) meets the minimum educational standards established by the Minister for Education,

or

(b) a postgraduate course leading to a postgraduate degree based on a thesis or exam results, which:

(i) lasts at least one academic year, and not longer than four academic years,

(ii) is open only to holders of a degree or equivalent qualification, and

(iii) meets the minimum educational standards established by the Minister for Education.

The amount of qualifying fees is the amount approved by the Minister for Education and Science for the purposes of this section.

What relief is available for fees paid to an approved college?

(2) A person who pays qualifying fees to an approved college is entitled to a tax credit equivalent to the lesser of:

(a) the amount paid in respect of fees multiplied by the standard rate of tax (the appropriate percentage) for that tax year, or

(b) the amount which reduces your liability to nil.

The credit may not be used to reduce tax withheld from annual payments made (section 16(2)).

The maximum amount of fees qualifying for relief in respect of each approved course is set at €5,000; Revenue leaflet IT31.

A list of authorised courses is available at www.revenue.ie under publications/lists.

Example

2012: You pay €4,000 in fees for the academic year 2012-13 to a private business college, on behalf of your 18 year old dependent son. The course is part-time.

You are entitled to a tax credit of €4,000 – €1,125 (see (4A) below) = €2,875 at 20% = €575 when computing your tax liability.

If your total tax liability for that tax year, before taking into account payment of college fees is, say, €300, the reduction is limited to €300, i.e., the amount which reduces your tax liability to nil.

How is relief for qualifying fees given to a married couple?

(3) In the case of a jointly assessed married couple (section 1017), any fees paid by the non-claimant spouse are deemed to have been paid by the claimant spouse.

Example

You are a married couple jointly assessed to tax.

You are the principal earner and, as the person responsible for filing the couple’s tax return, you are the claimant of the relief.

Your spouse paid €12,000 college fees for your daughter who is a student at the Royal College of Surgeons.

For the purposes of the relief, you are deemed to have paid the fees paid by your spouse.

How is grant-aid deductible as part of qualifying fees?

(4) Any part of the college fee payment which has been subsidised (for example, by a grant or scholarship) or which has been refunded by the college does not qualify for tax relief.

How much of a claim for qualifying fees is disregarded?

(4A) For 2013 the first €2,500 of a claim which includes a full-time student is disregarded, increasing to €2,750 for 2014 and €3,000 for 2015 and later years. For 2013 the first €1,250 of a claim consisting entirely of part-time students is disregarded, increasing to €1,375 for 2014 and €1,500 for 2015 and later years.

Can approval for a course or college be withdrawn?

(5) If a college or course no longer meets the Department of Education and Science minimum educational standards, the Minister for Education and Science may write to the college withdrawing approval for the college and/or the course.

The notice of withdrawal must be published in Iris Oifigiúil.

What information must be provided with a claim for qualifying fees?

(6) A claimant must enclose a written statement from the qualifying college stating:

(a) that the college qualifies for relief under this section,

(b) the details of the course,

(c) the duration of the course,

(d) the fees paid for the course.

Can Revenue consult others in deciding whether a course qualifies?

(7) In deciding whether any course qualifies for relief, the Revenue Commissioners may consult with the Department of Education and Science.

Who produces the list of approved colleges and courses?

(8) On or before 1 July in each tax year, the Department of Education and Science must provide the Revenue Commissioners with a list of approved colleges and courses, and the fees for the academic years for each course that will commence in the forthcoming academic year.

Can qualifying fees relief be claimed twice?

(9) If relief is given for expenditure on college fees, relief may not be claimed on such expenditure under any other part of the tax code. In other words, relief cannot be claimed twice for the same expenditure.

If fees are refunded what must the student do?

(10) Where a claim for relief has been made and the fees are wholly or partly refunded the claimant must notify Revenue within 21 days of receipt of the refund.

Section 474 Relief for fees paid to private colleges for full-time third level education

Amendments

Section 474 repealed by Finance Act 2001 section 29(3). See section 473A.

Section 474A Relief for fees paid to publicly funded colleges in the European Union for full-time third level education

Amendments

Section 474A repealed by Finance Act 2001 section 29(3). See section 473A.

Section 475 Relief for fees paid for part-time third level education

Amendments

Section 475 repealed by Finance Act 2001 section 29(3). See section 473A.

Section 475A Relief for postgraduate fees

Amendments

Section 475A repealed by Finance Act 2001 section 29(3). See section 473A.

Section 476 Relief for fees paid for training courses

What is an approved FÁS course?

(1) A person who pays qualifying fees to a college approved by FÁS (an approved course provider) in respect of anapproved course in information technology or language skills being taken by the claimant or his/her dependant(spouse, child, or person for whom you are guardian), you may qualify for tax relief.

The course, which must not be postgraduate, must last at least two years, and lead to a certificate of competence.

The qualifying fees paid for the course must be:

(a) not less than €315, and

(b) not more than €1,270.

What relief is available on approved FÁS course fees?

(2) The claimant is entitled to a tax credit equivalent to the lesser of:

(a) the amount paid in respect of fees multiplied by the standard rate of tax (the appropriate percentage) for that tax year, or

(b) the amount which reduces his/her tax liability to nil.

The tax reduction may not be used to reduce tax withheld from annual payments made (section 16(2)).

The course must lead to a certificate of competence, not just a certificate of attendance.

Example

05.01.2012: You pay €800 in fees for the academic year 2012-13 (October 2012 to May 2013) to an approved course provider to learn business and French.

You are entitled to a tax credit of €800 at 20% = €160 when computing your tax liability for the tax year 2012.

If your total tax liability for the tax year, before taking into account payment of college fees, was €150, the tax reduction is limited to €150, i.e., the amount which reduces the tax liability to nil.

How is relief for course fees given for a married couple?

(3) In the case of a jointly assessed married couple (section 1017), any fees paid by the non-claimant spouse are deemed to have been paid by the claimant spouse.

Example

A and B are a jointly assessed married couple.

A is the principal earner and as the person responsible for filing the couple’s tax return is the claimant of the relief.

B paid €1,000 fees of their son C who is taking an approved training course.

For the purposes of the relief, A is deemed to have paid the fees paid by B.

Can tax relief be claimed for more than one course?

(4) tax relief may not be claimed for more than one course in the same tax year.

Claim for relief: Tax Briefing 34.

Is grant-aid deductible as part of fees?

(5) Any part of the fee payment which has been subsidised (for example, by a grant or scholarship) does not qualify for tax relief.

Who approves training courses?

(6) FÁS (An Foras Áiseanna Saothair) is the body responsible for approving courses. If a course is no longer approved, FÁS may write to the college withdrawing tax relief for the course.

Must FÁS notify Revenue of approved courses?

(7) FÁS must notify the Revenue Commissioners of any courses and course providers of which it approves and any courses that no longer qualify for approval.

In deciding whether any course qualifies for relief, the Revenue Commissioners may consult with FÁS.

Can relief for course fees be claimed twice?

(8) If relief is given under this section for course fees paid, relief cannot be claimed for the same payment under any other section. The same payment may not also qualify, for example, as a business expense.

When does relief for approved FÁS courses take effect?

(9) This section takes effect from a date to be approved by the Minister for Finance.

Section 477 Relief for service charges

Amendments

Section 477 spent for 2011 and later tax years.

Section 477A Relief for energy efficient works

Amendments

Section 477A repealed by Finance (No. 2) Act 2013 section 5(a)(i) comes into operation from 1 January 2014.

Section 477B Home renovation incentive

What definitions apply to the home renovation incentive?

(1) A contractor and a qualifying contractor are persons registered for VAT and who comply with their RCT obligations.

A qualifying residence is the claimant’s principal residence or a second hand residence acquired for use as the claimant’s principal residence. From 15 October 2014 it also includes a residence owned by the individual which is let under a tenancy registered with the PRTB or which is owned by the individual and intended to be let under such a tenancy. A rental unit is a building or part of a building to which the foregoing applies.

Qualifying work is work on the repair, renovation or improvement of the residence which is taxed at the 13.5% VAT rate.

The specified amount is 13.5% of the expenditure subject to a maximum of €4,050, i.e. VAT on a maximum expenditure of €30,000.

Can a building be converted into rental units?

(1A) Where qualifying work converts a residential building into more than one rental unit each unit will be a qualifying residence.

When must the expenditure be incurred?

(2) The expenditure must be incurred during the period from 25 October 2013 to 31 December 2016 when the building is or is intended to be the owner’s residence. Payments made between 25 October 2013 and 31 December 2013 are deemed to have been made in 2014.

When the building is or is intended to be rental units the expenditure must be incurred during the period from 15 January 2014 to 31 December 2015. Payments made between 15 October 2014 and 31 December 2014 are deemed to have been made in 2015.

Where planning permission is required work carried out between 1 January 2017 and 31 March 2017 will qualify provided the permission was received before 31 December 2016. Such work will be deemed to be carried out in 2016.

How is relief given?

(3)(a) Where an individual shows that he or she has incurred qualifying expenditure in a year income tax charged on the claimant in the following year will be reduced by the lesser of 50% of the specified amount and the amount which reduces the income tax to nil. The remainder of the specified amount is allowed in the year after that but not more than reduces the income tax for that year to nil.

(b) Any relief (excess relief) not used in the first two years due to being greater than the income tax liability for those years can be carried forward to later years until it has been used up.

(c) The maximum amount of relief is €4,050 (13.5% of €30,000)

(d) The minimum amount of expenditure on which relief will be given is €5,000 (which will give relief of €675).

(e) the individual must satisfy himself or herself that the contractor engaged to do the work is a qualifying contractor.

What must the contractor and Revenue do before work begins?

(4)(a) The contractor must provide Revenue with his own and the claimant’s details, a description the the work to be carried out, its estimated cost and duration including expected dates of commencement and completion. The amount of VAT must be specified and the LPT identification number of the property mus be provided. Where the property is residential units the number of such units must be advised.

(b) On recipt of the required information Revenue must notify the contractor if he is or is not a qualifying contractor and, if he is, so notify the claimant. The notifications will give a unique reference number to the work.

(b) If the work has commenced on or after 25 October 2013 but before an electronic system is available for providing information to Revenue the information must be provided within 28 days of the electronic system becoming available.

What must the contractor do on receipt of payment?

(5)(a) Not later than 10 days after receiving a payment the contractor must provide Revenue with his and the claimant’s details, the unique reference number for the work the amount and date of the payment and the amount of VAT included. The contractor must also give the claimant a statement showing the payment and the VAT.

(b) When the payment is received before the electronic system is available the details must be provided within 28 days of it becoming available.

What must the claimant do?

(6) On making a claim for relief the claimant must provide Revenue with-

(a) his or her details, the unique reference number for the work and the LPT identifying number. Details of any grants or insurance payments must also be given. and

(b) a declaration that the details reported to Revenue by the contractor are correct, that the work has been completed, that full payment has been made and that the property is occupied as the claimant’s only or main residence. Rental units must be occupied by a tenant within 6 months of the completion of the work.

How are grants and insurance payments treated?

(7) Grants received from State or public bodies or local authorities cause the payment referred to in subsection(5) to be reduced by 3 times the amount of the grant. Insurance payments will cause the payment to be reduced by the amount received.

Must Local Property Tax (LPT) be paid?

(8) A claimant must be LPT compliant in respect of the residence concerned and any other residential properties he or she owns.

How are married couples and civil partners treated?

(9) Where married couples or civil partners are jointly assessed expenditure by either spouse or partner is treated as expenditure by the claimant, i.e. the spouse or partner who makes the tax return.

How are contractors and claimants to communicate with Revenue?

(10) Communication is to be by electronic means through electronic systems to be provided by Revenue.

What happens if there are two or more claimants?

(11) If there are two or more claimants (other than spouses or civil partners) in respect of a residence the relief is apportioned by reference to the amount each contributes to the qualifying expenditure.

Can other reliefs be obtained?

(12) If any other deduction, relief or allowance is available for expenditure under the Tax Acts or the VATCA 2010 it cannot be claimed under this section. This provision does not apply to rental units.

Can the Revenue Commissioners delegate their authority?

(13) Yes. Anything required to be done by the Revenue Commissioners, other than making regulations, can be done by a Revenue official.

Can the Revenue Commissioners make regulations?

(14) Yes. The Revenue Commissioners may make regulations specifying how this section is to be implemented. Such regulations must be approved by Dáil Éireann.

Section 478 Relief for payments made by certain persons in respect of alarm systems

Amendments

Legislation spent or repealed

Section 480 Relief for certain sums chargeable under Schedule E

What is disturbance money?

(1)-(2) A full-time employee who receives a lump sum payment in compensation for:

(a) a reduction in future pay,

(b) a change in working conditions,

(c) a change of working location (“disturbance money”),

which is not taxed as a termination payment, may recompute his/her income tax liability for the year in which the payment is charged.

This relief is not given to a proprietary director or a proprietary employee, i.e., a director or employee of a company who beneficially owns, or is able to control more than 15% of the company’s ordinary share capital.

A claimant may recompute tax as:

(a) the tax that would have been payable had the employee not received the payment, plus

(b) the tax on the payment calculated using a special rate.

How is the special rate for disturbance payments calculated?

(3) The special rate to be applied to the payment is calculated by working out the additional tax that results from including only one-third of the payment in total income.

How is the disturbance payment taxed?

(4) The additional tax is divided by one-third of the payment to obtain the percentage rate to be used in calculating the tax on the payment.

Can the special rate give rise to a refund?

(5) After applying this relief, any tax found to be overpaid must be repaid.

The relief only applies to total income net of charges (sections 237, 238).

This relief reduced the effective tax rate on a lump sum which straddled the standard and higher rate bands. If one-third of the lump sum was included in the standard band, the entire lump sum would be taxed at the standard rate. Otherwise, part of the lump sum is taxed at the standard rate and part at the higher rate. The relief effectively extends the application of the lower rate band to the entire lump sum.

Section 480A Relief on retirement for certain income of certain sportspersons

What definitions apply to this relief?

(1) The basis period for a tax year is the accounts period the profits of which are used to compute your tax liability.

A relevant individual is an individual engaged in a specified professional sport who paid Irish tax and who is resident in the State or a n EEA or EFTA state in the year of retirement.

The relevant period is the 15 years that end with the year of retirement.

The relevant years are the 10 years within the relevant period specified by the claimant.

Who is a professional sportsperson?

(2) This relief applies to a relevant individual who is engaged in a specified occupation, and retires permanently from the sport. The sportpersons who may qualify are: athlete, badminton player, boxer, cyclist, footballer, golfer, jockey, motor racing driver, rugby player, squash player, swimmer and tennis player.

When can sportsperson relief be claimed?

(3) A sportsperson can claim the relief within 4 years of the end of the year of retirement.

Example

X, a professional footballer, retired on 30 June 2012. He is resident in Ireland for 2012.

His tax returns filed will the tax office show the following details

Year Income from participating in sport Advertising, sponsorship etc Total income
2003 50,000 60,000 110,000
2004 70,000 80,000 150,000
2005 100,000 200,000 300,000
2006 120,000 300,000 420,000
2007 100,000 50,000 150,000
2008 70,000 75,000 145,000
2009 80,000 85,000 165,000
2010 90,000 95,000 185,000
2011 85,000 60,000 145,000
2012 70,000 20,000 90,000

X can claim relief for all these years at his marginal rate.

Does the 4 year time limit for repayments of tax apply?

(4) The time limit in section 865(4) will not prevent repayments for earlier years where a valid claim is made under this section.

At what rate is sportsperson relief given?

(5) The relief is given by means of a 40% deduction from your gross receipts before expenses for the tax year in question.

What income qualifies for sportsperson relief?

(6) The deduction is only allowed against receipts which derive “wholly and exclusively” from participating in the sport, including:

(a) In the case of an employee, all salaries, fees, wages and perquisites paid to you for participating in the sport (for example, footballer’s salary).

(b) In the case of a professional (for example, a golfer), all match or performance fees, prize moneys and appearance fees paid for participating in the sport.

The following do not count as deriving “wholly and exclusively” from participating in the sport:

(a) Sponsorship moneys.

(b) Receipts from advertising, media promotion, or image rights.

How is sportsperson relief claimed?

(7) A sportsperson resident in Ireland can claim the relief in his or her tax return.

A sportsperson resident in another EEA or an EFTA state must submit a claim to Revenue.

Can sportsperson relief give rise to a repayment of tax?

(8) Relief is given by repayment of tax for the relevant tax years.

Any tax repayment arising does not carry interest.

This relief cannot be used to create or augment a loss for any of the tax years in question.

Is sportsperson relief taken into account when calculating relevant earnings?

(9) The relief given by this section is ignored in calculating net relevant earnings for the purposes of retirement annuity relief (section 787) for the self-employed.

Can sportsperson relief be withdrawn?

(10) Relief given by this section is withdrawn retrospectively if the sportsperson recommences his/her sport activity. The tax repaid is collected by Case IV assessment.

Section 481 Relief for investment in films

What is a qualifying film?

(1) An eligible individual is an individual employed by a qualifying company on production of a qualifying film.

A relevant investment (see below) in a film production company, i.e., a qualifying company (see below) which produces a qualifying film (see below), may qualify for tax relief.

A qualifying company is a company which:

(a) is incorporated and resident in the State, or trades through a branch or agency in the State,

(b) exists solely to produce only one qualifying film, and

(c) does not contain the words “Ireland”, “Irish”, “Éire”, “Éireann” or “National” in its name, in its business name registered in Ireland, or in its business name under the law of the country where it is incorporated.

A film is only regarded as a film for the purposes of film relief if it comes within the categories listed in (2A). Advertisements do not qualify for relief.

A qualifying film is a film which has been given a certificate by the Minister for Tourism, Culture and Sport (the Minister), certifying that the film falls within the categories listed in (2A).

The qualifying period is the accounting period of a producer company whose filing deadline precedes the application for a film certificate.

A film corporation tax credit is 32% of the lower of

(a) the eligible expenditure,

(b) 80% of the total production cost, and

(c) €70,000,000.

A producer company is a company resident in the State or resident in an EEA State that carries on business in the State through a branch or agency. Not later than the qualifying period commences it must carry on a trade of producing films on a commercial basis for public exhibition or broadcast. It must not be, or be connected to, a broadcaster or a company that transmits films over the internet. It must hold all the shares in the qualifying company. It must have delivered a tax return for the qualifying period to the Collector General.

In each case, the purpose of the investment is to enable the film company to produce a film for which Revenue are satisfied that a formal application for certification, containing all the necessary information, has been made by the film company.

An investment does not qualify if there is any provision for its repayment (other than repayment in the event that the film does not received certification).

The film company must use the investment to make a qualifying film within two years of receiving it.

Example

Your company, X Ltd, is incorporated and resident in Ireland. The company was specially formed to produce and distribute “The Story of X”, a film which is to be shot in Ireland.

X Ltd is a qualifying company.

Assume that the film meets the conditions and receives a certificate. The film is a qualifying film.

The producer company (the parent of X Ltd) can apply for film relief. This will allow the producer company to obtain a film corporation tax credit.

What rules apply to film relief certificates?

(2) The following rules apply in relation to film certificates:

(a) The Minister for Arts, on request by Revenue following an application by a producer company for a certificate authorise Revenue to issue a certificate in relation to that film.

(b) In considering whether to give a certificate, the Minister must have regard to:

(i) the categories of film eligible for certification within (2A), and

(ii) the contribution the film is expected to make to the development of the Irish film industry and/or the promotion of Irish culture,

What conditions apply to film relief certificates?

(2A) The following are the conditions governing the issues of certificates:

(a) Revenue may issue a certificate to an applicant producer company stating that a film to be produced by the company is a qualifying film.

(b) Revenue may not issue a certificate unless

(i)they have been authorised to do so by the Minister for Arts, Sports and Tourism,

(ii) the producer company, the qualifying company, any company controlled by the producer company and any person able to control 15% of either company is in compliance with all their tax obligations, and

(iii) the eligible expenditure is €125,000 or more, and

(iv) the total cost of the production is €250,000 or more.

(c) Revenue are not obliged to issue a certificate, and where shooting (including animation drawing, model movement) has begun, they must not issue a certificate.

(d) The application for a certificate must be made on the official Revenue form.

(e) Revenue must examine all aspects of a producer company’s proposal when considering whether to grant a certificate.

(f) Revenue may refuse to issue a certificate if they are not satisfied with any aspect of an application, in particular:

(i) if they have reason to believe the proposed expenditure is inflated, or

(ii) they are not satisfied with the proposed corporate structure because

(I) it has no commercial rationale,

(II) it would hinder Revenue in verifying compliance with the relief.

(g) A certificate may include conditions imposed by Revenue or specified in the Minister’s authorisation, and Revenue must specify conditions covering:

(i) the quantum of the specified amount and the timing and manner of its payment,

(ii) the employment and responsibilities of the producer and the personnel to ensure the film gets produced,

(iii) the amount of the film corporation tax credit,

(iv) The minimum to be spent on production employment and related goods and services.

(v) Financing of the film.

(h) Having consulted with the Minister, Revenue may by written notice to the producer company, amend, revoke or add to the conditions in a certificate and the revised certificate then applies with the changes incorporated.

Can Revenue consult outside experts for the purposes of film relief?

(2B) In carrying out their functions in relation to film relief, Revenue may:

(a) consult with any person or body of persons of assistance to them, and

(b) notwithstanding official secrecy, disclose any details in the company’s application which they consider necessary in relation to the consultation.

What prevents a company qualifying for film relief?

(2C) A company is not regarded as a producer company for film relief purposes if:

(a) It does not notify Revenue within 7 days of first incurring eligible expenditure.

(b) The film financing is provided a person registered or operating in a non-EU or non-treaty country, or funds are channelled through such a territory unless approved by Revenue.

Revenue may seek any information they consider appropriate in relation to the film’s financing and its financiers.

(c) It does not provide, upon request by Revenue, evidence to vouch each item of expenditure in the State whether by the film company or one of its subcontractors. In this regard, evidence includes the cash receipts book, the cheque payments book, the sales book, the purchases book, the assets and liabilities register, and the asset disposals record (section 886).

(d) It does not, within the time period specified in regulations:

(i) Notify Revenue in writing of the date on which film production is completed.

(ii) Provide Revenue and the Minister with copies of the film as detailed in the regulations.

(iii) Provide Revenue with a compliance report, in the manner specified in regulations, which satisfies Revenue that:

(I) all conditions relating to qualification for film relief have been met, and

(II) any conditions attaching to the certificate have been fulfilled.

(e) the company ceases to carry on its trade within 12 months of the compliance report,

(f) unless the company enters into a contract with the qualifying company and provides it with an amount not less than the specified amount,

(g) unless the company-

(i) enters into a contract with the qualifying company in relation to the production […]14 of the qualifying film, and

(ii) provides an amount not less than the specified amount to the qualifying company,

and

(h) unless an amount not less than the eligible expenditure is spent on the production of the film.

Can a foreign-financed film qualify for relief?

(2CA) The disallowance of film relief in cases where the finance is sourced from a non-EU or non-treaty country is itself disapplied (i.e., relief is allowed) where Revenue approve the financing arrangements.

Revenue must not approve film financing unless:

(i) the financing relates to a qualifying film, or filming in a non-EU or non-treaty country,

(ii) the film company requests approval before the financial arrangements are put in place,

(iii) they are satisfied that the film company will provide records that allow them to verify the amount of expenditure on production of the film in a non-EU or non-treaty country, and

(iv) they are satisfied that it is appropriate to give approval.

Revenue may seek any information they consider appropriate in relation to the film’s financing and its financiers.

If Revenue approve the financing, expenditure on such financing does not count as expenditure on production employment and related goods, services, and facilities.

Can Revenue revoke film relief?(2D) Revenue may by written notice served by registered post revoke a company’s certificate

where:

the producer company or the qualifying company breaches any of the conditions of the certificate issued to the producer company under subsection 2A.

Can Revenue make regulations governing film relief?

(2E) Revenue, with the consent of the Minister for Finance and the Minister for Arts, Sports and Tourism, must make regulations governing the administration of film relief. Those regulations may provide for:

(a) The application for certification and the information and documents to be provided with the application.

(b) The categories of film eligible for certification.

(c) The form in which the application is to be made.

(d) The records that a producer company and a qualifying company must maintain and provide to Revenue.

(e) The period for which, and the place at which, such records must be kept.

(f) The time within which a producer company must notify Revenue of the completion of the film’s production.

(g) The time within which, and the format and number of copies of, a qualifying film must be provided to Revenue and the Minister for Arts, Sports and Tourism.

(h) The form and content of the compliance report to Revenue. The manner in which it is to be made and verified, the documents to accompany the report, and the time within which it should be provided.

(i) The type of expenditure which Revenue may accept as expenditure on the production of a qualifying film.

(j) The minimum to be spent on goods, services and facilities, the place in which they are provided and the location of the supplier.

(k) The currency exchange rate to be applied to the film production expenditure.

(l) The criteria to be considered by the Minister in relation to the categories of film eligible for certification and the expected contribution of the film to Irish culture, when deciding to authorise Revenue and any conditions attaching to such authorisation. This also covers information required or this purpose to be included in the application form.

(m) Revenue approval of film financing arrangments.

(n) Revenue approval of the minimum to be spent on employment in the film’s production.

(o) governing when the credit may be paid by Revenue to the producer company.

The regulations are contained in the Film Regulations 2008 (SI 357/2008).

What happens if a film company does not file a compliance report?

(2F) If a producer company does not file a compliance report within six months of the film’s completion, the director or secretary of the film company (specified relevant person) must file the report within a further two months.

How is film investment relief given to a company?

(3) The corporation tax of the producer company is reduced by the amount of the specified credit. If the amount of the specified credit exceeds the corporation tax due the excess will be paid by Revenue to the company.

Example

Z Ltd has profits for tax purposes as follows:

”Trading profits” €11,000,000. Potential corporation tax at 12.5%” €1,375,000]

Assume that Z Ltd incurs €5m production costs on a qualifying film. The calculation becomes:

the credit allowed is 80% of €5m = €4m @32% = €1,280,000.

A refund of tax will be received reducing the liability to

€1,375,000 – €1,280,000 = €95,000

How are overpayments treated?

(3A)(a) Any amount payable by the Revenue Commissioners may be offset against outstanding taxes;

(b) a claim in respect of a specified amount is treated as a claim for a credit for the purpose of tax-geared penalties;

(c) an unauthorised payment can be recovered by charging the company, any director or any 15% plus shareholder to tax under Sch D, Case IV on an amount equla to four times the unauthorised amount if the company is assessed or 100/40 of the amount is an individual is assessed.

(d) an unauthorised payment can arise if the Revenue Commissioners revoke a certificate or the company fails to comply with any of the conditions or obligations imposed by this section;

(e) an assessment in respect of a specified amount is liable to interest on late payment from the date the overpayment was made.

How is a payment by a producer company to a qualifying company treated?

(3B)(a) A payment in accordance with subsection 2(c)(g)(ii) cannot be deducted in arriving at taxable profits or procure any tax advantage (other than film relief) or be treated as income of the qualifying company;

(b) if the qualifying company fails to repay the amount to the producer company the producer company cannot claim the amount against its profits;

(c) the producer company and the qualifying company may not be treated as a group for purposes of group relief;

(d) a CGT loss cannot be claimed by a producer company on the disposal of shares in a qualifying company;

(e) the parent company exemption under Section 626B shall not apply to a disposal by a producer company of shares in a qualifying company;

(f) claims for “negligible value” cannot be made by a producer company in respect of its shares in a qualifying company.

When does the relief end?

(3C) No credit may be paid after 31 December 2020.

Can Revenue delegate their powers in relation to film relief?

(22A) The Revenue Commissioners may delegate their powers under this section to an authorised Revenue officer.

Must film relief regulations be passed?

(23) Regulations made in relation to film relief must be laid before Dáil Éireann. The regulations are annulled if not passed within 21 days of being laid before the Dáil, but anything done under the regulations while they were in force remains valid.

Section 482 Relief for expenditure on significant buildings and gardens

What are significant buildings?

(1) A person (the claimant) who incurs:

(a) qualifying expenditure

(i) on the repair, maintenance or restoration of an approved building, i.e., a building approved by the Minister for Arts as being of significant historic, scientific, architectural or aesthetic interest, (including the building’s gardens and grounds),

(ii) of up to €6,350 in a chargeable period on the repair or maintenance of an approved object (see (6)), the installation of a security alarm, or the provision of public liability insurance for the approved building, or

(b) relevant expenditure

(i) on the maintenance or restoration of an approved garden, i.e., a garden of significant horticultural, historic, scientific, architectural or aesthetic interest (that is not part of a building within (a)),

(ii) of up to €6,350 in a chargeable period on the repair or maintenance of an approved object in, the installation or replacement of a security alarm in, or the provision of public liability insurance for, an approved garden,

he/she owns or occupies, may be entitled to tax relief.

The tax relief, if any, is given on expenditure funded by the claimant, i.e., net of grants, subsidies and insurance or compensation receipts.

It is a condition of the relief (see (5)) that the heritage property be open to the public for not less than 40 days during May to September each year inclusive, and 10 of those 40 days must be weekend days (Saturday or Sunday).

How is significant buildings relief given?

(2) The relief is given by treating the expenditure incurred as a loss in a separate trade, which can then be deducted in arriving at total income (section 3).

Expenditure does not qualify for relief unless details of the property’s:

(a) name and address,

(b) opening days and times, including the times if any as a tourist accommodation facility, i.e., a hotel or guest house facility,

have been given to the National Tourism Development Authority for tourism promotion purposes for the shortest of:

(a) the period consisting of five chargeable periods preceding the period in which the claim is made,

(b) the period consisting of chargeable periods since the property was bought or occupied,

(c) the period consisting of chargeable periods since the property was approved by Revenue,

(d) the period consisting of chargeable periods since 23 May 1994.

Only capital expenditure properly attributable to building work carried out in a chargeable period qualifies for relief.

Can unrelieved significant buildings expenditure be carried forward?

(3) Unrelieved qualifying expenditure within (2) incurred in a chargeable period may be carried forward as if it were a loss in subsequent chargeable period. If relief cannot be given in that period, it may be carried forward to the next chargeable period. Relief carried forward in this manner must be used up in priority to any current relief in the subsequent chargeable period, taking relief carried forward from earlier periods before relief carried forward from later periods.

Can expenditure on significant buildings be claimed twice?

(4) Expenditure on a house or garden that was relieved under another section of the legislation cannot also qualify for significant buildings relief.

What is “reasonable access”?

(5) A house or garden does not qualify for relief unless the public is allowed reasonable access:

(a) being open to the general public for at least 60 days a year (40 of which are during the period 1 May to 30 September) for not less four hours per day,

(b) access which is reasonably priced (i.e., not calculated to drive visitors away),

(c) access to a substantial part of the property (i.e., not just one or two rooms).

Not less than 10 of the 40 “summer month” opening days must be weekend days (Saturday or Sunday).

The 60 and 40 day limits will not be broken if the property is temporarily closed for repairs or maintenance.

From 8 February 2012, the 40 day period must include National Heritage Week (see www.heritageweek.ie). National Heritage Week 2012 runs from 18 August 2012 to 26 August 2012.

Reasonable access may take the form of using the property as a hotel or guest house facility. Such a property must be open for such use for at least six months of the year, four of which must be during May to September.

Revenue must be satisfied that as regards reasonable access:

(a) notice has been publicised by way of advertisement, leaflets or press notice,

(b) details are visibly and legibly displayed near the public entrance to the building, and

(c) conditions do not act as a disincentive to public access.

The Minister for Arts may write to the owner or occupier of a house or garden he/she no longer considers to be of significant historic, scientific, architectural or aesthetic interest to revoke the property’s status.

The Revenue Commissioners may write to the owner or occupier of a house or garden to which reasonable access is no longer given to the public to revoke the property’s status from the time they consider reasonable access to have ceased.

Any relief given in the five years preceding the revocation date is then withdrawn and any assessments or adjustments necessary may be made to withdraw relief already given.

For administrative convenience, Revenue may revoke their determination of a property’s status and replace it with a new determination which will apply from the date of the first determination.

Can objects can qualify for significant buildings relief?

(6) An approved object is an object (including a picture, sculpture, print, book, manuscript, piece of jewellery or furniture) owned by the owner or occupier of the significant building and:

(a) which is determined by the Minister for Arts to be of significant national, scientific, historical or aesthetic interest, and

(b) which is determined by Revenue to be an object to which the public have reasonable access and reasonable viewing facilities, i.e.:

(i) in the case of a hotel or guest house, unless temporarily removed for repair or restoration, it must be on view to the public in a public place in the building, and

(ii) in the case of any other approved building, on the same days and at the same times the building is open to the public, for a moderate admission fee.

If, after being determined to be an approved object, the object deteriorates so that it is no longer of significant national, scientific, historical or aesthetic interest, the Minister may, by written notice to the owner or occupier of the building, withdraw the object’s approval.

The Revenue Commissioners may write to the owner of an object to revoke the object’s approved status from the time they consider reasonable access ceased if:

(a) reasonable access is no longer given, or reasonable viewing facilities are no longer provided,

(b) the object is no longer owned by the person to whom relief was given.

Any relief given in the two years preceding the revocation date is then withdrawn and any assessments or adjustments necessary may be made to withdraw relief already given.

Can an authorised Revenue officer inspect a significant building?

(7) An authorised Revenue officer may visit the house, garden or object to inspect the repair, maintenance or restoration work for which relief is being claimed. The officer may also check whether reasonable access is genuinely available to the public.

The authorised officer must produce authorisation on request.

Any person who obstructs an authorised officer is liable to a fine of up to €630.

Must reasonable access include weekend days?

(8) Expenditure incurred does not qualify for relief unless at least 10 of the property’s 40 “summer month” opening days are weekend days (Saturday or Sunday).

When does relief for gardens commence?

(9) In the case of garden expenditure (relevant expenditure), the relief applies to expenditure incurred on or after 6 April 1993.

How is a claim for significant buildings relief made?

(10) A claim for significant house or garden relief must be made on the official form together with the necessary supporting statements, invoices, etc.

Can significant building losses be used against other corporate income?

(11) Sections 396A and 420A “ring-fenced” trading losses, i.e., they ensured that trading losses could not be offset against non-trading income. Technically, these sections could also have had the effect of “ring-fencing” a “loss” under this section (since section 482 relief is treated as a loss in a separate trade).

This subsection disapplies sections 396A and 420A to section 482 losses, and thereby ensures that a section 482“loss” can be used against non-trading income.

Section 483 Relief for certain gifts

Is relief available in respect of a gift to the Minister for Finance?

(1)-(3) A person who donates money to the Minister for Finance for use towards public expenditure may, if the Minister accepts the donation, deduct the donation from total income for the year in which the gift was made.

How is a corporate gift to the Minister for Finance treated?

(4) A company donation is treated as a loss incurred in a separate trade for the accounting period in which the gift was made.

Can a loss arising on a gift be used against non-trading income?

(5) Sections 396A and 420A “ring-fenced” trading losses, i.e., they ensured that trading losses could not be offset against non-trading income. Technically, these sections could also have had the effect of “ring-fencing” a “loss” under this section (since section 483 relief is treated as a loss in a separate trade). This subsection disapplies sections 396Aand 420A to section 483 losses, and thereby ensures that a section 483 “loss” can be used against non-trading income.

Section 484 Relief for gifts for education in the arts

Amendments

Section 484 repealed by section 848A(13), as inserted by Finance Act 2001 section 45(1).

Section 485 Relief for gifts to third-level institutions

Amendments

Section 485 repealed by section 848A(13), as inserted by Finance Act 2001 section 45(1).

Section 485A Relief for gifts made to designated schools

Amendments

Section 485A repealed by section 848A (13), as inserted by Finance Act 2001 section 45(1).

Section 485B Relief for gifts to the Scientific and Technological (Education) Investment Fund

Amendments

Section 485B repealed by section 848A(13), as inserted by Finance Act 2001 section 45(1).

Section 485C Interpretation (Chapter 2A)

High Income Individuals’ Restriction – income chargeable to tax at the standard rate in joint assessment cases: Tax Briefing Issue 75 – 2009

How does the high earner restriction work?

(1) This Chapter restricts the extent to which an individual can use specified reliefs to reduce tax liability. If a person’sadjusted income exceeds €125,000 (the income threshold amount), the maximum reliefs and exemptions (aggregate of the specified reliefs) he/she can claim is the higher of:

(a) €80,000 (the relief threshold amount), and

(b) 20% of his/her total income.

Example

You are a novelist entitled to artistic exemption (section 195).

In 2012, you earned €1m in royalties from creative works. You have no other income.

The maximum relief that you can claim is €200,000 (€1,000,000 x 20%).

Can carried forward capital allowances reduce current year income?

(1A)

(a) Where carried forward capital allowances are used to reduce a balancing charge, such allowances are not subject to the high earners restriction.

(b) any amount by which a balancing charge has been reduced is not added to income to arrive at adjusted income..

Are capital allowance on leased plant and machinery restricted?

(1B) Capital allowances and balancing allowances available to lessors of plant and machinery are subject to the high earners restriction unless the lessor is an active trader or an active partner in a trading partnership.

What constitutes use of a specified relief?

(2) The use of a specified relief includes:

(i) making an allowance,

(ii) giving or allowing a deduction,

(iii) allowing a deduction or set off against income,

(iv) giving relief by repayment or discharge of tax,

(v) exempting of income, profits or gains,

(vi) disregarding of income, profits or gains.

In relation to (v) and (vi), “income, profits or gains” means “income, profits or gains” before the exemption or disregarding take place.

In what order are reliefs given?

(3) This sets out the priority in which reliefs are to be given:

(a) Capital allowances not included in the list of specified reliefs (for example, normal industrial and building writing down allowance, or plant and machinery writing down allowance) are given in priority to specified reliefs.

(ab) A rental income deduction is to be given in priority to a specified relief.

(ac) A deduction from total income which is not a specified relief is to be given in priority to a deduction which is a specified relief.

(b) Losses not included in the list of specified reliefs are given in priority to specified reliefs.

(c) Double rent allowances are only to be given after any normal deductions to which the taxpayer is entitled in computing his trading or professional profits.

What are specified reliefs?

(4) The specified reliefs are listed in Schedule 25B. They broadly cover:

(a) property tax incentives,

(b) exemptions in respect of artistic income, stallion and greyhound fees, and patent royalties,

(c) relief for donations,

(d) investment incentives (BES/EIIS relief, film relief and interest relief on borrowings used to invest in a company or partnership).

The rules in Schedule 25C set out the method of calculating how relief forward from 2006 is treated as relating to specified reliefs.

Section 485D Application (Chapter 2A)

High Income Individuals’ Restriction – income chargeable to tax at the standard rate in joint assessment cases: Tax Briefing Issue 75 – 2009

When does the high earner restriction take effect?

The restriction of reliefs takes effect where:

(a) a person’s adjusted income is greater than the income threshold amount, and

(b) the aggregate of specified reliefs used in the tax year exceeds the relief threshold amount.

Example

See example to section 485C(1).

Section 485E Recalculation of taxable income for purposes of limiting reliefs

High Income Individuals’ Restriction – income chargeable to tax at the standard rate in joint assessment cases: Tax Briefing Issue 75 – 2009

How does the high earner restriction work?

The high earner restriction works by replacing the normal taxable income figure with an increased figure, determined by the formula:

T + (S – Y)

where-

T is taxable income for the tax year,

S is the figure for specified reliefs for that tax year, and

Y is the relief threshold amount, i.e., €80,000, or 20% of your adjusted income for the year, whichever is greater.

Put simply, the specified reliefs (S) are added back to the figure for taxable income (T).

Example

Taxable income, T = €300,000

Specified reliefs, S = €400,000

Y is €140,000, i.e., the greater of €80,000 and 20% of €700,000.

Revised taxable income is: €300,000 + (€400,000 – €140,000) = €560,000.

Section 485F Carry forward of excess relief

Is relief disallowed by the high earner restriction lost?

(1) Relief disallowed by the high earner restriction can be carried forward for use in the next tax year.

Can unused carried forward relief be further carried forward?

(2) If carried forward relief is not used in the next tax year, it is carried forward to the following tax year, and so on for each year until it is used up.

In what order is carried forward relief given?

(3) Where relief has been carried forward under (1) or (2):

(a) all other reliefs are to be taken in priority to carried forward relief,

(b) after such relief has been taken, carried forward relief may be taken, with priority for relief carried forward from earlier years.

Section 485FA Adaptation of provisions relating to taxation of married persons

High Income Individuals’ Restriction – income chargeable to tax at the standard rate in joint assessment cases: Tax Briefing Issue 75 – 2009

How does the high earner restriction apply to a married couple?

This section deals with the extent to which a married individual can use specified reliefs to reduce his/her taxable income. It is designed to ensure that a spouse whose income is below the threshold is not subjected to the restriction by virtue of the income aggregation rules that apply for married couples.

In such a case, the following rules apply:

(i) Chargeable tax, which is generally defined as the tax arising in respect of total income (section 3), is construed as the tax relating to taxable income, including spouse’s income.

(ii) The general joint assessment rule, whereby the husband is assessed in respect of the income of both spouses (section 1017), is to be read as relating to the taxable income of both spouses.

(iii) The rule whereby the wife may be assessed in respect of the income of both spouses (section 1019), is to be read as relating to the taxable income of both spouses.

(iv) The rule whereby the wife is to continue to be the assessed person in respect of the couple’s total income is to be interpreted as relating to their taxable income.

(v) The rule whereby the wife, in the context of a withdrawal of an election for single (section 1018(4)) or separate assessment (section 1023), continues to be assessed in respect of their joint total income is to be interpreted as relating to their taxable income.

(vi) Where a couple are jointly assessed on the husband or the wife for a tax year:

(I) To the extent that the benefit flowing from tax deductions exceeds the income tax chargeable on the assessable spouse’s income, the balance may be used to reduce the tax charge on the spouse’s income.

(II) To the extent that the benefit flowing from tax deductions exceeds the income tax chargeable on the non-assessable spouse’s income, the balance may be used to reduce the tax charge on the assessable spouse’s income.

In other words, a jointly assessed married couple retains entitlement to married tax bands and tax credits. A separately assessed couple can still transfer unused tax rate bands and reliefs the to the lower earning spouse.

Section 485FB Requirement to provide estimates and information

Are high earners subject to self-assessment?

(1) Revenue will gather information on the impact of the specified relief restrictions by deeming each person affected to be a chargeable person for self-assessment purposes, and requiring each such person to complete a prescribed form.

Are PAYE high earners subject to self-assessment?

(2) A person subject to the specified relief restrictions is deemed to be a chargeable person for self-assessment purposes. This rule applies to a person who would not otherwise be subject to self-assessment, for example, a PAYE employee.

What additional form must a high-earner complete?

(3) A high earner claiming specified reliefs must file, together with his/her self-assessment return, a statement, in the prescribed form setting out:

(a) the aggregate of the specified reliefs,

(b) how those amounts have been determined,

(c) the estimates in (4),

and any other details that Revenue may require.

What estimates must a high earner file?

(4) The estimates a high earner must file are of:

(a) taxable income, but on the basis that the restriction for specified reliefs (section 485F) did not exist, i.e. taxable income before applying any restriction for specified reliefs,

(b) taxable income as restricted (section 485E),

(c) the tax assessable as a result of restricting the reliefs.

The estimates must be made to the best of the claimant’s knowledge and belief.

Must a married couple provide a combined statement?

(5) A husband and wife or civil partners subject to the specified relief restrictions must prepare separate statement on one prescribed form called a combined statement.

Can Revenue make enquiries regarding the high earner restriction?

(6) A Revenue officer may make enquiries, or take actions he/she considers necessary to determine:

(i) the accuracy of a statement of specified reliefs, or

(ii) whether an individual who has not provided such a statement is a person who ought to have done so.

In relation to (ii), he/she may by written notice require the individual to provide, within 14 days of the notice, a breakdown of each provision under which the individual is claiming relief for a tax year.

This latter rule may only be enforced in relation to an individual who has already filed a self-assessment return and whose gross income (before deductions, allowances and reliefs) exceeds the income threshold amount.

Can a chargeable person be required to file early?

(7) A chargeable person may not be requested to file a statement earlier than the self-assessment return filing date.

A certificate signed by a Revenue office stating that a person is a chargeable person, or that a statement has not yet been received, is evidence, until the contrary is proved, that he/she is a chargeable person and that no statement was received from him/her.

Such a certificate may be tendered in evidence without proof, and is deemed, until the contrary has been proved, to have been signed by the officer.

What penalty applies for failure to file a return of specified reliefs?

(8) The penalties that apply for failing to file a return also apply for failing to file a statement of specified reliefs.

Section 485G Miscellaneous (Chapter 2A)

Can a high earner incapacitated person obtain a refund of DIRT?

(1) The high earner restriction does not affect the right of a permanently incapacitated person to obtain a refund of DIRT.

Are balancing adjustments affected by the high earner restriction?

(2) A person is deemed to have received all specified reliefs to which he/she is entitled for a tax year, even though such reliefs have been restricted by section 485E. This is because the restricted reliefs are “pooled”, carried forward (where applicable), and allowed in future years outside of the capital allowances system.

The calculation of “the amount unallowed”, for the purposes of a balancing adjustment, ignores the restriction of specified reliefs.

If a balancing charge is greater than it would otherwise have been, because the restriction in specified reliefs regards all allowances that could have been made as having been made, the balancing charge is reduced. The reduction brings the balancing charge back to what it would have been in the absence of restriction.

Restricted reliefs may only be carried forward as part of the “pool” of restricted reliefs. Otherwise, relief could conceivably be carried forward twice – as part of the “pool” and also in accordance with the particular relief.

The reduction in the balancing charge is calculated as the lesser of:

(a) the reliefs lost under the “specified reliefs” restrictions,

(b) the excess relief (see (1)) in the tax year in which the balancing charge arises, plus any excess relief carried forward to that year.

How is exempt income treated for the purposes of the high earner restriction?

(3) “Exempt” income is not exempt, to the extent to which it is included in restricted reliefs. For example, artistic income in excess of the threshold is now effectively taxed at 20%. The legislation expresses it in this way:

(a) If an individual’s taxable income, for the purposes of the specified reliefs (e.g., artistic income), exceeds his/her total income, the excess is charged under Case IV. However:

(i) bringing such income into charge for the specified relief calculation does not bring such “income” into the general calculation of total income, and

(ii) the resulting Case IV “income” is itself disregarded in determining whether an individual breaks the threshold – this is to prevent an “infinite loop”.

(b) Where an individual is assessable to income tax for a tax year, the assessment must, if applicable, include the Case IV “income” mentioned in (a). The income assessed in this manner, together with interest accruing if it remains unpaid, may be collected and recovered as if it were income tax.

(c) This rule applies where an individual would not otherwise be assessable to tax for a tax year (for example, because his/her income consists entirely of artistic income). In such a case, a Revenue officer must make as assessment to the best of his/her judgement. The income tax collection and recovery rules then apply in relation to the amount assessed.

Does the high earner restriction affect the calculation of total income?

(4) The income calculation is to be made as if the high earner restriction did not apply.

Do the income exemption limits apply to high earners?

(5) The income exemption limits do not apply to high earners.

Section 486 Corporation tax: relief for gifts to First Step

Amendments

Section 486 repealed by section 848A(13), as inserted by Finance Act 2001 section 45(1).

Section 486A Corporate donations to eligible charities

Amendments

Section 486A repealed by section 848A(13), as inserted by Finance Act 2001 section 45(1).

Section 486B Relief for investment in renewable energy generation

What is a renewable energy project?

(1) A relevant investment in a qualifying company which undertakes a qualifying energy project, i.e., a renewable energy project that has been certified by the Minister for Public Enterprise, may qualify for tax relief. In the following commentary, the qualifying company is referred to as a renewable energy company.

A renewable energy project is a project in one of the following technology categories:

(a) solar power,

(b) wind power,

(c) water power,

(d) biomass.

The term includes a project successful in the Third Alternative Energy Requirement Competition initiated by the Minister for Communications, Energy and Natural Resources.

A relevant investment means a non-refundable investment made by a company on its own behalf:

(a) in new ordinary shares (fully paid up ordinary shares with no preferential rights to income or capital), of aqualifying company, i.e., a company incorporated and resident in the State which exists solely to undertake a qualifying energy project,

(b) during the qualifying period, i.e., the period beginning on the date this section comes into effect and ending on the 31 December 2014,

(c) to enable the qualifying company to undertake a qualifying energy project,

(d) which is used within two years of its receipt by the qualifying company to undertake the project.

How does a company raise finance for a renewable energy project?

(2) The Minister for Public Enterprise may give a certificate to an energy company stating that a renewable energy project to be undertaken by the company is a qualifying energy project and therefore qualifies for relief under this section.

The certificate may list conditions to be fulfilled by the renewable energy company.

The Minister for Public Enterprise may amend or revoke a certificate’s conditions at any time by writing to the renewable energy company.

If the qualifying company fails to meet any of the conditions in the certificate, the investor’s relief is automatically withdrawn, and the Minister for Public Enterprise may write to the company by registered post to revoke the certificate.

Can a company invest in a renewable energy project?

(3) An investor company can obtain relief for investing in a renewable energy project by deducting the amount of the investment (the relevant deduction) from total profits for the accounting period in which the investment was made. If the amount of the investment exceeds the profits for that period, the excess may be carried forward to a later accounting period.

What is the maximum annual relief for investment by a personal finance a renewable energy company can raise?

(4) The maximum tax-relieved finance that can be raised by a renewable energy company is €12,270,000 if the total amount invested by investor companies in any 12 month period ending on the anniversary of the commencement date for this section exceeds €12,270,000.

The inspector, or on appeal the Appeal Commissioners, must determine how the limit is to be apportioned among the corporate investors, if necessary, by apportioning it among the investors in proportion to their respective investments.

What is the maximum renewable energy relief claimable by an investor company?

(5) If the total amount invested by a corporate investor (or connected companies) in any one renewable energy company exceeds the lower of:

(a) €9,525,000, or

(b) half of the project’s relevant cost, i.e., the total capital expenditure on the project net of grants, and net of the cost of any land used for the project,

the investor’s relief is limited to the lower figure.

When can relief for investment in a renewable energy project be claimed?

(6) Relief in respect of an investment may be claimed at any time after the investment payment has been made, provided the payment qualifies as a relevant investment (see (1)) and all other conditions for relief have been met.

Relief is withdrawn if:

(a) at any time after the investment was made, it transpires that the investor company was not entitled to the relief,

(b) the shares in the renewable energy company are disposed of within five years of the date on which they were paid for.

Must the investor have a certificate for the investment?

(7) An investor’s claim for relief must be accompanied by a certificate issued by the energy company stating that all of the investment conditions (see (1)) have been met.

REG 3 certificate: Tax Briefing 37.

What information must a renewable energy company provide to Revenue?

(8) The renewable energy company must also provide the Revenue Commissioners with:

(a) a statement confirming that all of the investment conditions have been met,

(b) a copy of the certificate issued to the company by the Minister for Public Enterprise,

(c) any other information that Revenue may reasonably require.

Can a renewable energy company issue certificates without Revenue approval?

(9) A renewable energy company may not issue valid certificates until they have been authorised by a Revenue official. A renewable energy company may not issue a certificate to a corporate investor if the investment made by the investor exceeds the limit in (5).

How does a company confirm it has met the requirements?

(10) The statement which the renewable energy company must provide the Revenue Commissioners, confirming that it has met all of the investment conditions, must be made on the appropriate Revenue form. This statement must also contain a declaration as to its correctness and any other information that Revenue may reasonably require.

What penalty applies to a company that issues a false certificate?

(11) Where a renewable energy company issues a false certificate, no relief will be given to the company, and a penalty of €4,000 will apply.

What projects do not qualify?

(12) Only genuine renewable energy investment projects qualify for relief. The shares must be issued for bona fide commercial reasons and not for tax avoidance purposes.

The investment must be used to undertake a qualifying renewable energy investment project (see (1)).

The investor must risk his/her money, and must not receive any payback on the investment other than a payment from the proceeds of exploiting the project.

Can an inspector withdraw incorrectly claimed relief?

(13) An inspector may withdraw incorrectly claimed relief by making a Case IV assessment for the accounting period for which relief was given.

Does renewable energy-relieved expenditure qualify for relief?

(14) Renewable energy-relieved expenditure does not qualify for any other form of income tax, corporation tax, or capital gains tax relief.

If relieved shares consisting of new ordinary shares in a renewable energy company are disposed of by an investor company five years or more after their acquisition, their purchase cost is deductible when calculating a chargeable gain, if any, on that disposal.

Nevertheless, if the disposal of the shares gives rise to a loss, the loss is not an allowable loss. The transaction is treated on a no gain/no loss basis.

Section 486C Relief from tax for certain start-up companies

Tax Exemption for New Start-Up Companies: Tax Briefing Issue 06 – 2010

What is start-up relief?

(1) This relief may be claimed by a new company (incorporated in Ireland or another EEA State) since 14 October 2008, which commences a new trade between 1 January 2009 and 31 December 2018. The new trade must not:

(a) have been previously carried on by another person,

(b) be a 25%-taxed trade,

(c) be subject to professional service company surcharge.

The relief works by reducing the corporation tax applicable for the new trade from €40,000 to nil.

The reduction also covers tax on chargeable gains arising from the disposal of qualifying assets used in thequalifying trade.

The relief applies for a three year relevant period which starts on the date that your company begins to trade.

What businesses qualify for start-up relief?

(2) To qualify, your company must be a new company, and you must, between 1 January 2009 and 31 December 2015 commence a qualifying trade, i.e. a trade which:

(a) was not previously carried on by another person,

(b) was not previously carried on as part of another person’s trade or profession,

(c) is not an excepted trade (i.e. subject to tax at 25%),

(d) is not subject to professional company profits surcharge.

What if an accounting period straddles the relevant period?

(3) If an accounting period straddles the relevant period, income falling within the relevant period is relieved; income outside the relevant period is not relieved.

How is start-up relief calculated?

(4) If a company’s corporation tax charge falls below €40,000 in any of the first three years of trading (the relevant period), the charge is reduced to nil.

This reduction applies whether the corporation tax is on trading income or on chargeable gains

If the company’s corporation tax falls between €40,000 and €60,000, the tax charge is reduced by the formula-

3  x  (T – M)  x  A + B
T

The corporation tax referable to the company’s income from a qualifying trade in the proportion of its relevant corporation tax is calculated by applying the formula

         income from qualifying trade         
total income brought into charge for CT

to that tax.

The relief is limited to the specified contributions paid by the company.

Example

Tax charge (all referable to corporation tax on trading income) is €50,000.

Contributions paid in the year: €18,000.

Your reduction is:

3 x (60,000 – 40,000) x [(40,000 + 0) /50,000]

= 60,000 x (4/5) = €48,000

so the tax charge might be reduced from €50,000 to €2,000.

However the relief is limited to the specified contributions, i.e., €18,000 (not €48,000).

Is relief available after the end of the three year relevant period?

(4A) Relief that was unused because of insufficient profits in the relevant period can be carried forward to subsequent years but the amount of relief in any year cannot exceed the amount of employers’ PRSI paid for that year.

The amount of relief that can be carried forward is determined by the formula:

[C-(3 x (T – M) x C/T)] – R

where –

C is total employer’s PRSI for the year

T is total corporation tax for the year

M is €40,,000 (for a full year)

R is the amount of relief to which the company was entitled.

What are the lower and upper limits for start-up relief?

(5) The lower limit is €40,000 and the upper limit is €60,000.

Can the lower and upper limits be adjusted?

(6) The lower and upper limits for start-up relief are reduced if the company’s accounting period is shorter than 12 months.

How is start-up relief applied to a transport company?

(7) The maximum reduction is €100,000. In practical terms, this means that income of up to €800,000 can be exempted – since €800,000 x 12.5% = €100,000.

Can a successor claim start-up relief?

(8) A successor is not entitled to claim the predecessor’s start-up relief. The taken-over trade, or part of the trade, is segregated as are any expenses relating to that trade.

Does 25%-taxed income qualify for start-up relief?

(9) In calculating “total income brought into charge” for the purposes of start-up relief, 25%-taxed income should be excluded.

Can a connected transferee claim start-up relief?

(10) If part of a qualifying trade is transferred to a connected person, the transferee cannot claim start-up relief.

Must start-up relief be claimed?

(11) Start-up relief must be claimed in the company’s self-assessment return.

Can Revenue disclose the amount of start-up relief granted to a company?

(12) Revenue may disclose such information too any public body or State agency. They can also provide such information to the EU.

Section 487 Corporation tax: credit for bank levy

Can a banking group set off its levy against its tax liability?

(1)-(2) If a banking group’s corporation tax liability for an accounting period exceeds a threshold (based on the group’s average tax liability for the two years to 31 March 1991 indexed in line with group profitability since then), it may set off its levy payment against that liability.

The threshold (adjusted group base tax) for a levy period (the period beginning on 1 April before the levy payment date and ending on 31 March after that date) is the group’s advance corporation tax charge for the period or, if it is lesser:

T x P
B

where-

P is the group profit: the total of the group members’ profits for a levy period.

B is the group base profit: the group members’ base profits for a levy period. A group member’s base profit is 50% of the accounting profit earned by the member for the period 1 April 1989 to 31 March 1991.

T is the group base tax: the total of the group members’ base tax; but if this works out at less than 10% or more than 43% of group base profits, it is taken as 25% of group base profits. A member’s base tax is 50% of the corporation tax chargeable on a group member’s income for the period 1 April 1989 to 31 March 1991.

Accounting profit means the figure shown in the audited published profit and loss account, but not including:

(a) group dividends,

(b) capital gains,

(c) profits earned abroad that are subject to double taxation,

(d) dividends from non-resident companies,

as increased by the net corporation tax charged on the income at (c)-(d) grossed up by the corporation tax rate for the accounting period. If different corporation tax rates applied for different parts of the accounting period, a composite percentage rate is used, which is calculated by adding the time apportioned percentage rates for the periods in which the different rates applied.

The accounting profit is increased by any bank levy deducted in arriving at the profit shown in the profit and loss account.

Can the bank levy be set against group tax liabilities?

(3) The levy set off is to be apportioned between the individual group companies in proportion to each company’s corporation tax liability. Group members may, however, within nine months of the end of the levy period, by written notice to the appropriate inspector (section 950), elect to have the apportionment made on any other basis.

Can the bank levy give rise to a repayment of tax?

(4) Although the levy set off is treated as a payment on account of corporation tax, it cannot give rise to a repayment of tax.

How is the bank levy apportioned if accounting period and levy period differ?

(5) If the company’s accounting period (for example, 31 December) does not coincide with the levy period (1 April to 31 March), the set off is apportioned in proportion to the corporation tax payable in each sub-accounting period (for example, the nine months to 31 December and the three months to 31 March).

How is the levy set off calculated if relevant periods have not been completed?

(6) A provisional levy set off may be made where the results of a later sub-accounting period (see (5)) are not yet known. This provisional set off is calculated by taking as the base period the most recent accounts period ended in the levy period.

This provisional set off does not apply for periods before 1 April 1992.

When does a company have to finalise the levy set-off?

(7)-(8) As soon as the required details are available, a company that has made a provisional levy set off must make a return of the details needed to make the correct set off. The levy computation is then adjusted and any overpaid tax is repaid, with interest.

Interest is not charged on tax underpaid that is paid within one month of the due date.

The levy set off is available in so far as a bank increases its corporation tax liability by refraining from using tax shelters, expanding activity in the State, and remitting more dividends from overseas subsidiaries.

Section 488 Interpretation (Part 16)

What is the employment and investment incentive scheme (EIIS)?

(1) The employment and investment incentive scheme (EIIS) allows an investor in a qualifying company (section 494), i.e., an unquoted company that carries on a qualifying trade (see below) to obtain tax relief on the purchase of eligible shares, i.e., new ordinary shares that have no present or future preferential rights to share in the company’s profits or the company’s assets (in the event of the company being wound up).

An unquoted company is a company the shares of which are not quoted on an official stock exchange list, an unlisted securities market, or the Irish Enterprise Exchange (or a corresponding market in another EU State). If a company’s shares are quoted on the Irish Stock Exchange developing companies market before or at the same time as they are quoted on an unlisted market in another EU State, the company may qualify as an unquoted company.

The shares must be held for the relevant period:

(a) In general this means the period beginning when the shares were issued and ending four years after that date. If, however, the company was not trading at the time the shares were issued, it means four years after the date it began to trade.

(b) In the context of a relevant employment it means the period beginning on the share issue date and ending 12 months later. If the employment commenced after the share issue date, it means the period beginning on the date the employment commenced and ending 12 months later.

(c) In the context of a specified individual, the relevant period means the period beginning on the share issue date and ending one year later. If the company was not trading at the time the shares were issued, it means the one year period beginning on the date trading commenced.

Broadly, a company that carries on a qualifying new venture consisting of relevant trading activities. From 2015 nursing homes are no longer excluded. From 2016 existing nursing homes, including qualifying residential units on the site of the nursing home that are operated by the nursing home, qualify for relief for funds raised for extensions. There must be no provision whereby a home or unit can revert to a person from whom it was purchased.

The seed capital relief is a special form of EIIS relief which allows a former employee (specified individual) to obtain EIIS relief on an investment in a company in which he has taken up a relevant employment (section 495).

In the context of the EIIS scheme, a person’s associate means:

(a) a partner,

(b) a trustee of a settlement made by the person,

(c) any person also interested in shares held on trust (or as part of a deceased person’s estate) in which the person has an interest.

The term does not include a relative.

What is a disposal of shares?

(2) A disposal of shares includes a disposal of an interest in, or right to, such shares. It also includes an exchange of shares (section 587).

What does a reduction mean?

(3) The reduction of any amount includes its reduction to nil.

Section 489 The relief

What is EIIS relief?

(1) EIIS relief applies where:

(a) an individual subscribes for eligible shares in a qualifying company,

(b) the company uses the money for qualifying trading activities or, in the case of a company that has not yet begun to trade, for research and development, or to extend an existing nursing home,

(c) with a view to creating or maintaining employment in the company.

A transfer of real property in consideration of shares being issued does not qualify: Thompson v Hart, [2000] STC 381.

Example

Relief is given for the amount actually subscribed for eligible shares, not for the par value of the shares.

This means that if you subscribe €25,000 for 10,000 €1 shares, you are entitled to relief on €25,000, not €10,000.

How is EIIS relief given?

(2) EIIS relief is given as follows:

(a) 30/40 of the amount subscribed for the shares is deductible in the tax year in which the shares are issued,

(b) 10/40 of the amount subscribed for the shares is deductible in the tax year after the end of the relevant period(generally, three years after the shares were issued).

Can EIIS be taken in the following tax year?

(3) This rule applies where:

(a) you invest in a designated fund during January, and the shares are issued before 31 December of that year, or

(b) an EIIS company issues shares to you during January.

In these circumstances, you may elect, by written notice to the inspector, to take the relief against your total income for the previous year.

(3A) Where a subscription for shares was made in 2014 but the shares were not issued until January 2016 the investor may elect by notice in writing to take the relief against 2014 income.

When is EIIS relief not given?

(4) EIIS relief is not given:

(a) in the case of a company that was trading at the time the shares were issued, until the company had been trading for four months,

(b) in the case of a company that was not trading when the shares were issued, unless:

(i) the company commences to trade within two years of the shares being issued, or

(ii) spends not less than 30% of the capital subscribed for the shares on research and development activities connected with its relevant trading activities.

What is the time limit for EIIS relief?

(5) A claim for EIIS relief may be allowed at any time, provided it is within the time limits mentioned in (4) and (10).

What happens if a claimant obtains EIIS relief that he/she is not entitled to?

(6) EIIS relief to which a claimant is not entitled must be withdrawn.

Is EIIS relief denied if a company trades for a short period?

(7) A claimant is not denied EIIS relief in relation to an investment in a company that did not trade for at least four months, provided the company was wound up for bona fide commercial reasons and not for tax avoidance purposes.

Is the cost of EIIS relieved shares deductible for CGT purposes?

(8) The fact that an EIIS subscription has been allowed as an income tax deduction does not prevent it from being allowed (i.e., not disallowed under section 554) as a deduction for CGT purposes. In other words, EIIS relief given is ignored in calculating any future capital gain on EIIS relieved shares.

Does a scheme to eliminate risk disqualify EIIS relief?

(9) If there is a scheme in place to eliminate the risk element of an EIIS investment (for example, through asset-backing) then the share subscription does not qualify for EIIS relief.

What other circumstances disqualify EIIS relief?

(10) An EIIS investment will not qualify unless:

(a) the employment relevant number exceeds the employment threshold number by at least one qualifying employee and the emoluments paid to employees exceeds the amount paid before the year of subscription by the amount of the emoluments of at least one employee, or

(b) the R & D expenditure in the tax year preceding the tax year in which the relevant period ends exceeds the R & D expenditure in the tax year preceding the tax year in which the share subscription was made.

When is a green energy company treated as having commenced to trade?

(11) A company carrying on green energy activities is deemed to have commenced relevant trading activities after it has applied for a grid connection agreement.

Must an EIIS company prove that relief conditions are met?

(12) Revenue can require a qualifying company to provide them with evidence that the conditions for relief have been met.

What is the deadline for EIIS relief?

(13) EIIS relief only applies to shares issued on or before 31 December 2020.

Section 490 Limits on the relief

What is the minimum qualifying EIIS investment?

(1) The minimum qualifying EIIS investment is €250.

An EIIS investment made by a jointly assessed spouse is jointly assessed to tax is deemed to have been made by the spouse who is responsible for filing the tax return.

What is the maximum qualifying EIIS investment?

(2) The maximum qualifying EIIS investment relief by an individual that qualifies is €100,000 in the case of a seed capital investment, and €150,000 in any other case.

The maximum allowable subscription applies to each spouse separately (Revenue Precedent 4297/86, 27 March 1986).

Can unused EIIS relief be carried forward?

(3)-(4) If an EIIS subscription cannot be relieved in a tax year because there is insufficient total income, or because the amount subscribed exceeds the maximum allowable (see (2) above), the unrelieved amount may be carried forward for relief to the next tax year (and later tax years, if necessary, but not beyond 2020).

Example

You have a total income of €8,000. You subscribe for shares to the value of €10,000 in a qualifying company in year 1.

The amount available for carry forward to year 2 is €2,000, i.e., the excess of the amount subscribed (€10,000) over the total income (€8,000).

In what order is EIIS relief given?

(5) EIIS relief carried forward from an earlier tax year must be given in priority to any relief due for the current tax year.

Section 491 Restriction on relief where amounts raised exceed permitted maximum

What is a qualifying subsidiary?

(1) A qualifying subsidiary generally means a 51% subsidiary of a qualifying company.

What is the maximum EIIS finance a company can raise?

(2) The maximum EIIS finance that a company can raise is €15,000,000 (A).

If the company has already raised EIIS finance, the maximum amount of fresh capital that may be raised is A – B, i.e., the the unused balance of the company’s lifetime limit after deducting previous EIIS issues (B).

Any amount raised in excess of the appropriate limit (or “cap”) does not qualify for EIIS relief in the hands of the investor.

What is the maximum EIIS finance a corporate group can raise?

(3) The maximum EIIS finance that a group of companies (a company together with its associates) can raise is €15,000,000 (A).

If the group has already raised EIIS finance, the maximum amount of fresh capital that may be raised is A – B, i.e., the the unused balance of the group’s lifetime limit after deducting previous EIIS issues (B).

Any amount raised in excess of the appropriate limit (or “cap”) does not qualify for EIIS relief in the hands of the investor.

What is the maximum EIIS finance a company can raise in any year?

(4) EIIS relief is not to be given in respect of a relevant issue if:

(a) the finance raised by the relevant issue, or

(b) the aggregate of the current round of financing and previous amounts raised by the company or group within the 12 month period ending on the date of the current issue,

exceeds €5,000,000.

What is an associated company?

(5) This widely drawn anti-avoidance provision is designed to prevent use of multiple company structures to circumvent the company lifetime limit mentioned in (2)-(3) above. “Common purpose” appears to indicate that the trading operations for, example, are part of the same continuous process or operation.

A company is regarded as associated with another company, if:

(a) the company and the associate, and any of their 51% qualifying subsidiaries (section 507), act in pursuit of a common purpose,

(b) persons having a reasonable commonality of identity have (or have had) the power to control, directly or indirectly, the trading operations of both companies,

(c) persons having a reasonable commonality of identity control both companies.

However, two companies are not regarded as associated simply because the same EIIS designated fund has invested in both companies.

What finance counts when calculating a company’s lifetime limit?

(6) In calculating the company’s lifetime limit, amounts raised from persons not qualifying for EIIS relief, or in excess of each individual’s limit, are not taken into account.

What happens if a company raises EIIS in excess of its permitted maximums?

(7) Where necessary, the maximum is divided among the share subscribers in proportion to the amount subscribed by each investor.

Example

Your company had no previous EIIS issues. You are a “general” EIIS company falling within (c) in (1)-(3) above. You raise €150,000 of EIIS finance by issuing 150,000 €1 shares to 100 investors. Each investor may obtain €1,500 in EIIS relief (100 x €1,500 = €150,000).

Section 492 Individuals qualifying for relief

How does an individual qualify for EIIS relief?

(1) To qualify for EIIS relief, an individual must subscribe for eligible shares in the company on his/her own behalf (not as a nominee), and must not during the relevant period (section 488) be connected with the investee company.

The EIIS is intended to allow outside investors to obtain tax relief for investing in the business while leaving the company’s day-to-day management to others.

Who is connected with a company?

(2) In general, an individual is connected with a company of which he/she is:

(a) a partner, or

(b) a director or employee (but see (3))

When is a director/employee treated as not connected?

(3) A director or employee of a company is not regarded as connected with that company unless, within the relevant period (section 488), he or she receive an unearned payment from the company, for example:

(a) excess travelling or other business expenses,

(b) excess interest on a loan given to the company,

(c) excess dividends, i.e., dividends representing more than a normal commercial investment return,

(d) above market price for goods sold to the company,

(e) excess remuneration, i.e., a salary greater than that to which the person’s duties entitle him/her, but in this regard, trading or professional income is ignored.

When is an individual connected with a company?

(4) An individual is regarded as connected with a company if he/she has or can obtain, directly or indirectly, 30% or more of its:

(a) ordinary share capital,

(b) issued share capital and loan capital, or

(c) voting power.

The 30% limit is designed to prevent owner managers from obtaining EIIS relief, but this limit is relaxed for companies with total capital of less than €500,000 (see (8) below).

What is loan capital?

(5) In (4)(b), loan capital means any debt incurred by the company for money borrowed or assets acquired.

Is an individual entitled to more than 30%+ of net assets on a winding up?

(6) An individual is entitled to at least 30% of the company’s net assets available to its equity holders (section 413) on a notional winding up (section 415) is treated as connected with that company.

Is a person who controls a company connected with it?

(7) A person who controls a company (section 11) is connected with that company.

Who is not connected with a company?

(8) An individual is not connected with a company whose total issued share capital and loan capital, throughout the relevant period (section 488), does not exceed €500,000.

A seed capital investment is ignored in calculating whether the 30% limit is breached.

Relief given on the basis that a person is not connected with the company because:

(a) the company’s capital is less than €500,000,

(b) the investment was a seed capital investment,

is not withdrawn if the person later becomes “connected” with the company.

Do holdings of associates count for the 30% test?

(9) When calculating whether a person has breached the 30% limit, share options and future rights to, or entitlements attaching to, shares are counted as present shareholdings.

A person is also treated as having any rights or powers of his/her associates, i.e., relatives, trustees of a settlement he/she has made, and persons also interested in shares held on trust in which he/she has an interest (section 433(3)).

Does a bank overdraft count as loan capital?

(10) A bank overdraft given to a company in the ordinary course of banking business is not counted as loan capital for the 30% test.

Is a nominee connected with the beneficial owner?

(11) A nominee shareholder is treated as connected with the shares’ beneficial owner.

Example

This anti-avoidance provision is to prevent reciprocal shareholding arrangements designed to circumvent the 30% limit.

If A subscribes for shares in B’s company, who subscribes for shares in C’s company, who subscribes for shares in A’s company, then C’s shares must be counted together with A’s own shares in deciding whether A has breached the 30% limit.

Section 493 Seed capital relief

What is seed capital relief?

(1) Seed capital relief applies where:

(a) a specified individual makes a relevant investment,

(b) the shares are issued to the individual so that the company can raise money for its relevant trading activities,

(c) the company’s activities are a qualifying new venture,

(d) the company uses the money for its relevant trading activities or, in the case of a company that has not yet begun to trade, for research and development,

(e) with a view to creating or maintaining employment in the company.

How is seed capital relief given?

(2) Seed capital relief is given as a deduction from the income of the specified individual for the the tax year in which the shares are issued.

Can seed capital relief be carried back?

(3) Seed capital relief can be claimed against income of previous years.

(a) A claimant can make a written election to have the relief given as a deduction from income of any of the six tax years preceding the year in which the shares were issued. When such an election is made, the shares are deemed to have been issued in the year in which the deduction is taken.

(b) A claimant can make a similar election in relation to a second relevant investment.

(c) The claimant can nominate which of the six tax years he wishes to claim the relief against (i.e., he is not obliged to claim against the most recent year initially).

(d) Relief that cannot be absorbed by the income of the six years preceding the year in which the shares were issued can be claimed against the income of the year in which the shares were issued.

(e) Seed capital relief cannot be claimed for more than two relevant investments.

(f) Seed capital relief can be backdated six years notwithstanding the general four year limit on repayment claims.

What is the amount of seed capital relief?

(4) The amount of seed capital relief means the amount of deduction claimed under (2) and (3).

Can seed capital relief be claimed before a trade has commenced?

(5) To claim relief, the investee company must have commenced to trade, or in the case of an R & D investment, it must have spent not less than 30% of the investment in R & D activities connected with the trading activity.

Can seed capital relief be withdrawn?

(6) Relief to which a claimant is not entitled must be withdrawn.

Is relief withdrawn if the investor does not take up employment?

(7) Relief is withdrawn if the investor does not take up employment:

(a) within the tax year in which the investment being made, or

(b) if later, within six months of the last subscription for shares.

Is the cost of relieved shares deductible for CGT purposes?

(8) The fact that a subscription has been allowed as an income tax deduction does not prevent it from being allowed as a deduction for CGT purposes. In other words, EIIS relief given is ignored in calculating any future gain on relieved shares.

Does a scheme to eliminate risk disqualify seed capital relief?

(9) If there is a scheme in place to eliminate the risk element of a seed capital investment (for example, through asset-backing) then the share subscription does not qualify for relief.

Can one investment qualify for seed capital and EIIS reliefs?

(10) An investment cannot qualify for both seed capital relief and EIIS relief.

Must a seed capital company prove that relief conditions are met?

(11) Revenue can require a qualifying company to provide them with evidence that the conditions for relief have been met.

Section 494 Qualifying companies

What is a qualifying subsidiary?

(1) For the meaning of qualifying subsidiary, see section 507. A qualifying subsidiary may also be incorporated in an EEA State, i.e., a State which is party to the EEA agreement.

What is a qualifying company?

(2) A company is a qualifying company if it is incorporated in an EEA State and meets the conditions in this section.

What conditions apply to a qualifying company?

(3) A qualifying company must be unquoted and resident in the State or resident in an EEA State and trading through a branch in the State. In addition:

(i) it must exist to either carry on a qualifying trade (section 496) wholly or mainly in the State, or

(ii) its business must consist of:

(I) holding shares or securities in, or making loans to, a qualifying subsidiary (section 507),

(II) both carrying on a qualifying trade and holding shares or securities (or making loans to) a qualifying subsidiary.

A holding company that raises EIIS finance for a qualifying trade carried on by its subsidiary may not use the money raised for any purpose other than to buy shares in the subsidiary.

A company will only be regarded as carrying on its relevant trading activities in the State if not less than 75% of the amount spent on such activities is spent in the State.

Can a large company qualify?

(4) To qualify for EIIS relief, the company must be:

(a) a micro or small enterprise,

(b) a medium-sized enterprise located in an assisted area,

(c) a medium-sized enterprise in start-up stage.

(4A) The company must meet the cited requirements of the cited EU regulation (General Block Exemption Regulation).

Where is a company regarded as located?

(5) A company is regarded as located where it carries on its qualifying trading operations.

Can tourism activities qualify?

(6) A tourism company (section 496(9)) does not qualify for EIIS relief unless the National Tourism Development Authority has approved a three year development and marketing plan produced by the company to increase the numbers of, or the revenue from, tourists visiting Ireland.

In deciding whether to approve the company’s development and marketing plan, the Minister for Tourism must consider any guidelines agreed between the Minister and the Minister for Finance.

The guidelines may set out rules governing:

(a) the maximum proportion of the company’s assets that may be held in the form of land and buildings,

(b) specific tourist numbers and revenue targets,

(c) the proportion of EIIS finance raised that must be used in promoting Irish tourism abroad.

Can a green energy company qualify?

(7) A green energy company will not qualify unless it spends the capital it has raised through share subscriptions within one month of the end of the relevant period.

(7A) A company which raises money to extend a nursing home must expend all the money raised at least 30 days before the end of the qualifying period.

Can an R & D company qualify?

(8) A company that has raised funds for R & D will not qualify unless it spends the capital it has raised through share subscriptions within one month of the end of the relevant period.

Does a wound up company cease to qualify?

(9) A company that is wound up or dissolved within the relevant period ceases to qualify for relief.

Does an investor lose EIIS relief if the company is wound up?

(10) In general, an investor will not have EIIS relief withdrawn if the company was wound up for bona fide commercial reasons and not for tax avoidance purposes, provided the company’s remaining net assets are distributed to the company’s members within:

(a) the relevant period (section 488), or

(b) the three year period beginning on the winding up date,

whichever is later.

Can a company with unpaid share capital qualify?

(11) A company does not qualify if, within the relevant period (section 488), any of its issued share capital is not fully paid up.

Can a controlled company qualify?

(12) A company does not qualify if, within the relevant period (section 488), it:

(a) controls another company,

(b) is controlled by another company,

(c) is a 51% subsidiary of any company,

(d) has a 51% subsidiary (but see section 507, which allows a holding company to invest in a qualifying subsidiary).

The exception here is that a company can be controlled by NAMA.

This provision ensures an EIIS company is in charge of its own affairs, and not influenced by outside pressure.

Can a seed capital company trade with its founder’s former employer?

(13) A company in which a seed capital investment has been made does not qualify if within two years of the issue date for shares in respect of the first investment instalment, or, if later, the date on which the trade begins:

(a) it engages in any non-arm’s length business with the seed capital investor’s former employer company, or

(b) its trade is controlled (see (14)-(15)) by an individual who, within a certain period (see (16)), controlled a trade carried on by a company using similar property and providing similar services.

What is control of a trade?

(14) A person controls a trade if:

(a) he/she controls the company carrying on the trade,

(b) the company is a close company (section 430) and the person, either alone or through associates, controls more than 30% of the company’s ordinary share capital,

(c) the person owns 50% or more of the trade, or

(d) the person owns 50% or more of the company’s trading assets, or is entitled to 50% or more of the company’s trading income.

Do associates’ rights count for the control test?

(15) In deciding whether a person controls a trade, the person is deemed to have the rights and powers of his/her associates.

Example

A person may control a trade (c) even though he/she does not control the company carrying on the trade (a).

If A and B own 60% and 40%, respectively, of X Ltd, and X Ltd and B own 75% and 25%, respectively, of Y Ltd, B does not control Y Ltd within (a) above, but he/she does control 55% of Y Ltd’s trade through his/her partial ownership of X Ltd.

Can a seed capital company control a similar company?

(16) A seed capital investor must not control a similar company within the period commencing two years before and ending three years after the share issue date (or if later, the date on which trading commenced).

This is to prevent EIIS relief being given to the shareholders of a “new” EIIS company (A Ltd) which effectively carries on a trade previously carried on by another company (B Ltd) owned by the same shareholders.

Do subsidiary trades count?

(17) A company’s trade includes the trades of its subsidiaries.

Can a company in breach of State Aid Guidelines qualify?

(18) A company which breaches the EU State Aid Guidelines does not qualify.

Section 495 Specified individuals

What is a specified individual?

(1) A seed capital investor (specified individual) is an individual who makes a qualifying relevant investment and also meets the conditions of this section.

Is seed capital relief confined to employees?

(2) Seed capital relief is aimed at employees. To qualify, the individual must not have had income from sources other than an employment amounting to more than:

(a) total employment income, or

(b) €50,000,

during each of the three tax years immediately preceding the tax year which precedes the tax year in which the first investment is made.

Example

You made a first seed capital investment €40,000 in X Ltd on 3 April 2012 (tax year 2012).

Preceding tax year: tax year 2011.

Three preceding tax years: 2008, 2009 and 2010.

Your non-employment income must not exceed €50,000 in any of these years.

Note: You could be self-employed in 2011 or 2012 and still qualify, since the employment test is only performed for 2008, 2009 and 2010.

What is the minimum percentage a seed capital investor must hold?

(3) A seed capital investor must, throughout the relevant period, own at least 15% of the company’s issued ordinary share capital.

Can a seed capital investor own shares in another company?

(4) At the time he/she subscribes for the shares (the relevant date), the investor must not own more than 15% of the ordinary share capital, loan capital or voting power of any company apart from a company mentioned in (5) or (6).

Can a seed capital investor own shares in a shelf company?

(5) A seed capital investor is not disqualified if he holds shares in a non-trading shelf company with assets of less than €130.

Can a seed capital investor own shares in an EIIS company?

(6) A seed capital investor is not disqualified by virtue of holding shares in company:

(a) which exists only to carry on relevant trading activities,

(b) 75% of its turnover derives from tourist traffic undertakings,

(c) 90% of its turnover derives from EIIS activities,

(d) the sales of which were less than €127,000 in each of the three accounting periods ending before the accounting period in which the first seed capital investment instalment is made.

If the seed capital investment is made in several instalments, the ownership-of-another-company-test is applied when the latest instalment is invested.

Is seed capital relief withdrawn if the company is wound up?

(7) An investor does not lose your seed capital relief if, within the relevant period (section 488), the company is wound up for bona fide commercial reasons, and not for tax avoidance purposes.

Section 496 Disposals of shares

Does a disposal of shares give rise to a clawback?

(1) If the investor disposes of EIIS shares within the relevant period (section 488), the consequences are:

(a) if the shares are sold for a non-arm’s length price, the entire relief is withdrawn,

(b) if the shares are sold for an arm’s length price, the relief obtained is reduced by the sales proceeds.

Example

You subscribe for 25,000 €1 shares and are given EIIS €25,000 relief.

In the same year, you sell 10,000 shares for €10,000. The sold shares are taken as coming from the €25,000 EIIS-relieved shares. The relief for the year is revised as follows:

EIIS relief given 25,000
EIIS relief withdrawn 10,000
Revised relief 15,000

Does a disposal to a spouse give rise to a clawback?

(2) There is no clawback of EIIS relief if shares are transferred to a spouse or civil partner.

There is a clawback of the transferee spouse subsequently disposes of the shares.

There is also a clawback if the couple subsequently separate or divorce. In such a case, the assessment is made on the transferee.

Is there a clawback if shares become subject to an option?

(3) To qualify for EIIS relief, shares must not be subject to any option or agreement that binds someone to buy (or sell) them at a price other than market value at some future date.

Does a disposal from a holding of relieved and unrelieved shares give rise to a clawback?

(4) A sale of ordinary shares from a holding that includes EIIS relieved shares is treated as a sale of the EIIS shares, even if they are not the specific shares that were sold.

Separate rules apply if the shares in question also qualified for profit sharing relief (section 512(2)).

Example

You subscribe for 40,000 €1 shares in your limited company, and you are given EIIS relief of €31,750 for that year.

In the same year, you sell 4,000 shares for €4,000. The sold shares are taken as coming from the €31,750 EIIS-relieved shares (not from the €8,250 unrelieved shares). Your relief for the year is revised as follows:

EIIS relief given 31,750
EIIS relief withdrawn 4,000
Revised relief 27,750

Are disposals treated as coming from shares acquired earlier or later?

(5) EIIS shares sold from a holding of shares of a similar class are treated as coming from the earliest shares acquired in the holding. In other words, the shares are treated as disposed of on a First In First Out (FIFO) basis.

Are replacement shares identified with the shares they replace?

(6) These share identification rules clarify which shares are treated as sold when the shares are sold from a mixed holding.

New or bonus shares that were issued on a company reorganisation or reconstruction in place of EIIS shares stand in place of those EIIS shares. A disposal of the new shares is treated as a disposal of the old shares.

Example

You subscribe €40,000 for 20,000 eligible €1 shares (for which relief of €31,750 is received) and subsequently there is a “one for one” bonus issue so that you now hold 40,000 shares instead of 20,000 shares.

You are however regarded as having obtained relief in respect of the new holding of 20,000 shares. Were you to sell at arm’s length say 20,000 of the 40,000 shares for €20,000 during the relevant period, relief would be withdrawn in the amount of:

€31,750 x 20,000 = €15,875
40,000

i.e., you sold half the new holding of 40,000 shares and accordingly, half of the relief you received on the original holding of 20,000 shares is withdrawn.

Note

If you had received say €10,000 for the sale of the shares instead of €20,000, the relief withdrawn would have been confined to €10,000 because the consideration received on disposal would have been less than the relief given.

Source: Inspector Manual 16.0.1 (adapted)

When are shares treated as being of the same class?

(7) Shares are not to be treated as being of the same class as other shares unless they would be so treated if they were traded on an Irish stock exchange.

Section 497 Value received from company

What is an ordinary trade debt?

(1) If an investor “receives value” from the investee company, other than the repayment of an ordinary trade debt, there is a clawback of EIIS relief.

In this regard, an ordinary trade debt means a debt on respect of goods or services supplied on credit terms not exceeding six months.

Is a payment to an associate treated as receipt of value?

(2) A receipt of value includes a payment or transfer:

(a) to or for the benefit of the investor,

(b) to any associate of the investor (a partner, trustee of a settlement made by the investor, any person also interested in trust shares that the investor is interested in).

What is a receipt of value?

(3) An investor receives value from the company if:

(a) The company buys back or redeems any of the investor’s shares.

(b) The company repays any debt (other than an ordinary trade debt or a “fresh” debt incurred after the EIIS shares were bought) owed to the investor. A fresh debt is a debt which does not simply replace a debt that existed before the shares were bought.

A debt is an ordinary trade debt if it is payable within six months or the normal credit terms.

(c) The company pays the investor for not collecting a debt (other than an ordinary trade debt, a “fresh” debt incurred after the EIIS shares were bought, a debt for goods sold to the company, or a reasonable salary).

(d) The company abandons its right to collect a debt owed to it by the investor, or pays a debt owed by the investor to a third party.

(e) The company lends money to the investor.

(f) The company provides a benefit or facility to the investor.

(g) The company transfers an asset to the investor at less than market value, or acquires an asset from the investor at greater than market value.

(h) The company pays the investor other than for an ordinary trade debt, reasonable business expenses, reasonable loan interest, reasonable dividends, reasonable salary or reasonably priced goods sold.

What is not a receipt of value?

(4) The conversion of a loan to equity is not regarded as a receipt of value provided:

(a) the conversion takes places within 12 months of the loan being made, and

(b) the company’s auditor (as defined in the Companies Acts) certifies that the proceeds are being used for the company’s relevant trading activities.

Is a repayment of capital on winding up a receipt of value?

(5) An investor receives value if the investee company is wound up for bona fide commercial reasons and he/she is paid any amount in respect of his/her shareholding.

Is the purchase of shares by a connected person a receipt of value?

(6) An investor receives value from the investee company if a person connected with the company (i.e., a partner, director or employee of the company):

(a) buys any of the investor’s shares,

(b) buys the rights to those shares (or any other securities of the company owned by the investor).

How is receipt of value calculated?

(7) Value received by an EIIS investor is calculated as follows:

(a) Where the company buys back any of its shares, repays a debt, or pays the investor for not collecting a debt, the value received is the market value of the shares or debt.

(b) Where the company abandons its right to collect a debt the investor owed to it, or pays a debt owed by the investor to a third party, the value received is the amount of the debt.

(c) Where the company lends money to the investor, the value received is the amount of the loan.

(d) Where the company provides a benefit to the investor, the value received is the cost to the company of providing the benefit.

(e) Where the company transfers an asset to the investor at less than market value, or acquires an asset from the investor at greater than market value, the value received is the difference between the asset’s market value and any sum paid by the investor for or towards the asset.

(f) Where the company pays the investor (other than for an ordinary trade debt, reasonable business expenses, reasonable loan interest, reasonable dividends, reasonable salary or reasonably priced goods sold), the value received is the amount of the payment.

(g) Where a company is wound up (see (4)), the value received is the amount paid, or the market value of any assets transferred, to the investor.

(h) Where another person connected with the investee company (see (5)) buys his/her shares or the rights to those shares or other company securities he/she owns, the value received is the market value of the shares or securities.

When is a company treated as having released or waived a liability?

(8) A company is regarded as having abandoned a debt that has not been paid within one year after the date on which it was due.

What counts as a loan from the investee company?

(9) An investor is regarded as having received a loan from the company if:

(a) He/she incurs a debt (other than an ordinary tradedebt = see (1)) to the company.

(b) He/she incurs a debt to a third person, and that debt is assigned to the company.

Does receipt of value give rise to a clawback?

(10) If an investor receives value from the company before or during the relevant period, any EIIS relief given is reduced by the value received (as calculated in (6)).

In what order is EIIS relief withdrawn?

(11) EIIS relief to be withdrawn from a holding of shares of a similar class is treated as coming from the earliest shares acquired in the holding.

Section 498 Replacement capital

Is EIIS relief only given for new businesses?

(1)-(2) EIIS relief is not given where a company (or any of its subsidiaries) begins to carry on a trade previously carried on by another company.

In other words, it is not possible to “manufacture” EIIS relief by reincorporating an existing business as a new business.

Can an investor who controls a trade qualify for EIIS relief?

(3) If before investing, an investor (either alone or as a member of a relevant group):

(a) had more than a 50% share in the trade, or

(b) controlled a company that previously carried on that trade,

subsequently carried on by the EIIS company (and not previously carried on by that company or any of its 51% subsidiaries (section 507)), the investor is denied EIIS relief.

Any relief already given is fully withdrawn. Relief is also denied where the investee company acquires the greater part of the assets used in a trade previously so carried on.

The more direct ways of obtaining relief for replacement capital (for example, by investing say €10,000 in a company and immediately getting a loan of €10,000 from the same company) are dealt with in sections 499 and 501.

Example

Four individuals involved in a partnership form a company which then acquires the trade or assets of the partnership. Any money invested in the company by the individuals would be paid back to them as part of the purchase price for the trade or assets.

A similar situation could arise where, say, four individuals control a trading company and they form a second company which acquires the trade or assets of the first company.

Source: Inspector Manual 16.0.1

Is there a clawback if the investee and a company it acquires are under common control?

(4) If two companies, one of which has received an EIIS relieved investment, are under common control, and within the specified period, the EIIS company buys all the shares of the other company, an investor who is one of a group of persons holding common control does not qualify for relief.

Any relief already given is fully withdrawn.

Example

Four individuals own 25% each of the share capital of trading company X Ltd. and 25% each of the share capital of trading company Y Ltd. They invest additional money in X Ltd. which uses the money to acquire the shares of Y Ltd. The additional money invested by the individuals in X Ltd. has simply been returned to them as part of the purchase price for their shares in Y Ltd.

Source: Inspector Manual 16.0.1

How is a share in a trade calculated?

(5) In calculating a share of a trade before making an EIIS investment:

(a) A trade carried on by two or more persons jointly is regarded as being owned by each person in proportion to that person’s share of the profits.

A trade carried on by a trustee is regarded as being owned by the trust’s beneficiaries.

A trade carried on by a company is regarded as being owned by the shareholders in proportion to their shareholdings, and the trade of a 75% subsidiary is regarded as being owned by its parent’s shareholders.

A shareholding owned by a company is regarded as being owned by a person who has power to direct that company’s affairs.

(b) Rights or powers of an investor’s associate (partner, trustee of a settlement made by him/her, any person also interested in trust shares that he/she is interested in) are counted as that person’s rights or powers.

Section 499 Value received by persons other than claimants

Does repayment of other shareholders give rise to a clawback?

(1) Relief is withdrawn if the investee company redeems or buys back any of its shares from any person other than:

(a) the original EIIS investor, or

(b) another EIIS investor whose relief was withdrawn because he/she received value from the company,

within the relevant period (section 488).

When do the clawback rules take effect?

(2) The rule in (1) does not apply where the date for the share redemption or buy back was fixed before 26 January 1984.

Does a conversion to a public company trigger a clawback?

(3) Under Companies (Amendment) Act 1983 section 6, a public company must have a minimum issued share capital of €38,092.

There is no clawback if a private company converting to a public company redeems its existing shares (the original shares ) and replaces them with new shares to comply with the €38,092 limit.

How is the clawback calculated?

(4) The relief withdrawn is the amount paid to the investor, or the nominal value of your shares, whichever is greater.

The relief is withdrawn from the EIIS investors in proportion to their shareholdings before the withdrawal of relief.

Does receipt of value affect the 30% test?

(5) A receipt of value means that the company’s share capital is reduced. As a result, what was, for example, a 30% holding might exceed 30% of the post-reduction capital – see Example to (7).

How is receipt of value calculated?

(6)-(7) The company’s issued share capital is reduced by the amount of value which the investor receives, i.e., the receipt of value is effectively treated as equivalent to a buy back.

The reduced figure for shareholders’ capital must then be used in any future tests used to ascertain whether any of the remaining investors now holds more than 30% of the company’s issued share capital or voting power.

Example

You hold 300,000 €1 shares in X Ltd., the ordinary share capital of which consists of 1,000,000 €1 shares. As your holding is not more than 30%, you may qualify for EIIS relief.

If Y, another holder of ordinary shares in X Ltd., receives value of €100,000 from X Ltd., it is as if X Ltd. had bought back 100,000 of Y’s shares: the share capital is now €900,000, of which you hold 300,000, i.e., 33%, which means you no longer qualify for EIIS relief.

What is a receipt of value?

(8) An investor receives value from a company if he/she receives:

(a) a benefit from the company,

(b) value for an asset transferred to the investor from the company at less than market value, or acquired from him/her by the company at greater then market value,

(c) a payment from the company (other than for an ordinary trade debt, reasonable business expenses, reasonable loan interest, reasonable dividends, reasonable salary or reasonably priced goods sold),

(d) a payment for shares on the company being wound up,

(e) payment for shares, or the rights to those shares or other securities of the company, from another person connected with the investee company.

Do future entitlements count in determining receipt of value?

(9) An investor is treated as entitled to receive anything he/she is to receive at a future date.

In what order is EIIS relief withdrawn?

(10) EIIS relief withdrawn from a holding of shares of a similar class is treated as coming from the earliest shares acquired in the holding.

Section 500 Prevention of misuse

Must an EIIS investment be bona fide?

Only genuine business investments qualify for EIIS relief. The shares must be issued for bona fide commercial reasons, and not for tax avoidance purposes.

This general anti-avoidance provision is to ensure that only genuine long term investments qualify for EIIS relief.

Section 501 Claims

When can EIIS relief be claimed?

(1) EIIS relief cannot be claimed until:

(a) in the case of a seed capital investment, the investee company has begun to trade, or the company has spent not less than 30% of the funds raised on R & D,

(b) in other cases, four months after the company has begun to trade.

The deadline for claiming relief is:

(a) two years after the end of the tax year in which the investment was made (or, where the first four months of trading straddles the end of the tax year, two years after the end of that first four months), or

(b) three months after the statement in (3) is furnished.

What documents should accompany an EIIS relief claim?

(2) An EIIS claim must be supported by a certificate from the investee company stating that all of the conditions for EIIS investment have been met.

See Inspector Manual 16.0.1 16.0.5, Tax Briefing 28, Tax Briefing 37.

Must an investee company notify Revenue of its compliance?

(3) Before issuing an investor certificate, the company must send a statement to the inspector informing him/her that the company has, since the start of the relevant period (section 488), complied with all the conditions for EIIS relief.

Can an investee issue a certificate without Revenue approval?

(4) An investee company must not issue an EIIS investor certificate without the inspector’s prior authority.

Also, it must not issue an EIIS certificate in any case where it has come to the company’s notice that relief should not be allowed.

How does an investee company apply for investor certificates?

(5) The statement made to the inspector (3) must be made on the appropriate Revenue return form. The declarer must sign a declaration that the return is correct and complete.

What if an investee company issues an incorrect certificate?

(6) A company that issues an incorrect certificate to an investor is liable to a penalty of €4,000.

How does a PAYE taxpayer obtain EIIS relief?

(7) A PAYE taxpayer obtains relief on filing his/her return, and cannot claim EIIS relief before the claim has been allowed by the inspector.

Can a pending claim for EIIS relief reduce preliminary tax?

(8) Although an EIIS relief claim may be pending for a tax year, the tax due for that year remains due and payable. If the EIIS claim is later made and allowed for the tax year, the tax can be treated as paid, but any interest on the unpaid tax remains payable.

Is tax clearance required?

(9) An applicant for relief must have a tax clearance certificate.

Section 502 Assessments for withdrawing relief

How is EIIS relief clawed back?

(1) To withdraw undue or overclaimed EIIS relief, the inspector makes a Case IV assessment for the tax year for which the relief should not have been given.

In the case of a married couple, who pays the clawback?

(2) If a married individual sells EIIS shares on which relief was obtained while jointly assessed, the full EIIS relief originally granted is withdrawn from the seller.

Is there a time limit for withdrawal of EIIS relief?

(3) EIIS relief wrongly given may be withdrawn within four years of the tax year in which the event occurs which causes it to be withdrawn.

Does an investor’s death give rise to a clawback?

(4) When an EIIS investor dies, EIIS relief given may not be withdrawn by reason of an event occurring after his/her death.

What clawback arises if EIIS shares are sold at an arm’s length price?

(5) Where an investor sells all of his/her EIIS shares within the relevant period (section 488) at an arm’s length price, the EIIS relief given is reduced by the sale proceeds.

If, however, within the relevant period (section 488), the seller becomes connected with the company, any EIIS relief given is withdrawn.

What is the time limit for clawback of fraudulent relief?

(6) In the case of a fraudulent or negligent EIIS claim, the four year limit does not apply, and relief may be withdrawn at any time.

How is interest charged on clawback of EIIS relief?

(7) Interest on tax underpaid as a result of withdrawal of EIIS relief runs:

(a) from the date of the event giving rise to the withdrawal of relief where:

(i) the investor does not qualify for relief (section 494),

(ii) the company does not qualify for relief (section 492),

(iii) the company’s trade does not qualify for relief (section 495),

(iv) the company effectively takes over a trade previously carried on by another company (section 498),

(v) any EIIS finance raised is repaid to non-EIIS shareholders (section 499(1));

(b) from the disposal date, where EIIS shares are sold or disposed of within five years of being issued (section 496(1));

(c) from the date value is received, i.e., where the investor receives value from the company in which he/she has invested within the relevant period (section 497);

(d) from the date relief was given, where the investment is treated as not being for bona fide commercial reasons (but in the case of a PAYE taxpayer, the relief is withdrawn from the start of the tax year in which relief was given),

(e) from the date of the event giving rise to the withdrawal of the relief, where a seed capital investor does not take up a full-time employment with the company or no longer qualifies as a seed capital investor (section 494).

In what year does the clawback take effect?

(8) Relief that is to be withdrawn is taken to have been allowed for the tax year in which the investor received a tax repayment or a reduction in the investor’s tax assessment.

Section 503 Information

When must an investor self-disqualify?

(1) If an investor no longer qualifies because:

(a) the company does not qualify (section 492),

(b) the trade does not qualify (section 496), or

(c) he/she receives value from the company within that five year period (section 499),

the investor must, within 60 days of the disqualifying event, iesy for the relief.

When must a company self-disqualify?

(2) An EIIS company that:

(a) no longer qualifies for relief (section 494),

(b) ceases to carry on a qualifying trade (section 495),

(c) has an investor who has received value from the company (section 497),

(d) effectively takes over a trade previously carried on by another company (section 498),

(e) has a member who has received value from the company (section 499),

(f) has raised EIIS finance purely for tax avoidance (section 500),

must, within 60 days of the disqualifying event, “self-confess” in writing to the inspector that the company no longer qualifies for relief.

A person connected with the company must self-disqualify immediately on becoming aware of the event.

Can an inspector seek information regarding withdrawal of relief?

(3) An inspector may write to:

(a) an EIIS investor,

(b) an EIIS company, or

(c) a person connected with the company,

who he/she believes should have self-disqualified, requiring that person to provide the requested information within 60 days.

Can an inspector investigate arrangements to avoid self-disqualification?

(4) An inspector can request information if he believes an investor, an EIIS company, or a person connected with the company should have made a self-confession to him/her regarding:

(a) reciprocal shareholding between colluding investors (section 492(11)),

(b) the fact that the EIIS company controls another company, or is controlled by another company (section 494(9)),

(c) the fact that the investment is not for bona fide commercial reasons (section 500)).

Who can an inspector contact in relation to a suspect claim?

(5) The inspector may may, in cases (4)(a) and (4)(c), write to the investor, and in cases (4)(b) and (4)(c), write to the company and any person controlling it, requiring information to be sent to him/her within 60 days.

Can an inspector investigate receipt of value?

(6) Where you receive value from a company (sections 497, 499(5)) as a payment or asset transfer, the inspector may write to you requesting you to state the name and address of the person (if any) on whose behalf the value was received.

This allows the inspector to trace the ultimate recipient of value which passes out of a company.

Can an inspector require nominees to reveal beneficial owners?

(7) The inspector may require a nominee to state the name and address of the person on whose behalf the shares are held.

As an EIIS investor, a person must invest on his/her own behalf (section 493(1)), i.e. the investor is not allowed to invest as a nominee on behalf of any other person, other than through a designated investment fund (section 508). EIIS shares are not normally, therefore, held by a nominee, as this could disqualify relief.

Can an inspector disclose relief given?

(8) The inspector is not precluded by the Official Secrets Act from informing the EIIS company how much EIIS relief has been given in respect of a particular number or proportion of its shares.

Section 504 Capital gains tax

Is the cost of shares deductible for CGT purposes?

(1) If EIIS relief has not been withdrawn, the cost of EIIS-relieved shares is fully deductible when calculating a gain on a later disposal of the shares.

Nevertheless, if the disposal gives rise to a loss, the amount deductible is reduced by the excess or the relief given, whichever is the lesser.

These rules do not apply to disposals between spouses.

Example

You invested €10,000 in an EIIS scheme and income tax relief of €4,100, i.e., €10,000 x 41% was given.

Seven years later, the shares were sold for €6,500.

The loss is calculated as follows:

Sale proceeds 6,500
Allowable deduction 10,000

Reduce allowable deduction by the lower of: (a) the amount by which the deductions exceed the consideration, i.e. €3,500, or (b) the amount of the income tax relief allowed €10,000

Therefore, the reduction is 3,500
Allowable deduction is now 6,500
Therefore the chargeable gain/allowable loss is Nil

Source: Inspector Manual 19.2.5

When are sold shares treated as acquired?

(2) When the shares are sold from a mixed holding, the share identification rules (of section 496(3)-(6)) are used to clarify which shares are treated as sold.

When are replaced shares treated as acquired?

(3) New or bonus shares that were issued on a company reorganisation or reconstruction in place of EIIS shares stand in place of those EIIS shares. A disposal of the new shares within the relevant period (section 488) is treated as a disposal of the old shares, and any EIIS relief given on those shares is withdrawn.

If not all the EIIS shares are replaced with new shares, the two groups of shares are treated as separate holdings for capital gains tax purposes.

Because there are two separate holdings, if the disposal takes place within the relevant period (section 488), then EIIS relief is withdrawn from the shares that have not been replaced with new shares.

How does EIIS relief affect CGT?

(4) A capital gains computation on the disposal of EIIS shares must take account of the adjustments required by (1)-(3).

Section 505 Application to subsidiaries

Can an EIIS company have subsidiaries?

(1) Although an EIIS company must not control another company, it may be allowed to have one or more qualifying subsidiaries. Each such subsidiary must:

(a) be unquoted and resident in the State,

(b) exist solely to buy goods or materials for, sell the goods or materials produced by, or provide services to, the EIIS company.

What conditions must a subsidiary meet?

(2) To qualify, a subsidiary must:

(a) be a 51% subsidiary of the qualifying company,

(b) not be controlled by any other person, and

(c) not be subject to any arrangements whereby the subsidiary could become controlled by any other person.

Is there a clawback if a qualifying subsidiary is wound up?

(3) There is no clawback if a subsidiary is wound up for bona fide commercial reasons provided the net assets are distributed to the company’s members within:

(a) the relevant period (section 488), or

(b) the three year period beginning on the date on which the winding up begins.

What further rules apply to qualifying subsidiaries?

(4) The rules in Schedule 10 must be read in conjunction with this section.

Section 506 Nominees and designated funds

Are the actions of an investor’s nominee treated as the investor’s actions?

(1) The actions of an investor’s nominee in a designated investment fund are treated as the investor’s acts.

How is investment through a designated fund given effect?

(2) The fund managers (the managers of the designated fund) use the funds invested to subscribe for shares in multiple companies. Relief only applies where the investment is made from the amount subscribed to the fund.

Does a designated fund investment require Revenue approval?

(3) To qualify for EIIS relief, a designated fund must be approved by Revenue. Revenue may, if they think fit, designate a fund for EIIS purposes, and they may attach any conditions they think fit to the fund’s approval.

Can Revenue withdraw a designated fund’s approval?

(4) Revenue may withdraw a designated fund’s approval status by writing to the fund’s managers to notify them that the fund’s designated status is withdrawn. In such cases, subscriptions to the fund do not qualify for EIIS relief from the date of the notification.

A notice of withdrawal of a designated fund’s status must be published in Iris Oifigiúil.

What documents are required to support a designated fund investment?

(5) The investee company must send a certificate to the fund managers stating that the investor has complied with all the conditions for EIIS investment.

The investor’s claim must be supported by a certificate issued by the fund managers on the official Revenue form confirming that the EIIS company has complied with all the conditions for EIIS investment.

Can Revenue require a fund manager to provide them with details of investors?

(6) Revenue may require the fund managers to provide a return of shareholdings as recorded on the certificates issued to each EIIS investor, for the tax year to which the return relates.

This allows Revenue to check information contained in certificates filed with claims for relief.

What penalty applies for issuing an incorrect certificate?

(7) The €4,000 penalty detailed in section 501(6) does not apply to certificates issued by the managers of a designated fund in (5) above.

How does a fund become designated?

(8) To be designated, the fund must be established irrevocably under trusts which allow qualifying individuals to obtain EIIS relief by investing in EIIS companies.

The trust’s terms must provide that:

(a) Any money raised must be invested without delay in EIIS shares.

(b) The fund must only subscribe for EIIS shares in which the fund’s participants (qualifying individuals participating in the fund) can obtain EIIS relief.

(c) Before being invested in EIIS shares, any money raised must be put on deposit with a bank licensed to carry on business in the State.

(d) Dividends or interest received by the fund must be paid to the participants without delay and any deduction for the fund managers’ commission expenses must not exceed the rate stated in the fund’s trust deed.

(e) Management expenses must not exceed the rate stated in the fund’s trust deed.

(f) Audited accounts must be sent to Revenue each year.

(g) The fund’s managers or trustees must not be connected (section 11) either directly or indirectly with any of the companies in which the fund is investing.

(h) If the managers receive a discount for investing in certain EIIS shares, that discount is passed on to the participant.

(i) The fund cannot begin investing until all subscriptions have been received and the fund is closed for further subscriptions.

(j) Where the fund is limited, or subscriptions are only accepted in minimum amounts, any subscriptions that are not accepted must be returned to the subscribers without delay.

(k) EIIS shares bought on behalf of the participants must not be transferred to them until five years after the share issue date.

These rules are designed to protect investors, not to limit the relief.

Can Revenue delegate their powers?

(9) Revenue may delegate their powers under this section to an authorised Revenue officer.

Section 507 Reporting of relief

What information must a company or designated fund provide to Revenue?

(1) An EIIS company, or the manager of a designated fund, must, on receipt of a written request, provide Revenue (within the time limit specified in the notice) with information they may reasonably require to enable Revenue to compile its report to the EU on State Aid.

Does official secrecy apply in relation to State Aid?

(2) Although normally Revenue would be prevented by the Official Secrets Act from divulging taxpayer information, they may provide such information to a relevant person.

Can Revenue delegate their powers in relation to information reporting?

(3) Revenue may delegate their powers under this section to an authorised Revenue official.

Can Revenue publish information gathered in relation to State Aid?

(4) Revenue may publish information gathered in relation to State Aid.

What penalty applies for failure to provide State Aid information?

(5) A penalty of €2,000 applies to an EIIS company or a designated fund manager who does not provide the information mentioned in (1). If the information is not provided within 30 days of the date of the notice, a further penalty of €50 per day applies for each day after the 30th day on which the information remains outstanding.

Section 508 Nominees and designated funds

Amendments

Section 508 effectively repealed by Finance Act 2011 section 33(1)(a) (as amended by Finance Act 2012 section 26(2)) for shares issued on or after 25 November 2011, but not for shares issued before 25 November 2011 and, for all the purposes of this Part in connection with those shares, this Act has effect as if Finance Act 2011 section 33 had not been enacted. Finance Act 2011 section 33 also has no effect in respect of shares issued on or after 25 November 2011 and on or before 31 December 2011 where the company issuing the shares, or where the shares are acquired by an investment fund, the fund acquiring the shares, elects by notice in writing to the Revenue Commissioners on or before 31 December 2011 that, for all the purposes of this Part in connection with those shares, this Act has effect as if Finance Act 2011 section 33 had not been enacted.

Section 508A Reporting of relief

Amendments

Section 508A effectively repealed by Finance Act 2011 section 33(1)(a) (as amended by Finance Act 2012 section 26(2)) for shares issued on or after 25 November 2011, but not for shares issued before 25 November 2011 and, for all the purposes of this Part in connection with those shares, this Act has effect as if Finance Act 2011 section 33 had not been enacted. Finance Act 2011 section 33 also has no effect in respect of shares issued on or after 25 November 2011 and on or before 31 December 2011 where the company issuing the shares, or where the shares are acquired by an investment fund, the fund acquiring the shares, elects by notice in writing to the Revenue Commissioners on or before 31 December 2011 that, for all the purposes of this Part in connection with those shares, this Act has effect as if Finance Act 2011 section 33 had not been enacted.

Section 509 Interpretation (Chapter 1)

What is an approved profit sharing scheme?

(1) A company that sets up an approved profit sharing scheme (an approved scheme – APSS) governed by independent trustees appointed under the terms of the trust instrument may deduct the cost of shares provided to participating employees (participants).

A participant may receive up to €12,700 (€38,100 in the case of an employee share ownership trust (ESOT) worth of shares in any tax year, free of BIK. The trustees of the scheme, who hold the shares on behalf of participants, must hold the shares for at least two years (the period of retention).

A participant must hold shares until the release date (section 511).

Specified securities are securities transferred to APSS trustees by ESOT trustees which were acquired by the ESOT trustees on an amalgamation (section 586).

The term also includes securities which replaced those securities in a company reorganisation (section 584). This definition ensures that ESOT securities can be easily transferred to an APSS.

Are disposals treated as coming from shares acquired earlier or later?

(2) Where a participant sells shares from a mixed holding of relieved and unrelieved shares, the relieved shares are regarded as sold first.

Relieved shares disposed of from a batch of relieved shares are treated as disposed of on a First In First Out (FIFO) basis, i.e., shares bought earlier are treated as disposed of before shares bought later.

These rules override any direction given to the trustees.

How is tax calculated on a disposal of APSS/ESOT shares?

(3) A gain on a disposal of relieved shares is computed using the normal CGT rules: sale proceeds less purchase cost and any incidental costs of sale or purchase.

A disposal before the release date gives rise to income tax on the initial market value (section 510) of the shares and such value may be deducted as a CGT cost.

Although a participant is liable to BIK on shares appropriated before the release date (section 511), that income tax charge is not treated as a capital distribution from the company.

Can Revenue delegate their functions in relation to APSS/ESOTs?

(4) Revenue may delegate their APSS/ESOT functions to an authorised Revenue officer.

Section 510 Approved profit sharing schemes: appropriated shares

How is an appropriation of APSS shares valued?

(1)-(3) An appropriation of shares to a participant is based on the shares’ initial market value, i.e. their open market value at the appropriation date, or such earlier date as may be agreed between the trustees and Revenue.

Are APSS shares subject to income tax on BIK?

(4) As a participant, you are not liable to income tax on the benefit in kind arising from the appropriation of the shares to you by the trustees.

Is an appropriation of APSS shares subject to CGT?

(5) An appropriation of shares by the trustees to a participant is not a disposal for CGT purposes.

When are APSS/ESOT shares treated as appropriated?

(5A) Where APSS shares are appropriated to a participant, and the shares in question were previously transferred to the APSS trustees from an ESOT, the appropriation takes place on the day following the day on which the shares could first have been transferred by the ESOT trustees.

Are APSS trustees subject to trust surcharge?

(6) Provided the shares are appropriated within 18 months, dividend income arising to the trustees from APSS is not liable to the 20% surcharge on undistributed trust income (section 805). Similarly, any gain in the value of the shares is not chargeable to CGT.

In deciding what shares have been appropriated within the 18 month period, shares acquired earlier are treated as appropriated before shares bought later, i.e., the First In First Out (FIFO) rule applies.

Pre-appropriation dividend income received by the trustees on behalf of participants is liable to income tax in the hands of the participants.

Can Revenue seek information regarding APSS compliance?

(7) Revenue may write to any person asking him/her to provide, within a specified time limit which is not less than 30 days, any information they need to:

(a) approve a scheme, or withdraw a scheme’s approval,

(b) to determine a participant’s tax liability.

Must APSS trustees file a return with Revenue?

(8) The trustees must file a self-assessment form on or before 31 March in the following year. Penalties apply if the form is not filed.

Section 511 The period of retention, release date and appropriate percentage

What is the retention period?

(1) The retention period (the period of retention) is the period beginning on the date the shares are appropriated to the participant and ending:

(a) two years later, or

(b) the date the participant is no longer employed by the company (or a group company) due to disability or redundancy, reaches pensionable age, or dies,

whichever comes first.

What is the release date?

(2) The release date is the third anniversary of the date on which the shares were appropriated to the participant.

What is the appropriate percentage?

(3) If a participant ceases to be employed by the company, or reaches pensionable age before the release date, the BIK on the shares’ locked-in value (section 512) is reduced to 50% (the appropriate percentage) of the full charge.

What conditions must an APSS meet?

(4) An APS must not be approved unless every participant agrees:

(a) to allow the trustees to hold his/her shares for the retention period,

(b) not to dispose of his/her interest in the shares during that period,

(c) to pay the trustees income tax at the standard rate on the locked-in value (section 512) of any shares he/she instructs them to transfer to him/her before the release date,

(d) not to instruct the trustees to sell the shares to anyone before the release date other than for the best consideration obtainable.

Must a participant’s personal representatives pay BIK?

(5) A participant’s personal representatives are not bound to pay to the trustees any BIK tax payable on shares appropriated to the participant.

Can a participant instruct trustees?

(6) A participant may require the trustees to:

(a) accept an equivalent holding of new shares in place of the original shares,

(b) agree to any arrangement affecting all the ordinary shareholders,

(c) accept a combination of new shares and cash for the original shares,

(d) after the retention period has expired, buy back his/her interest in the shares at market value.

This may occur, for example, if the company is about to be taken over or merged.

Does a disposal during the retention period trigger a BIK charge?

(7) If a participant disposes of his/her interest he/she is chargeable to BIK on those shares, i.e., their value at the time they were appropriated to the participant.

Section 511A Shares acquired from an employee share ownership trust

What rules apply where shares are acquired from an ESOT?

(1) This rule applies where:

(a) APSS trustees appropriate shares to a participant (section 509(1)),

(b) the shares were transferred to the APSS trustees by ESOT trustees (section 519),

(c) the participant receiving the shares was a beneficiary under the ESOT throughout the holding period, i.e., the period beginning on the date the shares were acquired, or the person became a beneficiary, and ending on the date the shares were appropriated to him/her.

What is the retention period for ESOT-acquired APSS shares?

(2) Where ESOT-acquired APSS shares are appropriated to a participant, the retention period ends:

(a) if the holding period is two years or more, on the day following the end of a period, and

(b) if the holding period is shorter than two years, on the day following the end of a period which, when added to the holding period forms a period of two years (or if earlier the date which the retention period would have ended, for example due to retirement).

The relevant date (which usually ends on the third anniversary of the date on which the shares were appropriated) ends:

(a) if the holding period is three years or more, on the day following the holding period, and

(b) if the holding period is shorter than three years, on the day following the end of a period which, when added to the holding period forms a period of three years.

Section 512 Disposals of scheme shares

What is the locked-in value of APSS shares?

(1) The locked-in value of APSS shares is their initial market value (section 510) on the date they were appropriated to a participant, as reduced by any income tax charge on those shares.

Is a disposal before the release date subject to tax?

(2) A disposal of shares before the release date gives rise to an income tax charge on the appropriate percentage of the shares’ locked-in value. This may be reduced if the participant ceases to be employed by the company, or reaches pensionable age, before the release date (section 511(3)).

How is tax calculated on a disposal a profit sharing scheme?

(3) If the share sale proceeds are less than their locked-in value at the time of the disposal, income tax is charged on the lesser sale proceeds figure.

Example

You are appropriated 1,000 shares in X Ltd. worth €1 each.

One month later, you sell the shares for €2 each.

The locked-in value is the same as the initial market value: €1,000.

Income tax is charged on €1,000.

Had the shares been sold for €0.50 each, giving rise to sale proceeds of €500, income tax would be charged on €500.

How is tax calculated where there is a rights issue?

(4) Where there is a rights issue, any sale proceeds are reduced in the same proportion as the market value of the shares being sold bears to the market value of the entire holding. This is to calculate whether the income tax charge should apply to the sale proceeds as so reduced, or the shares’ locked-in value.

As “shares” includes securities or rights of any description, if new shares (which do not satisfy all of the conditions listed in Schedule 11) replace old shares on a company reconstruction, the scheme does not automatically cease to be approved.

Example

01.01.2007: You were appropriated 1,000 shares in X Ltd. worth €5 each.

01.01.2009: X Ltd. has a rights issue. All existing shareholders have the right to buy one share for every two shares they already hold, at the reduced price of €2.

You pay 500 x €2 = €1,000 to take up your rights.

20.02.2010: You sell 800 shares at €6 each, i.e., for €4,800.

The share history is:

Date Number of shares Locked-in value Payment for rights
01.01.2007 1,000 5,000
01.01.2009 1,000 500 = 1,500 5,000 1,000
20.02.2010 800 2,666

€2,666 is calculated as €5,000 x (800/1,500)

The payment of €1,000 for the rights is reduced in the proportion of the market value of the shares sold (€4,800) to the market value of the total holding (€9,000, i.e., €6 x 1,500):

€1,000 x (4,800/9,000) = €540.

It is therefore a reduced sales proceeds figure of €4,800 – €540 = €4,260 that must be compared with the shares locked-in value of €2,666.

As the locked-in value is lower than the reduced sales proceeds, income tax is charged on the locked-in value of €2,666.

What if rights issue proceeds are used to take up further rights?

(5) If the trustees use sale proceeds of some rights under a rights issue to take up the balance of the rights, such sale proceeds are not to be taken into account in calculating the reduction described in (4).

If there is more than one disposal after a rights issue, the payment figure to be used in calculating the reduction in (4) is itself reduced by any previous reductions on earlier disposals.

Example

In the previous example, assume the remaining 700 shares are sold on 3 March 2011 for €5 each.

The locked-in value of those shares is €5,000 – €2,666 = €2,334.

The sale proceeds are 700 x €5 = €3,500.

Therefore, for the purposes of the final disposal, the rights consideration is taken as €1,000 – €540 (the figure taken into account on the previous disposal) = €460.

The sales proceeds figure may therefore be reduced from €3,500 to €3,040 (€3,500 – €460).

As the locked-in value (€2,334) is lower than the reduced sales proceeds figure, income tax is charged on the locked-in value.

As the proceeds derive from the shares (not from the participant’s own resources) they cannot be taken into account in the reduction.

Are disposals treated as coming from shares acquired earlier or later?

(6) If a participant sells shares that were appropriated at different times, shares appropriated earlier are treated as disposed of before shares appropriated later.

This is referred to as the First In First Out (FIFO) rule.

Example

01.01.2007: 1,000 shares worth €5 each are appropriated to you.

01.01.2008: 500 shares worth €2 each are appropriated to you.

01.01.2009: You sell 1,500 shares for €2.50 each.

The locked-in value of the first appropriation is €5,000, i.e., 1,000 x €5. The sale proceeds are €2,500 (1,000 x €2.50). As the sale proceeds (€2,500) are less than the locked-in value (€5,000), income tax is charged on the sales proceeds.

The locked-in value of the second appropriation is €1,000, i.e., 500 x €2. The sale proceeds are €1,250, i.e., 500 x €2.50. As the locked-in value (€1,000) is less than the sales proceeds (€1,250), income tax is charged on the locked-in value.

Does an informal transfer count as a disposal?

(7) If a participant disposes of his/her beneficial interest in shares without formally transferring the shares, the trustees are treated as having disposed of the shares on the participant’s behalf.

In this regard, a disposal to a participant’s official assignee in bankruptcy is ignored.

How is a disposal at less than market value treated?

(8) In the case of a non-arm’s length disposal before the release date, or a disposal within the retention period, market value is substituted for the disposal proceeds.

Section 513 Capital receipts in respect of scheme shares

Is a capital receipt subject to tax?

(1) A participant is subject to income tax on any capital receipts to which he/she or the trustees become entitled, before the release date.

The tax is charged for the tax year in which the entitlement arises.

What is not a capital receipt?

(2) Money or other consideration does not count as a capital receipt if:

(a) it is already regarded as income in your hands,

(b) it consists of disposal proceeds from scheme shares (taxed as income under section 512),

(c) it consists of new shares that replace the original shares (as part of a company reconstruction or amalgamation:section 514).

Does a capital receipt include proceeds of a rights issue?

(3) Rights issue disposal proceeds, if used to exercise other such rights, count as capital receipts.

What is taxed if the value of a capital receipt exceeds the locked-in value?

(4) If the total capital receipt exceeds the shares’ locked-in value (immediately preceding the latest receipt), the income tax charge applies to the shares’ locked-in value.

Is a post-death capital receipt chargeable to tax?

(5) A capital receipt which arises after a participant’s death is not chargeable.

Is a capital receipt of less than €13 chargeable?

(6) A capital receipt of less than €13 is not chargeable.

Example

01.01.2008: 500 shares worth €1 each are appropriated to you.

01.01.2009: You obtain a capital receipt of €0.10 per share, i.e., €50.

Income tax is charged on the €50.

The locked-in value of the shares is now reduced to €450 (€500 – €50).

01.01.2010: You obtain a capital receipt of €1 per share annuity amounting to €500.

Your income tax charge is limited to €450 (the locked-in value of the shares).

30.06.2010: You sell the shares for €5 each.

There is no income tax charge, as tax has already been paid on the locked-in value of the shares.

Section 514 Company reconstructions, amalgamations, etc

Does a company reorganisation give rise to CGT?

(1)-(2) If new shares replace old shares as part of a genuine company reorganisation or reconstruction (section 584), the new shares stand in place of the old shares (the corresponding shares). The tax charge is deferred until the participant disposes of the new shares.

When does the share-for-share rule not apply?

(3)-(4) If the exchange of new shares for old is to extract capital from the company other than by way of distribution, the new shares do not stand in place of the old shares.

How is the locked-in value split among the replacement shares?

(5) The locked-in value of the old shares immediately before the reconstruction is distributed among the corresponding new shares, according to their market value immediately after the reconstruction.

The locked-in value of the new shares may only be reduced by post-reconstruction capital receipts. This is to prevent a double deduction for pre-reconstruction capital receipts.

Example

01.01.2008: 500 shares worth €1 each are appropriated to you.

01.01.2009: 200 shares worth €2 each are appropriated to you.

01.01.2010: There is a one for two bonus issue: you get 350 free shares.

Immediately before the bonus issue, you had:

500 shares with locked-in value of €500, and

200 shares with locked-in value of €400.

Because all the shares are of equal market value:

250 of the 350 bonus shares are allocated to the 500 shares with locked-in value of €500.

100 of the 350 bonus shares are allocated to the 200 shares with locked-in value of €400.

This means that after the bonus issue, you have:

750 (500 + 250) shares with locked-in value of €500, and

300 (200 + 100) shares with locked-in value of €400.

How are capital receipts received as part of a reconstruction treated?

(6) Any capital receipts received as part of a reconstruction are used to reduce the locked-in value of the old shares. That reduced figure then becomes the locked-in value of the new shares.

Example

01.01.2008: 500 shares in X Ltd. worth €1 each are appropriated to you.

01.01.2009: 400 shares in X Ltd. worth €1 each are appropriated to you.

01.01.2010: X Ltd. is taken over by Y Ltd.

Each shareholder in X Ltd. gets one share in Y Ltd. for every two shares he/she had in X Ltd. plus a further €0.20 for each share in X Ltd.

Immediately before the bonus issue, you had:

500 shares with locked-in value of €500, and

400 shares with locked-in value of €400.

The capital receipt of €180 (€900 x €0.20) reduces the locked-in value of the 500 shares by €100 (500 x €0.20 per share) and reduces the value of the 400 shares by €80 (400 x €0.20).

After the capital receipt is taken into account, you had:

500 shares with locked-in value of €400 (€500 – €100), and

400 shares with locked-in value of €320 (€400 – €80).

After the takeover, you have:

250 shares in Y Ltd. with locked-in value of €400, and

200 shares in Y Ltd. with locked-in value of €320.

01.04.2010: You sell 300 shares in Y Ltd. for €2 each.

The first in first out rule identifies these shares as 250 shares with locked-in value of €400, and 50 (one quarter) of the 200 shares with locked-in value of €320, i.e., the 50 have locked-in value of €80.

The locked-in value of the 250 shares (€400) is less than the disposal proceeds (€500), so the income tax is charged on the shares’ locked-in value.

The locked-in value of the 50 shares (€80) is less than the disposal proceeds (€80), so the income tax is charged on the shares’ locked-in value.

Do replacement shares carry rights of the old shares?

(7) Replacement shares carry all the rights of the corresponding shares.

Section 515 Excess or unauthorised shares

What is the annual limit that can be appropriated to a participant?

(1) The maximum value that may be appropriated to a participant in a single tax year is:

(a) in general, €12,700,

(b) in the case of ESOT-held shares , €38,100.

The rules in (4) to (7) apply to shares in excess of this limit (excess shares).

Is the annual limit apportioned when a person participates in several schemes?

(2) Where a participant in several schemes receives APSS shares in excess of the appropriate limit, the limit is divided in proportion to the value of the share appropriation under each scheme.

When does the limit for ESOT-held shares apply?

(2A) To qualify for the €38,100 limit:

(a) The shares must have been transferred to the APSS trustees from the ESOT trustees (section 519).

(b) In the five year period beginning on the date the ESOT was established, 50% of the shares held by the trustees were pledged as security for borrowings. The Minister for Finance may by order prescribe a period shorter than five years, and a percentage lower than 50%.

(c) The shares must have been held in the ESOT for not less than 10 years beginning on the date the trust was established, and ending when the period during which the shares pledged as security for borrowings (theencumbered period) expires. Revenue may now permit a loan period of less than 10 years.

(d) No shares so pledged were transferred to the APSS trustees before the encumbered period expires.

What tax year does the limit for ESOT-held shares apply to?

(2B) The €38,100 mentioned in (1) only applies:

(a) for the tax year in which the encumbered period expires,

(b) to shares appropriated to participants after the expiry date.

What are unauthorised shares?

(3) Shares appropriated to an employee who is not eligible to participate in an APSS are referred to as unauthorised shares.

How is a disposal of excess or unauthorised shares taxed?

(4) Excess or unauthorised shares are subject to BIK in the tax year in which they are appropriated.

A disposal of shares from a mix of relieved and unrelieved shares appropriated on the same date is treated as coming from the relieved shares.

Example

06.04.2006: 100 shares at €5 each allocated to you (an employee).

06.04.2008: 50 shares at €6 each allocated to you at a time when you are ineligible within Schedule 11 Part 4.

06.04.2012: 120 shares disposed of at €10 each.

The 120 shares disposed of comprise 100 allocated on 6 April 2006 and 20 unauthorised shares allocated on 6 April 2008 (first-in-first-out rule).

Normal scheme shares
Locked-in value 500
Disposal proceeds 1,000

Income tax is charged for tax year 2012 on 75% of €500, i.e., €375.

Unauthorised shares
Locked-in value = disposal proceeds 200
The income tax is charged for tax year 2012 on 100% of €200.

Note

If the remaining 30 unauthorised shares are retained by the employee until the release date they will be treated as having been sold immediately before that date and an income tax assessment under Schedule E will be made on the market value of the shares at that time.

Source: Revenue Guidance Notes; updated.

How is non-disposal of excess or unauthorised shares treated?

(5) Excess or unauthorised shares not disposed of before the release date are regarded as having been sold by the trustees for their market value immediately before the release date or if earlier, the participant’s death.

What is the locked-in value of excess or unauthorised shares?

(6) The locked-in value of excess or unauthorised shares at any time is their market value at that time.

Are new shares issued on a company reconstruction which replace excess shares treated as excess shares in a profit sharing scheme?

(7) On a company reconstruction or amalgamation (section 514), a new share is treated as an excess or unauthorised share if the corresponding old share was an excess or unauthorised share.

Example

Your holding in an approved scheme comprises 1,000 shares in X Ltd., 200 of which are excess shares.

The company is taken over and the trustees receive 3 shares in Y Ltd. for every 2 shares held in X Ltd.

Corresponding shares: 800 “X” non-excess
200 “X” excess
The new shares total 1,000 x (3/2) = 1,500 shares comprising
800 x (3/2) = 1,200 non-excess
200 x (3/2) = 300 excess

Source: Revenue Guidance Notes

Must Ministerial changes be approved?

(8) A Ministerial order to prescribe a period shorter than five years, or a percentage lower than 50% (see (2A)(b) above), must be laid before and passed by Dáil Éireann.

Section 516 Assessment of trustees in respect of sums received

Can shares be transferred before the release date?

If shares are transferred to a participant before the release date, the participant must pay the trustees income tax at the standard rate on the appropriate percentage of the shares’ locked-in value.

The chargeable amount is treated as an annual payment from which tax must be withheld, and the trustees are chargeable under Case IV.

Section 517 Payments to trustees of approved profit sharing scheme

Can a company deduct APSS payments to the trustees?

(1) A company that implements an APSS may deduct the cost of your payments to the trustees for tax purposes. An investment company may treat the payments as management expenses.

How must the payment to the APSS trustees be applied?

(2) The payment to the scheme trustees must:

(a) be applied in buying shares, for appropriation to participants, within nine months (the relevant period) of the accounting period in which it was charged, or

(b) be required by the trustees to meet the scheme’s reasonable management costs.

The nine month period may be extended by written permission from Revenue.

Is there a limit on company contributions to an APSS?

(3) A company is not entitled to deduct the cost of contributions to APSS trustees in so far as the cost exceeds its trading income after deducting current trading losses, terminal losses, capital allowances (net of any balancing charges) and stock relief.

An investment company is not entitled to a deduction for such contributions in so far as they exceed income less management expenses.

In other words, APSS contributions cannot be used to create or increase a loss.

Can Revenue limit the amount of APSS contributions allowable?

(4) A company’s APSS contributions are limited to the amount that Revenue consider reasonable, taking into account the number of participants, their pay levels, and the length of their service.

How are APSS payments treated?

(5) The trustees are treated as applying them on a first in first out (FIFO) basis.

Section 518 Costs of establishing profit sharing schemes

Is the cost of establishing an APSS scheme tax deductible?

(1)-(2) A company that implements an APSS scheme may deduct the cost of establishing the scheme for tax purposes. An investment company is entitled to a similar management expenses deduction.

When can APSS establishment costs be deducted?

(3) If a scheme is not approved until more than nine months after the accounting period in which its establishment costs were incurred, the costs may be treated as incurred in the accounting period in which the scheme was approved.

Section 519 Employee share ownership trusts

Can a company deduct the cost of implementing an ESOT?

(1)-(2) A company that implements an ESOT may deduct the costs of establishing and contributing to the trust for tax purposes. An investment company is entitled to a similar management expenses deduction.

The company must have employees who can benefit from the trust.

The trustees must spend the contribution on qualifying purposes within the expenditure period (see (5)).

When can a company deduct the cost of establishing an ESOT?

(3) If a trust is not established until more than nine months after the accounting period in which its establishment costs were incurred, the costs may be treated as incurred in the accounting period in which the trust was established.

What is “control”?

(4) A company controls another company if the first company can control the second company’s affairs, or obtain more than half the second company’s shares, voting power, income, or assets (on a winding up) (section 432(2)).

What are “qualifying purposes” for an ESOT?

(5) Qualifying purposes are:

(a) acquiring shares in the company that established the trust,

(b) repaying a loan,

(c) paying interest on a loan,

(d) paying a beneficiary of the trust,

(e) paying trust expenses,

(f) paying a personal representative of a deceased beneficiary under the terms of the trust deed.

The expenditure period is the nine months following the accounting period in which the expenditure was charged. The nine months may be extended by written permission from Revenue.

In what order are ESOT trustee payments treated as applied?

(6) ESOT trustees are treated as applying the payments to them on a first in first out (FIFO) basis.

Are ESOT trustees subject to income tax on dividend income?

(7) ESOT trustees are not chargeable to income tax on dividend income arising from shares held under the trust, provided the income is spent within the expenditure period (Schedule 12 para 13).

Accordingly, ESOT trustees are liable to the 20% surcharge on undistributed income (section 805).

Are ESOT trustees subject to CGT on disposals?

(7A) A gain accruing to the trustees on the open market sale of trust shares, or redemption of securities, is exempt provided the sale proceeds are used to:

(a) repay money borrowed by the trustees,

(b) pay interest on such borrowings, or

(c) pay a sum to the personal representatives of a deceased beneficiary.

Is a gain on a transfer from an ESOT to an APSS subject to CGT?

(8) A gain accruing to ESOT trustees on the transfer of shares to APSS trustees is exempt.

Is a gain on a transfer of shares to ESOT personal subject to CGT?

(8A) A gain arising to ESOT trustees on the transfer of shares to the personal representatives of a deceased beneficiary is exempt from CGT.

What ESOT payments are exempt?

(8B) The following ESOT payments are exempt:

(a) The payment to the personal representatives of a deceased beneficiary of sale proceeds of trust shares (see (7A)(c)).

(b) The transfer of shares to the personal representatives of a deceased beneficiary (see (8A)).

What happens if Revenue withdraw an ESOT’s approval?

(9) If Revenue withdraw approval of an employee share ownership trust:

(a) the company’s contributions to the trust are no longer tax deductible,

(b) dividends on shares held by the trust (see (7)) are not exempt,

(c) any gain accruing to the trustees on the transfer of shares to an APSS (see (8)) is not exempt,

(ca) a payment or transfer of shares to the personal representatives of a deceased beneficiary is not exempt,

(d) any gain accruing to the trustees on the open market sale of the shares or the redemption of securities (see (7A)) is not exempt.

What conditions must a deceased beneficiary meet for an ESOT payment/transfer to be exempt?

(10) This subsection is related to the exemptions from CGT (see (7A)) and income tax (see (8A)) given where the trustees of an ESOT transfer shares, or the proceeds from the sale of such shares, to the personal representative of a deceased beneficiary.

To qualify for this exemption, the deceased beneficiary must have been, at the date of his death:

(a) a participant in an approved profit sharing scheme, and

(b) a beneficiary in an ESOT which was obliged to transfer shares to participants within (a), and the terms of which provide for the transfer of shares (or share proceeds) to the personal representatives of a deceased beneficiary.

Section 519A Approved savings-related share option schemes

When is the grant of a share option exempt from BIK?

(1)-(2) When an employee or director of a body corporate obtains rights to acquire shares in that body under the terms of an approved savings-related share option scheme (ASRSOS – see Schedule 12A), the receipt of the right is exempt from BIK (section 116).

When is the exercise of a share option exempt from BIK?

(3) The exercise of an option under an ASRSOS is exempt from BIK (section 128), but see (4).

Is a disposal of shares to an ASRSOS body to a participant subject to tax?

(3A) This rule applies where a participant acquires scheme shares (Schedule 12A para 10) from an ASRSOS trust or company (the relevant body).

In such a case, no gain or loss arises on the disposal of the scheme shares by the relevant body to the participant. Furthermore, the participant is treated as acquiring the shares at the acquisition price paid (by the relevant body).

When is the exercise of an ASRSOS option not exempt?

(4) The exercise of an ASRSOS option within three years of it being obtained is not exempt from BIK.

Section 519B Costs of establishing savings-related share option schemes

Is the cost of setting up an ASRSOS tax deductible?

(1)-(2) The cost of establishing an ASRSOS is tax-deductible as:

(a) a trading expense to a trading company,

(b) a management expense to an investment company (section 83) or a life assurance company (section 707).

The deduction is allowed provided no employee or director obtains rights before the scheme has been approved.

Is the cost of ASRSOS shares tax deductible?

(2A) Any sum spent to enable the relevant body (section 519A(3A)) to acquire scheme shares is not tax-deductible. This is because the employer is supposed to fund the cost.

In what period is the cost of setting up an ASRSOS tax deductible?

(3) Where the scheme is approved more than nine months after the end of the accounting period in which the cost of establishing the scheme was incurred, the cost is treated as incurred in the accounting period in which the approval is given.

Section 519C Interests, etc under certified contractual savings schemes

Is interest paid under a certified contractual savings scheme taxable?

(1)-(3) Interest (or terminal bonus) paid to a participant by a qualifying savings institution under a certified contractual savings scheme (see (4)) is:

(a) exempt from income tax,

(b) not subject to DIRT (section 257).

A qualifying savings institution means:

– a holder of a licence to carry on a banking business in the State (or corresponding licence under the law of another EU State),

– a building society (section 256),

– a trustee savings bank (within the Trustee Savings Banks Act 1989),

– the Post Office Savings Bank,

– a credit union (within the Credit Union Act 1997),

– any other person prescribed by order of the Minister for Finance.

Qualifying institutions: Tax Briefing 42.

What is a certified contractual savings scheme?

(4) A certified contractual savings scheme is a scheme that meets the following conditions:

(a) The savings represented by periodical contributions made by individuals to a qualifying savings institution would otherwise be subject to DIRT (section 256).

(b) The individuals contributing the savings are eligible to participate in an APSS, and the contributions made by the individuals are used to purchase scheme shares.

(c) It is certified by Revenue as meeting the conditions in Schedule 12B.

See also: Tax Briefing 42.

What conditions must a contractual savings scheme meet?

(5) The rules in Schedule 12B apply in supplementing this section.

When does the certified contractual savings scheme legislation take effect?

(6) This section applies to interest (or terminal bonus) paid on or after 6 April 1999.

Section 519D Approved share option schemes

Amendments

Section 519D inserted by Finance Act 2001 section 15(a) from 30 March 2001.

This section is spent from 24 November 2010: Finance Act 2011 section 10(b).

Section 520 Interpretation (Chapter 1)

What is professional services withholding tax (PSWT)?

(1) Professional services withholding tax (PSWT) is deductible at the standard rate of tax from relevant paymentsmade by an accountable person (see Schedule 13) to a specified person, i.e., for professional services of:

(a) doctors, dentists, pharmacists, opticians and veterinary surgeons,

(b) architects, engineers, and quantity surveyors,

(c) accountants, auditors, and financial, economic, marketing, or business consultants,

(d) solicitors, barristers and other legal agents,

(e) geologists.

PSWT also applies to payments made by an authorised insurer to doctors for medical expenses covered by health insurance (i.e., a contract of insurance between an authorised insurer, and a subscriber).

PSWT does not apply to:

(a) salary payments that are taxed through the PAYE system,

(b) payments subject to relevant contracts withholding tax (RCWT, see section 530),

(c) payments made to a body exempt from corporation tax, or a Revenue-approved charitable body.

In general, PSWT (appropriate tax) applies to the VAT-exclusive amount.

A professional may claim credit for PSWT against his/her liability for the tax year, the basis period of which includes the income from which the tax was deducted. If two basis periods overlap, the period common to both is treated as part of the second basis period. If there is an interval between two basis periods, the interval is treated as part of the second basis period.

For Case IV income, which is taxed on the rolling basis, credit is given against that tax year’s liability.

Example

A VAT-registered barrister charges €1,230 (€1,000 + 23% VAT) to a government department for professional services supplied.

Payment due 1,000
VAT at 23% 230
Gross due 1,230
Calculation of PSWT
VAT-exclusive sum 1,000
PSWT at 20% 200
Net 800
VAT on €1,000 at 231% 230
To be paid to payee 1,030
To be paid to Collector-General 200
Total 1,230

What amount is subject to PSWT?

(2) If the service provider is not registered for VAT, PSWT applies to the gross payment before any such tax is deducted.

Where a professional person has PSWT deducted from several payments to him/her for a period, the term appropriate tax means the aggregate of the tax deducted from those payments.

(3) Legislation spent.

Section 521 Accountable persons

Who is an accountable person?

(1) The accountable persons who must deduct PSWT from payments made to professionals are the government departments and other State-funded bodies listed in Schedule 13.

Are subsidiaries of an accountable person required to deduct PSWT?

(2) A subsidiary of an accountable person or a company otherwise under the control of an accountable person or accountable persons must also deduct PSWT from payments made to professionals.

Who decides who is an accountable person?

(3) The Minister for Finance may make regulations to add a person to, or delete a person from, the list of accountable persons.

How are PSWT regulations made?

(4) Such regulations must be laid before and passed by Dáil Éireann.

Section 522 Obligation on authorised insurers

Does PSWT apply to payments made by an authorised insurer?

PSWT applies to payments made by an authorised insurer, i.e., health insurance provider, to a doctor or the employer of a doctor for medical expenses covered by the patient’s health insurance.

It does not apply to medical expenses, in excess of a stated amount, that may only be claimed under the insurance contract 12 months or more after being incurred.

It does not apply to medical services provided by a practitioner outside the State.

Section 523 Deduction of tax from relevant payments

When should an accountable person deduct PSWT?

(1) An accountable person must deduct PSWT from a payment for professional services. The payee must allow the deduction, and the payer is treated as if he/she had paid the gross amount to the payee.

PSWT must be deducted notwithstanding that the specified person produces a tax clearance certificate.

Is a practitioner required to refund an overpayment to the customer?

(2) If a practitioner’s fees have been overpaid because he/she has been paid by both the insured customer and the authorised insurer, the practitioner must refund the customer any excess of the aggregate of the payments received over the actual medical fees involved.

What is covered by PSWT regulations?

(3) The Minister for Finance may make regulations governing the administration of PSWT by authorised insurers. These regulations may deal with:

(a) the medical expense payments to be subject to PSWT,

(b) the indemnification of an individual against medical expense claims.

Such regulations must be laid before and passed by Dáil Éireann.

How does a professional person account for PSWT?

(4) A professional person who has received a payment net of PSWT must include the gross payment in his/her accounts for tax purposes.

The payee is entitled, in computing his/her tax liability, to a credit for the PSWT suffered.

Section 524 Identification of, and issue of documents to, specified persons

What information must a professional person provide to an accountable person?

(1) A professional person (specified person) who is resident in the State must provide the paying accountable person with his/her income tax (or corporation tax) number and VAT number (if VAT registered).

A professional person who is not resident in the State must provide the paying accountable person with his/her tax reference number in their country of residence.

What information must a professional partnership provide to an accountable person?

(1A) A professional partnership (specified person) resident in the State must provide the paying accountable person with the partnership tax and VAT number (if VAT registered).

A non-resident partnership must provide the paying accountable person with its tax reference number in its country of residence.

What information must an accountable person provide to a professional person?

(2) The paying accountable person or partnership must provide the professional person with a form showing:

(a) his/her/its name, address, and tax reference number,

(b) the amount of the payment and the RSWT deducted,

(c) the date of the payment.

Can an accountable person verify the tax number provided?

(3) The accountable person can ask the professional person or precedent partner for evidence that the number provided is correct or can request confirmation of the number from Revenue.

Section 525 Returns and collection of appropriate tax

When is PSWT due?

(1) PSWT must be paid to the Collector-General within 14 days of the end of the tax month.

An income tax month (section 520) is a calendar month.

What return must an accountable person submit to Revenue?

(2) An accountable person must file a monthly return to the Collector-General containing the information required by the return form.

Must a return be filed if no PSWT is due?

(3) An accountable person who has made no payments to professional persons in the month must file a “nil” return to Revenue.

Must a PSWT return be made on a particular return form?

(4) A PSWT return must be made on the appropriate Revenue form. The person completing the return must sign a declaration that the return is correct and complete.

Must the Collector-General issue a receipt?

(5) The Collector-General must issue a receipt for PSWT paid.

How is the collection of unpaid PSWT enforced?

(6) The tax collection procedures that apply in relation to relevant contracts tax (Chapter 2) are available to the Collector-General to enforce payment of unpaid PSWT and interest.

Section 526 Credit for appropriate tax borne

Can PSWT be credited against a company’s tax liability?

(1) PSWT suffered may be set against the company’s corporation tax liability for the period in which the income arises. If the PSWT exceeds liability for that period, the excess must be refunded.

Can PSWT be set against an individual’s tax liability?

(2) PSWT suffered by an individual may be set against the individual’s tax liability for the tax year in the basis period of which the income arises.

Example

If you estimate preliminary tax liability (section 952) for a tax year to be €15,000, and you have PSWT credits of €10,000 available, these can be used as part payment of the preliminary tax liability, leaving the balance of €5,000 to be paid directly to the Collector-General (section 958).

How is a claim made for PSWT credit?

(3) A claim for PSWT credit must be made on the appropriate form.

How is the total PSWT claim calculated?

(4) The total credit for PSWT is the total of the amounts shown on the appropriate forms relating to that period.

What is meant by tax chargeable?

(5) Tax chargeable is income tax or corporation tax chargeable as defined in section 959A

Section 527 Interim refunds of appropriate tax

Can a person claim an interim refund of PSWT?

(1) A payee who has suffered excessive PSWT for an accounting period or tax year basis period (the first mentioned period) may claim an interim refund or offset of PSWT suffered in respect of a claim period which is, or which falls within, that first mentioned period.

Application is made on Form F50 (available from any tax office).

How does a person qualify for an interim refund of PSWT?

(2) To qualify for an interim refund, a claimant must have finalised his/her profits figure for tax purposes and paid his/her tax for the tax year immediately preceding the year of the claim. The claimant must also submit the withholding tax forms (F45) for the year of the claim.

Example

You claim an interim refund on PSWT withheld from a payment made on 1 May 2012 which was earned in April 2012.

For you to claim the refund, the profits of the basis period for 2011 must have been finally determined and the tax payable for 2011 must have been paid.

How is an interim refund of PSWT calculated?

(3) An interim refund or offset is made for the excess of PSWT shown on the forms over the tax liability for the immediately preceding year, less any arrears of VAT and PAYE/PRSI.

(3A) Legislation spent.

Can an interim refund of PSWT be made for a start-up year?

(4) Where an interim refund or offset claim is made for a tax year for which there is no immediately preceding tax year or accounting period (in other words, in a start-up year), the refund or offset is calculated as the lesser of:

(a) the PSWT deducted in the claim period (net of any refunds already made for the period), or

(b)

E x (A/B) x (C/P) x standard rate of income tax

where:

E is the total business expenses for the basis period (see (1)),

A is the total income on which PSWT has been suffered for the claim period (see (1)),

B is the total (expected) trading or professional income for the basis period (see (1)),

C is the is the number of months in the claim period (see (1)), and

P is the number of months in the basis period (see (1)).

The formula time-apportions the business expenses for the basis period to the claim period and then applies the standard rate to that amount.

Example

01.07.2012: You began practising as a barrister.

Your first tax year is the tax year 2012, the basis period of which is the period 1 July 2012 to 31 December 2012 (six months).

12.10.2012: You received €20,000 from the Department of Justice in respect of professional fees, from which €4,000 PSWT was deducted. You expect to earn €40,000 in the six month period to 31 December 2012, and your business expenses for the six months are expected to be €10,000.

You may use the F45 form to claim an interim refund for the claim period (July – October 2012) of

€10,000 x (€20,000/€40,000) x (4/12) x 20% =

€1,667 as this is lower than the €4,000 PSWT suffered.

Can Revenue waive the PSWT refund rules in hardship cases?

(5) In cases of particular hardship, Revenue may waive any of the preceding conditions and make an interim refund or offset of the amount which they consider “just and reasonable” in the circumstances.

Meaning of “particular hardship”: SP IT/3/90, December 1990.

What basis is used to calculate expected profits?

(6) In the interim refund formula in (4), “B” means total trading or professional income on the normal accruals basis. Investment and rental income is ignored.

Section 528 Apportionment of credits or interim refunds of appropriate tax

How is PSWT paid by a partnership treated?

PSWT paid by a partnership is apportioned between the partners for credit purposes. An interim refund of tax must also be apportioned between the partners.

See also Tax Briefing 22.

Section 529 Limitation on credits or interim refunds of appropriate tax

Can PSWT be credited more than once?

PSWT may only be set off or refunded once.

PSWT that has already been refunded or set off against tax is not available for set off. Once used, it is gone.

Section 529A Partnerships

Can an accountable person make a payment to a partnership?

(1) Yes, a payment can be made in the name of a professional partnership.

How is a payment to a partnership treated?

(2) Payments to a partnership are deemed to be apportioned to each of the partners in proportion to their shares of the profits and tax deducted is similarly apportioned.

How is the share shown to the partners?

(3) The precedent partner must provide each partner with a statement showing details of the apportionment of the payment and tax deduction together with a copy of the F45.

How can the statement be provided?

(4) The statement can be provided in writing or by electronic means.

Section 529B Interpretation (Chapter 1A)

What definitions apply to this chapter?

(1) Appropriate tax is income tax at the standard rate on the payment net of VAT.

Qualifying company is a qualifying film production company.

Chargeable periodis a period of one or more months in respect of which Revenue have given notice that a return is required under section 529E or, in the absence of such a notice, a calendar month.

Non-resident means an individual who is not resident in Ireland, another EU State of an EEA State.

Relevant payment is a payment to a non-resident artiste for artistic services rendered to a film company including payments for rights held by the artiste. Irish taxed salaries or wages are not included.

Specified person si a person to whom a relevant payment is due.

Does “relevant payment” mean the gross or net amount?

(2) The relevant payment is the amount that would be payable if no appropriate tax was due.

Section 529C Deduction of tax from relevant payments

Must tax be deducted from relevant payments?

(1) A film company must deduct tax at the standard rate from payments to non-resident artistes. The artiste must allow the deduction and the company is deemed to have made the payment in full.

Are expenses allowable?

(2) An artiste is entitled to have a relevant payment reduced by the amount of any unreimbursed expenses he/she has incurred. The artiste may make a claim for expenses to Revenue and if a Revenue officer is satisfied that the expenses would not have been disallowed in a trade or profession the officer may notify the film company of the amount of expenses to be allowed as a deduction for tax purposes.

Is there a penalty for failing to deduct tsx?

(3) If a film company fails to deduct tax on making a relevant payment it remains liable to Revenue for the tax and may be liable for a penalty of up to €5,000.

Section 529D Identification of, and issue of documents to, specified persons

What must an artiste provide to a film company?

(1) The artiste must provide the company with his/her country of residence, and address and tax reference there.

What must the company provide in respect of a payment?

(2) On making a payment to company must provide the artiste with a certificate of tax deduction containing the particulars listed in this subsection.

Section 529E Returns by qualifying company

What returns must a film company make?

(1) A company that makes relevant payments must make a return of those payments to Revenue on or before the due date.

How is the return to be made?

(2) The return must be made electronically.

Is there a penalty for failure to make a return?

(3) A company that fails to make a return is liable to a penalty equal to the amount of tax or €5,000, whichever is less.

Can Revenue make regulations for this purpose?

(4) Revenue may make regulations concerning the manner of making electronic returns, the particulars to be included in the return and any other relevant matters.

Section 529F Payment of tax by qualifying company

When must a company pay the tax?

A film company must pay the tax deducted to the Collector-General on or before the due date for a chargeable period.

Section 529G Assessment by Revenue officer

Can Revenue raise assessments?

(1) If a Revenue officer has reason to believe that a film company has made relevant payments but has not remitted appropriate tax or the correct amount of tax he/she may raise an assessment using his/her best judgement of the amount due.

Is the amount in such an assessment payable?

(2) Subject to the right to appeal the amount specified in an assessment is due and payable by the company assessed.

Can Revenue amend an assessment?

(3) A Revenue officer may amend an assessment and may issue a notice of assessment or amended assessment by electronic means.

Is there a right of appeal?

(4)(a) A company aggrieved by an assessment may appeal in writing to a Revenue Officer within 30 days of the notice of assessment.

(b) A company cannot appeal to the Appeal Commissioners unless it has made a return and paid the tax in accordance with the return.

(c) The Appeal Commissioners must hear the appeal as if it were an appeal against a n income tax assessment. A further appeal may be made to the High Court on a point of law.

Section 529H Interest on late payment of appropriate tax

Is interest chargeable on late payments?

(1)&(2) Interest is chargeable in the same manner as interest on late payment of income tax.

Section 529I Repayment of appropriate tax

Can appropriate tax be repaid?

(1) Appropriate tax cannot be repaid unless there is a determination by a Revenue officer. A relevant payment is deemed to be income taxed under Schedule D, Case IV. That part of the person’s income is chargeable to tax at he standard rate. The tax deducted is allowed as a credit against the person’s liability.

A specified person can claim a deduction for expenditure which would be allowable in computing the profits of a trade or profession that was not reimbursed or reimbursable. A Revenue officer must make a determination in relation to the claim. A repayment of the appropriate tax on the amount so determined shall be made and the person will be so notified.

Can a determination be appealed?

(2) A person aggrieved by a determination may appeal to the Appeal Commissioners by notice to Revenue within 30 days of the determination.

How must the Appeal Commissioners deal with the appeal?

(3) The Appeal Commissioners must hear the appeal as it it were an appeal against an income tax assessment and the same rules as to a rehearing and stating a case for the High Court on a point of law apply.

Must the Revenue Commissioners make regulations?

(4) The Revenue Commissioners shall make regulations governing how a claim under this section is to be made.

Section 529J Obligation on specified person

What obligations has a specified person?

An individual who is to receive a relevant payment form a film company must supply the company with such information as it requires to comply with its obligations to deduct tax.

Section 529K Record keeping and inspection of records

What records must a film company keep?

(1)The company is obliged to keep records of payments, tax deducted and the names, addresses and tax reference numbers of the artistes to whom payments are made and the date of the payments.

What obligations apply to these records?

(2) They must be maintained in Irish or English and must be retained for 6 years.

When must the records be produced?

(3) A person who has made or received a relevant payment must produce the records on request to an authorised Revenue officer. Such an officer must be authorised in writing by the Revenue Commissioners and must produce his authorisation on request.

Section 529L Civil penalties

What rules apply to penalties imposed by this chapter?

The rules in Chapter 3A of Part 47 apply.

Section 529M Miscellaneous

Must regulations made be laid before Dáil Éireann?

(1) Yes. The Dáil may annul the regulations within 21 days of its next sitting but that will not prejudice anything done before the annulment.

Can another person act on behalf of a film company?

(2) A company may authorise another person to act on its behalf. Unless the contrary is shown anything done by that person will be deemed to be done by the company.

Can Revenue use electronic systems?

(3)Anything Revenue are required to do, other than the making of regulations, may be done by a Revenue officer using Revenue’s electronic systems.

Section 530 Interpretation (Chapter 2)

What is relevant contracts withholding tax (RCWT)?

(1) Relevant contracts withholding tax (RCWT) must be deducted from payments made by a main contractor (the principal) to an uncertified subcontractor who has been engaged to carry out a relevant contract.

The principal contractor must file an RCWT return, and pay any RCWT deducted, to the Collector-General within nine days of the end of every income tax month (calendar month).

A subcontractor is regarded as a certified subcontractor if:

(a) his/her principal contractor holds a relevant payments card, and

(b) that principal has not been notified by Revenue that the subcontractor’s certificate has been cancelled.

An uncertified subcontractor is a subcontractor who has not been certified. To obtain such a certificate, a non-resident applicant must have been tax compliant with the laws of the country in which he/she is tax resident for aqualifying period of three years (section 531(11)).

A relevant contract is a contract undertaken by a main contractor to carry out relevant operations, i.e., construction operations, forestry operations, or meat-processing operations.

An unreported payment notification is a notification to Revenue of a payment from which RCWT was not deducted.

A main contractor who uses a gang of subcontractors must treat each gang member individually, and, where necessary, apply RCWT to payments to the individual gang members.

A main contractor need not deduct RCWT when paying an authorised subcontractor, i.e., one who has a subcontractor’s certificate.

Construction operations include:

(a) Construction, repair, extension or demolition of buildings.

(b) Construction, repair, extension or demolition of structures attached to land or buildings, including canals, docks, drainage installations, harbours, industrial plant, pipelines, power lines, telecommunications apparatus, railways, roads, runways, sewers, walls, water works.

(c) Installation of a plumbing, electricity, gas, air-conditioning, sound-proofing, ventilation, security or fire protection system in a building.

(ca) Installation, alteration or repair of telecommunications systems in any building or structure. According to the Guidance Notes, this is aimed at “two-way” telecommunications, i.e., mainly mobile and fixed line telecommunications. It covers the installation/upgrading of mobile telecommunications networks and the installation of local wireless networks.

(d) Cleaning of a building’s exterior (other than normal maintenance).

Cleaning of a building’s interior while the building is being built, repaired, extended or demolished.

(e) Site clearance and preparation work, i.e., excavation, tunnelling, laying of foundations, erection of scaffolding, provision of roads and access works.

(f) Drilling operations relating to exploration for minerals, including oil or gas.

(g) Haulage of building materials and related machinery or plant.

Forestry operations include:

(a) Tree lopping, felling or thinning.

(b) Tree planting.

(c) Tree maintenance and the preparation of cleared forest land for planting.

(d) Haulage of trees that have been thinned, lopped or felled.

(e) Processing of wood from trees that have been thinned, lopped or felled.

(f) Haulage of forestry materials, and machinery or plant.

Meat-processing operations include:

(a) The slaughter of cattle, sheep, pigs, or poultry, i.e., domestic fowl, turkeys, guinea fowl, ducks or geese.

(b) Catching of poultry.

(c) Cutting, boning, sorting, packaging or branding of carcasses of slaughtered cattle, sheep, pigs, or poultry.

(d) Applying preservation methods, including cold storage, to the carcasses of slaughtered cattle, sheep, pigs, or poultry.

(e) Loading or unloading carcasses of slaughtered cattle, sheep, pigs, or poultry at a meat processing plant or storage building.

(f) Haulage of carcasses of slaughtered cattle, sheep, pigs or poultry from a meat processing plant or storage building.

(fa) Rendering of the carcasses of slaughtered cattle, sheep, pigs, domestic fowl, turkeys, guinea-fowl, ducks or geese.

(g) Cleaning of a meat processing plant or storage building.

(h) Grading, sexing and transport of day old poultry chicks.

(i) Haulage of cattle, sheep, pigs, poultry, or materials, machinery or plant used in any of the activities mentioned in (a)-(h).

To qualify for a subcontractor’s certificate, section 531(1) requires that the tax liabilities of the applicant, and any company of which he/she is a proprietary director or proprietary employee, must be fully paid for the qualifying period, i.e., the three tax years immediately preceding the tax year in which the certificate is applied for. The three year period may be reduced at the discretion of the inspector.

A proprietary director, is a director who can control, directly or indirectly, more than 15% of the ordinary share capital of the company of which he/she is a director.

In the context of RCWT, a director of a body corporate means:

(a) a member of the board of directors,

(b) the sole manager, or director of a body corporate the affairs of which are managed by that manager or director,

(c) a member of a body corporate the affairs of which are managed by the members themselves.

A proprietary employee is an employee who can control, directly or indirectly, more than 15% of the ordinary share capital of the company of which he/she is an employee.

An unreported payment notification is a notification to Revenue of a payment that was not notified by the principal and for which the principal had no deduction authorisation.

(g) is aimed at hauliers who deliver materials on behalf of manufacturers of building materials, for example, drivers of concrete mixers. It also includes transport of bulldozers, caterpillar-type tractors etc, and could conceivably apply to a courier delivering a bag of cement.

An arrangement whereby hauliers would buy quarry materials and sell it at a mark up (in effect equivalent to the haulage cost) was not regarded as coming within para (g): O’Grady v Laragan Quarries Ltd, 4 ITR 269.

Are companies required to operate RCWT?

(2) RCWT applies to corporation tax accounting periods as it applies for income tax years.

A corporate subcontractor can offset RCWT against its corporation tax liability.

What shares does a proprietary director control?

(3) A proprietary director or employee is regarded as controlling shares owned by

(a) his spouse/civil partner,

(b) his minor children and the minor children of his civil partner,

(c) a trust of which the director or employee is a beneficiary.

Does RCWT apply to all relevant operations carried out in the Republic of Ireland?

(4) This is an anti-avoidance rule. It confirms that RCT applies where relevant operations are carried out in the Republic of Ireland (including its continental shelf), irrespective of whether:

(a) the principal or the subcontractor in question are not resident in the Republic of Ireland, or do not have a branch or permanent establishment in the Republic,

(b) the contract in question if governed by foreign law,

(c) the payment is made outside the Republic of Ireland.

Section 530A Principal to whom relevant contracts tax applies

Who must operate RCWT?

(1) The following persons must operate RCT:

(a) a person who is a contractor under a relevant contract,

(b) a person carrying on a business consisting of construction, meat-processing or wood-processing,

(c) a person connected with a company carrying on business in (b),

(d) a local authority or housing body,

(e) a Government Minister,

(f) a statutory board funded by public money,

(g) a person who carries on a gas, water, electricity, hydraulic power, dock, canal or railway undertaking,

(h) a person who carries out the installation, alteration or repair of telecommunication systems in any building.

Must a business owner operate RCWT on construction/development work for the business?

(2) A person who uses a subcontractor to erect a building, or to develop land, for use by that person or his/her employees, is not regarded as a main contractor and need not therefore operate RCWT.

Is a non-developer required to operate RCT?

(3) A non-developer does not need to operate RCT on a subcontractor who carries out work at that person’s business premises.

Section 530B Notification of contract by principal

What information must a principal contractor provide to Revenue?

(1) On entering a relevant contract, the principal contractor must provide Revenue with:

(a) information relating to the subcontractor’s identity, the contract value, the contract duration, the contract location and whether the contract is labour only, and

(b) a declaration that the contractor is not his/her employee.

Must a principal contractor verify a subcontractor’s identity?

(1A) Before notifying Revenue, a principal must verify the identity of the subcontractors through documentary evidence and keep details of such evidence.

Must a principal provide information on old contracts?

(2) The principal must provide the information and declaration mentioned in (1) if a contract payment is outstanding.

How should a principal provide information to Revenue?

(3) A principal must provide the information mentioned in (1) to Revenue in electronic format.

Can Revenue make regulations regarding RCWT information?

(4) Revenue may make regulations providing for:

(a) the electronic means by which principals must communicate with Revenue,

(b) in the case of a labour only contract, the provision of additional information in relation to the contract,

(c) the issuing by Revenue of an acknowledgement to a principal,

(d) notification by Revenue to a subcontractor of details of a contract, including changes to a contract,

(e) notification by a principal to Revenue of changes to a contract,

(f) notification by a principal to a subcontractor where Revenue are unable to verify the subcontractor’s identity,

(g) any other related matters.

Section 530C Notification of relevant payment by principal

What must a principal do before paying a subcontractor?

(1) Before paying a subcontractor, a principal must notify Revenue of his intention to make the payment and the amount of the payment.

How should a principal contractor provide payment information to Revenue?

(2) A principal contractor must provide the information mentioned in (1) to Revenue in electronic format.

Can Revenue make regulations regarding RCWT payment information?

(3) Revenue may make regulations providing for:

(a) the manner by which principals must communicate electronically with Revenue,

(b) details to be supplied by a principal in relation to a payment,

(c) the circumstances and means by which a principal may cancel a notification given,

(e) notification to a subcontractor where a payment notification is cancelled, and

(f) any other related matters.

Section 530D Deduction authorisation

When must Revenue issue an RCWT deduction authorisation to a principal?

(1) When a principal contractor notifies Revenue of his intention to make relevant payment, Revenue must issue a deduction authorisation to the principal in respect of the payment.

What information should an RCWT deduction authorisation contain?

(2) A deduction authorisation must:

(a) specify the rate of tax to be deducted from the payment, and

(b) authorise the principal to deduct a specified sum of tax from the payment.

What must Revenue do at the end of each return period?

(3) At the end of each period, Revenue must issue a deduction summary to each registered principal.

In what format should an RCWT deduction authorisation be issued?

(4) RCWT deduction authorisations should be issued in electronic format.

Can Revenue make regulations regarding RCWT deduction authorisations?

(5) Revenue may make regulations providing for:

(a) the manner by which Revenue must communicate electronically with a principal,

(b) the circumstances in which, and the period for which, a deduction authorisation is valid,

(c) the details to be contained in a deduction summary,

(d) the principal’s obligation to ensure that the deduction summaries accurately reflect the payments made and the tax deducted in the return period,

(e) any other related matters.

Section 530E Rates of tax

At what rates is RCWT deductible?

(1) RCWT is deductible at the following rates:

(a) 0%, provided Revenue have made a determination that the taxpayer is a zero rate subcontractor,

(b) 20% ( the standard rate) provided Revenue have made a determination that the taxpayer is a standard rate subcontractor, and

(c) 35% in the case of a subcontractor who is neither a zero rate subcontractor nor a standard rate subcontractor,

(d) the highest rate applicable to any of the partners, in the case of a partnership where Revenue have made a determination (section 530I).

What Revenue determination is taken into account?

(2) In deciding the rate at which RCWT is to be operated, the determination to be taken into account is the most recent determination issued by Revenue.

Section 530F Obligation on principals to deduct tax

Is a principal bound by the Revenue authorisation?

(1) A principal may only deduct tax in accordance with the terms of the deduction authorisation.

Can a principal make a payment without authorisation?

(2) A principal who fails to operate RCWT as required by section 530A(1) is liable to a penalty of:

(a) 35% where no determination of the correct rate has been made under section 530I,

(b) 20% where the subcontractor was neither a zero rate nor a standard rate contractor,

(c) 10% where the subcontractor was a standard rate contractor,

(d) 3% where the subcontractor was a zero rate subcontractor.

What must be done if RCWT was not properly operated?

(3)(a) The principal must submit an unreported payment notification to Revenue.

(b) Revenue may make regulations setting how an unreported payment notification is to be made and what details it should contain.

What are a principal’s obligations to a subcontractor?

(4) A principal who has paid a subcontractor must give the subcontractor:

(a) a copy of the deduction authorisation in relation to that payment,

(b) the following details, in hardcopy or by email:

(i) the principal’s name, address, and tax reference number,

(ii) the subcontractor’s name and tax reference number,

(iii) the gross payment before RCWT has been deducted,

(iv) the RCWT deducted,

(v) the rate at which RCWT was deducted,

(vi) the date of the payment,

(vii) the unique reference number issued by Revenue for the deduction authorisation.

What penalty applies in the case of technology failure?

(7) A principal who is unable to notify to Revenue due to a “persistent technology systems failure” is not liable to a penalty, provided he:

(a) deducts RCWT from the payment at the rate last notified to him by Revenue, or at 35% if there was no such notification,

(b) notifies Revenue of the payment,

(c) provides Revenue with any details they may require in relation to the payment, and

(d) pays the RCWT deducted on or before the return due date for the period in which he notified Revenue of the payment.

Is a payment made during a technology failure valid?

(8) A payment that meets the conditions in (7) is deemed to have been made in accordance with a valid deduction authorisation.

Such a payment is deemed to have been made in the period in which the principal notified Revenue of the payment.

Must a principal notify Revenue of a technology failure?

(9) A principal must notify Revenue of a technology failure.

Section 530G Zero rate subcontractor

What is a zero rate subcontractor?

(1) To be regarded as a zero rate subcontractor, a person must meet the following conditions:

(a) He must carry out construction, forestry or meat-processing activities (relevant operations) on a subcontract basis.

(b) He must carry on business from a fixed establishment and have sufficient equipment, stock or facilities for the purposes of the business.

(c) He must keep proper accurate business records.

(d) He must throughout the previous three year period have been fully compliant as regards payment of tax (income tax corporation tax, CGT, VAT), filing of returns, and provision of information to Revenue.

(e) If he was non-resident, he must have kept proper records and have been tax compliant in the State in which he was resident.

What prevents a person qualifying as a zero rate subcontractor?

(2) A person does not qualify as a zero rate subcontractor if any of the following conditions are met:

(a) He carries out relevant contracts in partnership and one or more of the partners is not fully tax compliant. Revenue must also be satisfied that the partnership will continue to be compliant.

(b) The person is a company, and one or more of the owners or directors is not fully tax compliant.

(c) He carries on business as a sole trader or proprietary director of a company, and is not fully tax compliant.

(d) The Revenue Commissioners take the view that he will be unlikely to be tax compliant in the future.

(e) If relevant operations are or were conducted by:

(i) a connected company,

(ii) a company controlled as to 15% or more by one of the partners in a partnership now seeking authorisation as a zero rate subcontractor,

(iii) a partnership where one of the partners is or was a company controlled by the partnership.

Can Revenue authorise a person as a zero rate contractor?

(3) Revenue can authorise a person as a zero rate subcontractor if they are satisfied that the conditions in (1) or (2) ought to be disregarded.

Section 530H Standard rate subcontractor

What is a standard rate subcontractor?

(1) To be regarded as a standard rate subcontractor, a person must meet the following conditions:

(a) He must carry out construction, forestry or meat-processing activities (relevant operations) on a subcontract basis.

(b) He must carry on business from a fixed establishment and have sufficient equipment, stock or facilities for the purposes of the business.

(c) He must keep proper accurate business records.

(d) He must throughout the previous three year period have been fully compliant as regards payment of tax (income tax corporation tax, CGT, VAT), filing of returns, and provision of information to Revenue.

(e) If he was non-resident, he must have kept proper records and have been tax compliant in the State in which he was resident.

(f) He must provide Revenue with the information necessary to register him for tax purposes.

(g) He must not be a zero rate subcontractor.

Can Revenue make regulations regarding RCWT compliance?

(2) Revenue can make regulations detailing what matters shall be taken into account in determining whether a person is tax compliant, including:

(a) payment of tax, interest and penalties,

(b) filing of returns,

(c) supply of information to an authorised Revenue officer,

(d) the extent to which the person addresses non-compliance.

What is a standard rate subcontractor?

(3) A person does not qualify as a standard rate subcontractor if any of the following conditions are met:

(a) He carries out relevant contracts in partnership and one or more of the partners is not fully tax compliant. Revenue must also be satisfied that the partnership will continue to be compliant.

(b) The Revenue Commissioners take the view that deductions at the standard rate will be unlikely to satisfy the person’s income tax liability for the year.

Can Revenue authorise a standard rate contractor?

(4) A person can qualify as a standard rate subcontractor if he satisfies Revenue that he is substantially compliant as regards his tax obligations. This is a matter for Revenue to decide.

Section 530I Determination of rates

How shall Revenue determine the tax rate applicable to a subcontractor payment?

(1) To determine the rate of tax deductible, Revenue must determine whether the subcontractor is:

(a) a zero rate subcontractor (section 530G),

(b) a standard rate subcontractor (section 530H),

(c) neither a zero rate nor a standard rate subcontractor.

Must Revenue notify a subcontractor of the RCWT rate applicable?

(2) Once they have determined the rate to be applied, Revenue must notify the subcontractor.

Can a Revenue determination of the RCWT rate be appealed?

(3) A subcontractor who is aggrieved by a Revenue determination of the rate at which RCWT is to be withheld may appeal in writing to the Appeal Commissioners. To be valid, the appeal must be made within 30 days of the date of the determination.

The Appeal Commissioners must hear and determine such an appeal as if it were an appeal against an income tax assessment, and the income tax appeal provisions apply accordingly.

Pending the determination of the appeal, Revenue may, without prejudice, issue an interim deduction authorisation.

How soon must Revenue determine the RCWT rate?

(4) Revenue are not obliged to make a determination under (1):

(a) until 30 days have elapsed since their previous determination in relation to the subcontractor,

(b) while an appeal by the subcontractor is awaiting determination,

(c) until 30 days have elapsed following the determination of the appeal.

Section 530J Register of principals

Must Revenue maintain a list of principal contractors?

(1) Revenue must keep and maintain a register of principal contractors.

Is a principal contractor obliged to register with Revenue?

(2) Every principal contractor must register with Revenue for the purposes of RCWT.

Must Revenue make regulations regarding registration of RCWT principals?

(3) Revenue must make regulations regarding the registration of principals for RCWT, and such regulations may set out rules for:

(a) keeping the register,

(b) registration and time of registration,

(c) particulars to be provided by a principal for registration purposes,

(d) notification of change of details,

(e) notification of cessation as a principal,

(f) cancellation of registration,

(g) electronic registration.

(h) other related matters.

Section 530K Return by principal

What are a principal’s RCWT obligations?

(1) A principal must file a return, and pay RCWT due on relevant payments made by him, on or before the due date for a return period.

Can a deduction summary be treated as the principal’s return?

(2) If Revenue issue a deduction summary to a principal, the details on the summary are treated as a return made by the principal, and the tax specified on the summary is treated as the tax due by the principal.

A deduction summary is not treated as a return if the principal amends the details on it and files a return in accordance with those details.

Must a principal pay RCWT specified on a return?

(3) The principal must pay Revenue the RCWT specified on a return.

Must RCWT returns be filed electronically?

(4) RCWT returns must be filed electronically.

Can Revenue make regulations regarding RCWT returns?

(5) Revenue may make regulations providing for:

(a) the manner by which principals must communicate electronically with Revenue,

(b) the particulars to be included in the principal’s return,

(c) a principal’s obligation to ensure payments to subcontractors and tax relating to such payments are accurately reflected in his return,

(d) notification to a subcontractor as regards the actions a principal must take regarding his obligations mention in (c),

(g) any other related matters.

Section 530L Payment of tax by principal

When is RCWT payable?

(1) A principal must pay RCWT not later than the filing date for the return in question.

When is RCWT payable for a multi-return period?

(2) Where RCWT is owed for a period covering more than one return period, the due date for the RCWT is the due date for the first return period covered by assessment or return.

When is a surcharge on a late RCWT payable?

(3) A surcharge on a late RCWT return is payable at the same time as the tax to which it relates.

Section 530M Late returns and amendments

Can a principal amend an RCWT return?

(1) A principal may make or amend an RCWT return after the return filing date. However, he may not amend:

(a) any payment which has been the subject of a deduction authorisation (section 530D), or

(b) a return that is the subject of a Revenue audit or investigation.

What happens if an RCWT return after the return is amended after the filing date?

(2) If a principal amends an RCWT return after the return filing date, the tax shown on the return is payable to Revenue and the principal is subject to a €100 surcharge.

Must tax due on an amended return be notified to the principal?

(3) Revenue must notify a principal of the RCWT and surcharge due when a return has been amended.

Can a return be amended at enforcement stage?

(4) A return cannot be amended if the tax on the return is at enforcement stage; it can be amended once the enforcement action has been completed.

Can Revenue make regulations regarding amendment of RCWT returns?

(5) Revenue may make regulations providing for:

(a) the manner by which principals must communicate electronically with Revenue,

(b) the particulars to be included in a return,

(c) the actions to be taken by a principal to ensure that a subcontractor payments and the related tax liability are accurately reflected in a return,

(d) the format of a return where the principal is appealing an assessment to RCWT, and

(h) any other related matters.

Section 530N Assessment by Revenue officer

Can a Revenue officer assess RCWT due?

(1) Where a Revenue officer believes that a principal has not filed an RCWT return, or that a return has understated the tax payable, the officer may make an assessment of the tax which in his opinion is payable for the return period.

Who must pay an RCWT assessment?

(2) The person assessed is the person responsible for paying an assessment of RCWT.

Can a Revenue officer amend an RCWT assessment?

(3) A Revenue officer may amend an RCWT assessment if he considers it necessary. In such a case, the general rules relating to making and amending of assessments apply.

Must the assessed person be notified?

(4) A Revenue officer who makes or amends an RCWT assessment must notify the person assessed of the total amount due and payable.

If the assessed person is a principal, the Revenue officer must issue the assessment notice electronically.

Can an RCWT assessment be appealed?

(5) A recipient of a notice of assessment may appeal to the Appeal Commissioners within 30 days of the notice.

There is no right of appeal, in the case of a person who has filed a return, unless the tax and any surcharge due in relation to the return has been paid. In any other case, the return must be filed, and any tax and surcharge must be paid before an appeal can be made.

The income tax appeal provisions apply, with any necessary modifications, in relation to appeals against RCWT assessments

Once the appeal has been determined, the tax in the assessment or the amended assessment is due and payable.

What period can an RCWT assessment cover?

(6) A Revenue officer may make an assessment for a single return period or for several consecutive return periods. An assessment may be issued before the end of the return period to which it relates.

Can an RCWT assessment covering several periods be appealed?

(7) There is no right of appeal unless the return is filed and the tax and any surcharge due in relation to each return has been paid.

Alternatively, the taxpayer may elect to make a single return covering the entire period and pay the tax and any surcharge for that period.

Can Revenue make regulations regarding RCWT appeals?

(8) Revenue may make regulations providing for:

(a) the issuing of notices of assessment and the means by which such notices may be issued,

(b) the transmission of information relating to appeals,

(c) the format and transmission of returns relating to appeals,

(d) the procedures dealing with the right of appeal against an assessment covering multiple periods,

(e) any other related matters.

Section 530O Computation of subcontractor’s profit

Is a subcontractor taxed on gross or net receipts?

The figure to be taken into account in computing a subcontractor’s profits is the gross figure, i.e., before RCWT has been deducted.

Section 530P [Treatment of deducted tax]

Is RCWT a payment on account?

(1) In the case of a individual subcontractor, RCWT is treated as a payment on account of income tax, and in the case of a company subcontractor, it is treated as a payment on account of corporation tax.

What is deducted tax?

(2) RCWT deducted by a principal from a payment to a subcontractor is referred to as deducted tax.

Can RCWT be sat against other tax due?

(3) A subcontractor can offset deducted tax against his other tax liabilities.

Can excess RCWT be repaid?

(4) RCWT may be repaid if it is not required to cover the subcontractor’s liability to income tax, corporation tax, or other taxes.

Must RCWT be set against arrears of tax?

(5) RCWT must be used to cover arrears before being repaid.

Can RCWT be credited against several taxes?

(6) It is not possible to get a double credit for RCWT. Deducted tax cannot be offset, refunded, or treated as a payment on account, more than once.

RCWT that has been offset or refunded cannot be be treated as a payment on account.

Can excess RCWT be repaid by any other method?

(7) RCWT may only be repaid through the procedure in (6).

Section 530Q Interest

What interest is charged on unpaid RCWT?

Interest is charged on unpaid RCWT at 0.0274% for each day or part of a day the tax remains unpaid.

Section 530R Partnerships

Are payments to a gang leader subject to RCWT?

(1) In the case of a contract between a main contractor and a gang leader (acting on behalf of a group of subcontractors), the contract with the gang leader is ignored and any payment made to him/her is treated as having been made to the individual gang members in the proportion in which they share the overall payment. RCWT applies to the shares apportionable to gang members who are not authorised subcontractors.

What RCWT obligations has a gang leader, or precedent partner?

(2) The gang leader or precedent partner must notify Revenue of:

(a) the name, address and tax reference number of each member of the gang or group, and

(b) the proportion of the overall tax payment to which each member is entitled.

Can Revenue make regulations regarding the application of partnership RCWT?

(3) Revenue must make regulations dealing with the application of RCWT to partnerships and such regulation must specify how the gang leader or precedent partner will provide information to Revenue.

Who is responsible for partnership RCWT?

(4) Where the principal contractor is a partnership, the precedent partner is responsible for RCWT.

Section 530S Record keeping

What information must a principal obtain for each job?

(1) Before issuing a relevant payment notification, a principal must obtain a statement from the subcontractor setting out details of the work that gave rise to the payment, together with the subcontractor’s name, business address and tax reference number.

What details must a gang or partnership invoice provide?

(2) An invoice provided by a gang or partnership must provide the name, business address and tax reference number of the gang or partnership, together with the names of the individual members of the group.

What information must a subcontractor provide to a principal?

(3) A subcontractor must provide the principal with any information necessary to enable the principal to keep proper records.

What records must a subcontractor keep?

(4) In addition to any other requirements of the tax legislation, a subcontractor must keep a record of all relevant payments received by him. The record must show, for each payment: the amount, the tax deducted, and the person making the payment.

The subcontractor must also keep a copy of each deduction authorisation given to him by a principal.

For how long must records be kept?

(5) Records must be kept in written form or in a format which enables them to be printed out. They must be kept for six years.

Can Revenue make regulations regarding RCWT records?

(6) Revenue may make regulations relating to RCWT records, and those regulations may provide for the creation and maintenance of electronic records.

Section 530T Inspection of records

Can Revenue inspect RCWT records?

Any person who has made a relevant payment must produce for inspection all documents and records relating to the payment.

Section 530U Civil penalties

What constitutes evidence in penalty proceedings?

(1) The following rules apply in penalty proceedings:

(a) A certificate signed by a Revenue officer stating that he has inspected the records and a deduction authorisation or other document was given to a stated person on a stated day is evidence, until the contrary is proved, that the stated person received that authorisation or other document.

(b) A certificate signed by a Revenue officer stating that he has inspected the records and that a stated person was a registered person on a stated day is evidence, until the contrary is proved, that the stated person was a registered principal on that day.

(c) A certificate of the kind mentioned in (a) and (b) purporting to be signed by a Revenue officer may be tendered in evidenced without proof and is deemed, until the contrary has been proved, to have been signed by the officer.

How can Revenue recover an RCWT penalty?

(2) The rules relating to recovery of penalties apply to RCWT penalties.

Section 530V Miscellaneous

What do RCWT regulations cover?

(1) Regulations relating to RCWT may contain provisions to enable persons to fulfil their RCWT obligations, or to facilitate the implementation and efficient operation of the RCWT system.

Must RCWT regulations be passed by Dáil Éireann?

(1A) Regulations relating to RCWT must be laid before Dáil Éireann and if not annulled within 21 days, are deemed to have been passed.

Can a principal delegate his/her RCWT responsibilities?

(1B) Anything required to be done by a principal in relation to RCWT may be done by another person acting with the principal’s authority.

In such a case, the actions of the other person are regarded as having been done by the principal.

Anything purporting to have been done by the principal is treated as having been done by or on behalf of the principal until the contrary is proved.

Who is responsible for a deceased principal’s obligations?

(2) When a principal contractor dies, his personal representative remains responsible for the principal’s obligations in relation to RCWT.

Can Revenue delegate their RCWT powers?

(3) Revenue may delegate their RCWT powers to an authorised Revenue officer, and they may put electronic systems in place to facilitate the delegation of such power.

Can a liquidator or receiver be liable to RCWT?

(4) Where a liquidator or receiver makes a relevant payment, he is accountable for the RCWT on the payment.

The tax deducted from relevant payment made to a liquidator or receiver is treated as a payment on account of tax by the liquidator or receiver.

Tax deducted in respect of a period prior to the appointment of the liquidator or receiver is treated as a payment on account for the chargeable period prior to the appointment of the liquidator or receiver.

Section 531 Payments to subcontractors in certain industries

Amendments

Section 531 is now spent, and regulations made under it shall not apply as regards payments made on or after 1 January 2012 under a relevant contract by virtue of Finance Act 2011 section 20(4).

Section 531A Definitions (Part 18A)

Amendments

Section 531A inserted by Finance (No. 2) Act 2008 section 2(a) from 1 January 2009. It has no effect for 2011 and later years (section 531NA) – when it was replaced by the universal social charge (see section 531AM).

Section 531B Charge to income levy

Amendments

Section 531B inserted by Finance (No. 2) Act 2008 section 2(a) from 1 January 2009. It has no effect for 2011 and later years (section 531NA) – when it was replaced by the universal social charge (see section 531AM).

Section 531C Rate of charge

Amendments

Section 531C substituted by Finance Act 2009 section 2(1)(h) for 2009 and later tax years (originally inserted by Finance (No. 2) Act 2008 section 2(a) from 1 January 2009). It has no effect for 2011 and later years (section 531NA) – when it was replaced by the universal social charge (see section 531AM).

Section 531D Deduction and payment of income levy on relevant emoluments [TCA 1997 s 531D] Commentary

Amendments

Section 531D inserted by Finance (No. 2) Act 2008 section 2(a) from 1 January 2009. It has no effect for 2011 and later years (section 531NA) – when it was replaced by the universal social charge (see section 531AM).

Section 531E Record keeping [TCA 1997 s 531E] Commentary

Amendments

Section 531E inserted by Finance (No. 2) Act 2008 section 2(a) from 1 January 2009. It has no effect for 2011 and later years (section 531NA) – when it was replaced by the universal social charge (see section 531AM).

Section 531F Power of inspection

Amendments

Section 531F inserted by Finance (No. 2) Act 2008 section 2(a) from 1 January 2009. It has no effect for 2011 and later years (section 531NA) – when it was replaced by the universal social charge (see section 531AM).

Section 531G Estimation of income levy due for income tax months and for year

Amendments

Section 531G inserted by Finance (No. 2) Act 2008 section 2(a) from 1 January 2009. It has no effect for 2011 and later years (section 531NA) – when it was replaced by the universal social charge (see section 531AM).

Section 531H [Assessment, collection, payment and recovery of income levy on aggregate income for the year of assessment]

Amendments

Section 531H and heading substituted by Finance Act 2009 section 2(1)(j) for 2009 and later tax years (originally inserted by Finance (No. 2) Act 2008 section 2(a) from 1 January 2009). It has no effect for 2011 and later years (section 531NA) – when it was replaced by the universal social charge (see section 531AM).

Section 531I Married couples

Amendments

Section 531I inserted by Finance (No. 2) Act 2008 section 2(a) from 1 January 2009. It has no effect for 2011 and later years (section 531NA) – when it was replaced by the universal social charge (see section 531AM).

Section 531J False statements

Amendments

Section 531J inserted by Finance (No. 2) Act 2008 section 2(a) from 1 January 2009. It has no effect for 2011 and later years (section 531NA) – when it was replaced by the universal social charge (see section 531AM).

Section 531K Repayments

Amendments

Section 531K inserted by Finance (No. 2) Act 2008 section 2(a) from 1 January 2009. It has no effect for 2011 and later years (section 531NA) – when it was replaced by the universal social charge (see section 531AM).

Section 531L Restriction on deduction

Amendments

Section 531L inserted by Finance (No. 2) Act 2008 section 2(a) from 1 January 2009. It has no effect for 2011 and later years (section 531NA) – when it was replaced by the universal social charge (see section 531AM).

Section 531M Application of provisions relating to income tax

Amendments

Section 531M inserted by Finance (No. 2) Act 2008 section 2(a) from 1 January 2009. It has no effect for 2011 and later years (section 531NA) – when it was replaced by the universal social charge (see section 531AM).

Section 531N Care and management

Amendments

Section 531N inserted by Finance (No. 2) Act 2008 section 2(a) from 1 January 2009. It has no effect for 2011 and later years (section 531NA) – when it was replaced by the universal social charge (see section 531AM).

Section 531NA Cessation of charge to income levy

When did the income levy cease?

The income levy ceased from 31 December 2010.

Section 531O Interpretation (Part 18B)

What is the parking levy?

If you are an employee, and you have an entitlement to use a parking space for your car, you are caught for a parking levy.

Section 531P Urban areas to which parking levy applies and making of orders by the Minister

When does the parking levy take effect?

(1) The Minister for Finance may, by order, designate urban areas in which the parking levy will apply. He/she may prescribe State authorities which need not deduct the levy, and the date on which the levy will come into effect.

Must the order be passed by Dáil Éireann?

(2) The order giving effect to the parking levy must be laid before the Dáil, and if it is not annulled within 21 days, it is deemed to have been passed.

Section 531Q Entitlement to use a parking space

What constitutes entitlement to use a parking space?

(1) A person has an entitlement to use a parking space where that person:

(a) holds a badge, permit or sticker to use a parking space,

(b) has been given a form or means of access to a parking space,

(c) has been allocated a dedicated parking space,

(d) has been allocated a parking space on a shared basis,

(e) has access to a a parking space on a first come, first served basis.

When is a person not entitled to use a car parking space?

(2) A person is not regarded as having an entitlement to use a car space if the use is occasional, and the actual use (and entitlement to use) does not exceed 10 days in the tax year. In this regard, use of the space for part of a day counts as use for the full day.

When does a person cease to be entitled to use a parking space?

(3) A person is regarded as having ceased to be entitled to use a parking space when he/she:

(a) disclaims the entitlement to use the space, or the entitlement lapses or is withdrawn,

(b) returns the authorisation (or means of access to the car park) to his/her employer (or the provider of the parking space), and

(c) ceases to use a parking space provided by his/her employer.

When does a person have permission to use a car space?

(4) A person is regarded as having permission to use a car space if his/her employer enters into an arrangement with that person, or any other person, whereby a parking space is provided for his/her use.

Section 531R Provision of parking space by employer

When is a person regarded as having been provided with a parking space?

A person is regarded as having been provided with a parking space where:

(a) the person is provided with a space on any premises owned or occupied by his/her employer,

(b) the parking space is in or on a premises owned or occupied by a person connected with his/her employer,

(c) the person’s employer enters into an arrangement with him/her, or any other person, whereby a parking space is provided for use by him/her or any other employee, or

(d) if the person is a public-sector employee not within (a)-(c), the parking space provider is funded partly by his/her employer.

Section 531S Exemption for certain persons

Who is exempt from the parking levy?

A person is exempt from the parking levy if he/she:

(a) holds a valid disabled person’s parking permit,

(b) is a public sector employee who only uses the space in response to an emergency situation,

(c) is retired and is allowed occassional use of a car space by his/her former employer.

Section 531T Charge to parking levy

Who is caught by the parking levy?

A person is caught by the parking levy if:

(a) the person is entitled to use a parking space in an urban area to park his/her car, and

(b) the space is provided by his/her employer.

Section 531U Rate of charge to parking levy

How much is the parking levy?

(1) The parking levy is €200 per employee per annum.

What if a person shares a parking space?

(2) If a person shares on a first-come, first-served basis, and the ratio of employees to shared spaces is less than 2 to 1, the levy is €200 each.

If the ratio of employees to shared space is greater than 2 to 1, the levy is €100 each.

What if a person job-shares?

(3) Where a person job-shares, the parking levy is scaled back in proportion his/her working hours per week or year bear to the full working week or year. However, the levy may not be less than €200 (or €100 where appropriate).

What if a person is entitled to the car space for part of the year only?

(4) The levy is scaled back in proportion to the part of the year for which the entitlement exists.

What if a person is on maternity leave?

(5) In the case of a person on maternity leave, entitlement to use the space for the maternity leave period, and the 10 weeks prior to taking such leave, is ignored.

What if a person works unsocial hours?

(6) If a person starts (or finishes) work after 9p.m., or before 7a.m., the “unsocial” hours are ignored in calculating his/her entitlement to use the space.

Section 531V Deduction of levy by employer

What are an employer’s parking levy obligations?

(1) An employer must deduct the levy from the employee’s net pay.

The employer is accountable to Revenue in relation to the parking levy deductible, and is liable to pay the levy to Revenue as if it were PAYE.

The employer must pay the Collector-General the total amount he/she is liable to deduct, and should make payment together with his/her PAYE return.

What are an employee’s obligations in relation to the parking levy?

(2) An employee must allow his/her employer to make the deduction, and the employer is acquitted of the amount deducted as if it had been paid.

Section 531W No relief for any payment in relation to parking levy

Is compensation in respect of the parking levy tax-deductible?

Compensation paid in respect of the parking levy is not tax-deductible to the employer or the employee.

Section 531X Records and regulations

What parking levy records must an employer keep?

(1) An employer must keep, in a permanent form, a full and true record of-

(a) the locations at which each parking space is provided,

(b) the name and PPS number of each employee who has the use of a car space,

(c) the name and PPS number of each employee who ceased during the year to be entitled to use a car space,

(d) the name and PPS number of each employee who has a valid disabled person’s parking permit,

(e) any other details specified by Revenue in regulations.

What parking records must be kept regarding public sector employees?

(2) If the parking space is provided by a person who is funded by the public sector, the provider must keep, in a permanent form, a full and true record of the information in (1). He/she must also transmit that information in sufficient time to allow the employer to deduct the levy.

Can Revenue make parking levy regulations?

(3) Revenue can make regulations in relation to the parking levy.

Can Revenue inspect parking levy records?

(4) Revenue PAYE inspection powers apply for the purposes of the parking levy.

Section 531Y Payment, collection and recovery

Who collects the parking levy?

(1) The Revenue Commissioners are responsible for collection of the parking levy.

Do the PAYE regulations apply in relation to the parking levy?

(2) The PAYE regulations apply in relation to the parking levy.

Revenue may also estimate unpaid parking levy for an income tax month (section 989) or year (section 990). Unpaid parking levy is subject to interest (section 991) and levy may be paid by direct debit.

How are underpayments of parking levy dealt with?

(3) An employer who has underpaid must pay the amount underpaid to the Collector-General. In the case of overpayment, the Collector-General must repay the employer.

Must parking levy details be included on the P35?

(4) An employer must state:

(a) the total number of employees who were subject to the income levy in the tax year, and

(b) the total parking levy deducted from employees during the year.

Section 531Z Penalties

What penalties apply to an employer in relation to the parking levy?

(1) An employer is liable to a penalty of €3,000 if he/she does not:

(a) deduct or remit the levy,

(b) keep proper records,

(c) include details of the number of employees, and the levy deducted from them, in his/her P35 return.

What penalties apply to a parking provider?

(2) A parking provider is liable to a penalty of €3,000 if he/she does not:

(a) keep proper records, or

(b) transmit the information required by the employer in sufficient time to enable him/her to deduct the levy.

What penalties apply to breach of parking levy regulations?

(3) The penalties for breach of PAYE regulations apply to breach of parking levy regulations.

Section 531AA Interpretation (Part 18C)

What is the domicile levy?

(1) The domicile levy applies to a relevant individual, i.e. an Irish-domiciled individual whose:

(a) world-wide income exceeds €1m,

(b) Irish property is greater than €5m, and

(c) Irish income tax liability was lower than €200,000.

The individual may credit any Irish income tax paid against the levy.

The tax is due on or before 31 October in the tax year following the valuation date (31 December).

Irish property means all property situate in the Republic of Ireland (ROI) to which the individual is beneficially entitled in possession on the valuation date. It does not include shares in a trading company or shares in a holding company which derive the greater part of their value from its trading subsidiaries.

An individual’s world-wide income means his/her gross income for tax purposes (i.e. before deductions), including exempt income,

(a) ignoring deductions for double rent allowance, “section 23” property construction or refurbishment cost, donations to sports bodies and charities,

(b) but allowing a deduction for spousal maintenance.

What property is a person beneficially entitled to?

(2) A person is beneficially entitled in possession to all property situate in ROI which he/she has transferred on or after 18 February 2010 to:

(a) his/her spouse or minor children for less than market value,

(b) a discretionary trust for less than market value,

(c) a foundation (foreign entity) for less than market value.

What property is a person not beneficially entitled to?

(3) In (2)(a), a property transfer made under a maintenance arrangement does not count. In (2)(b)-(c), a property transfer to a discretionary trust or foundation, which is exclusively charitable, does not count.

Do foreign company shares count for the domicile levy?

(4) If the greater part of the market value of a foreign company’s shares is attributable to property situate in the ROI, then those shares are regarded as Irish property.

What is s a property’s market value?

(5) A property’s market value the gross value before allowing any deduction for debts against the property.

Does “Revenue Commissioners” include Revenue staff?

(6) A reference to “Revenue Commissioners” includestheir staff.

Section 531AB Charge to domicile levy

How much is the domicile levy?

The annual charge is €200,000. An individual is caught for the levy if he/she is a relevant individual.

Section 531AD Valuation procedures

Can Revenue estimate the value of a property?

(1) If Revenue are not satisfied with the declared value of a property, they may estimate their own figure and base the domicile levy charge on their estimated market value (not on the figure in the return).

Can Revenue value and inspect domicile levy property?

(2) Revenue may authorise a competent valuer to inspect and value a property.

Who pays for the valuation of domicile levy property?

(3) If Revenue require a valuation, they must defray the costs involved.

Section 531AE Appeals regarding value of real property

Can a Revenue decision regarding property value be appealed?

A Revenue decision regarding a property valuation may be appealed. The appeal must be made to the Land Values Reference Committee.

Section 531AF Delivery of returns

What is the domicile levy “pay and file” date?

(1) The domicile levy return must be filed on or before the self-assessment filing date, i.e. on or before 31 October in the following tax year.

Can Revenue request a return?

(1A) Where Revenue have reason to believe that an individual is liable for the domicile levy they may issue a notice requesting delivery of a return within 30 days together with payment of the levy.

What must a domicile levy return include?

(2) A domicile levy return must:

(a) be made on the official Revenue form,

(b) be signed by you, and

(c) include a declaration that the return is, to the best of your knowledge, information and belief, correct and complete.

Section 531AG Opinion of Revenue Commissioners

Can Revenue give an advance opinion as to an individual’s domicile?

(1) Revenue may, on receipt of an application from a relevant individual who is considering making a significant investment in the State, give their opinion as to whether the individual would be likely to be regarded as Irish-domiciled.

What conditions must an application for a domicile status opinion meet?

(2) An application for an opinion on domicile status must be made on the official form and must contain the necessary details required by Revenue.

Are Revenue obliged to give an opinion as to an individual’s domicile status?

(3) Revenue are not obliged to do so.

Section 531AH Making and amending of assessments by Revenue Commissioners

Can Revenue make or amend a domicile levy assessment?

(1) Revenue can make a domicile levy assessment on a person they believe to be chargeable to the levy where:

(a) the person has not submitted a return on or before the return filing date, or

(b) Revenue are dissatisfied with a return the person has submitted.

Can Revenue withdraw a domicile levy assessment?

(2) Revenue may withdraw a domicile levy assessment and replace it with an assessment based on a return which has been submitted within 30 days of the date of the assessment – provided they are satisfied that the replacement assessment represents “reasonable compliance” with their requirements.

Section 531AI Right of Revenue Commissioners to make enquiries and amend assessments

Can a Revenue official make enquiries regarding a domicile levy return?

(1) Revenue inspectors have the power to enquire into any aspect of a domicile levy return as if it were an income tax self-assessment return.

What powers do Revenue have to enquire into a domicile levy return?

(2) The Revenue inspector has power to enquire into a return, and to make or amend an assessment in order to satisfy him/herself as to the accuracy of any detail in the return.

Except in cases of suspected fraud or negligence, an inspector may not investigate details on a self-assessment return if more than four years have passed since the end of the chargeable period in which the return was filed.

Section 531AJ Application of provisions relating to income tax

How is collection of unpaid domicile levy enforced?

(1) The income tax collection provisions apply for the purposes of the domicile levy.

What deterrents apply for domicile levy?

(2) The income tax penalties apply for the purposes of the domicile levy.

What interest is due when domicile levy remains unpaid?

(3) The income tax rules relating to unpaid interest (section 1080) apply in relation to the domicile levy.

Section 531AK Care and management

Who is responsible for administering the domicile levy?

The Revenue Commissioners are responsible for the care and management of the domicile levy.

Section 531AL Definitions (Part 18D)

What is the universal social charge (USC)?

The universal soclal charge applies to an individual’s aggregate income for the tax year, i.e., his/her relevant emoluments and relevant income.

Section 531AM Charge to universal social charge

What are relevant emoluments and relevant income?

(1) The USC is charged on the total of an individual’s employment income (relevant emoluments) and income from sources other than employment (relevant income).

Relevant emoluments does not include certain social welfare payments, and the basic exemption for termination payments.

Relevant income excludes foreign earnings relief, relief for maintenance payments, relief for capital allowances, losses and “section 23” expenditure.

Who is exempt from USC?

(2) An individual whose average income for the year is below €13,000 for the tax year 2016 or any later tax year is exempt from USC.

Section 531AN Rate of charge

What are the rates of USC?

(1) USC applies at the following rates:

(a) In the case of an individual aged under 70 years, at 1% on the first €12,012 of aggregate income, at 3% on the next €6,656 of aggregate income, at 5.5% on the next €51,376 and at 8% on the remainder.

(b) In the case of an individual aged 70 years or over whose income does not exceed €60,000, at 1% on the first €12,012 of aggregate income and at 3% on the remainder.

What is the maximum rate of USC?

(2) The maximum rate applicable to non-employment income in excess of €100,000 per annum is 11%.

Does relevant income include share options?

(2A) Relevant income does not include share options.

What is the maximum rate of USC for a medical card-holder?

(3) The maximum rate of USC that applies to a medical card holder whose income does not exceed €60,000 is 3.5%.

What rate of USC applies to pension encashments?

(3A) A pension encashment is charged to USC at a special rate of 3.5%.

Is there a time limit on the medical-card holder USC rate?

(4) The €100,000 USC threshold and the medical-card holder USC rate expire on 31 December 2017.

Are adjustments made for “week 53” payments?

(5) This applies to weekly or fortnightly wages paid on 31 December (30/31 December in a leap year). Where this happens the USC rate bands are increased by 1/52 for weekly payments and 1/26 for fortnightly payments but not by more than the amount of the wages.

Is the €60,000 income threshold also increased?

(6) Yes. This amount referred to in subsections (1) and (3) is also increased by 1/52 or 1/26 as appropriate.

When do subsections  (5) and (6) not apply?

 In order to prevent manipulation the subsections do not apply if the normal pay dates have been changed during the year or the preceding year.

Section 531AO Deduction and payment of universal social charge on relevant emoluments

Who is responsible for payment of USC?

(1) The employer is primarily responsible for payment of USC.

Can an employer withhold shares to pay USC n share grants?

(1A) If an employer has paid an employee in the form of shares, and has not deducted sufficient USC to cover the employee’s liability, the employer may withhold and sell sufficient shares to pay the USC due.

Must an employee allow the employer to withhold shares to pay USC due?

(1B) An employee must allow his/her employer to withhold shares to pay USC due.

Can an employer withhold shares to pay USC if the USC has been paid?

(1C) An employer is not entitled to withhold shares where an employee has already paid USC on the shares.

Section 531AP Record keeping

Amendments

Section 531AP deleted by Finance Act 2012 section 2(5) from 1 January 2012.

Section 531AQ Power of inspection

Amendments

Section 531AQ deleted by Finance Act 2012 section 2(5) from 1 January 2012.

Section 531AR Estimation of universal social charge due

Can Revenue make estimates of unpaid USC?

The Revenue powers relating to estimates of unpaid PAYE also apply in respect of USC.

Section 531AS Universal social charge payable by chargeable persons (within the meaning of Part 41)

How is USC owed by a self-assessed person collected?

(1) USC owed by a self-assessed individual is treated as if it were income tax and is payable through the self-assessment system.

Does USC apply to share options?

(1A) USC is due, together with the income tax, within 30 days of the exercise of the option. USC is charged at the individual’s marginal USC rate.

Do income tax exemptions apply for the purposes of USC?

(2) In general, exemptions which apply for income tax purposes (for example, relating to artistic income and leasing of farm land) do not apply for USC.

Is USC treated as tax payable?

(3) USC owed by a self-assessed person is stated as a separate sum (the aggregated sum) together with the amount of income tax due on the notice of assessment.

Can USC be collected if there is no income tax due?

(4) If there is no income tax due on the notice of assessment, the aggregated sum of USC due can be collected as if it were income tax.

(5) Legislation spent.

Section 531AT Universal social charge payable by persons other than chargeable persons (within the meaning of Part 41)

Amendments

Section 531AU inserted by Finance Act 2011 section 3(1)(a) for 2011 and later tax years.

(1) Where an individual who has sustained a loss in a trade or profession for which relief from income tax has not been wholly given in an earlier tax year carries forward any unrelieved portion of that loss to a later tax year in accordance withsection 382, the amount referred to in section 531AM(1)(b)(vi) is an amount equal to the amount of the carried forward loss that is deducted from or set off against the amount of profits or gains on which the individual is assessed to income tax under Schedule D in respect of that trade or profession for that later tax year.

(2) The amount referred to in section 531AM(1)(b)(vii) is—

(a) in the case of an individual who is entitled to an allowance for a tax year under section 284(1),

(b) in the case of an individual who is entitled to an allowance for a tax year under subsection (3) of section 272 of an amount determined in accordance with paragraph (a), (b), (c)(iii), (da), (db), (e) or (g) of that subsection,

(c) in the case of an individual who is entitled to an allowance for a tax year under subsection (2) of section 658 of an amount determined in accordance with paragraph (b) of that subsection, or

(d) in the case of an individual who is entitled to an allowance for a tax year under section 659(2)(a) determined in accordance with subsection (3A), (3AA), (3B) or (3BA) of that section,

an amount equal to the aggregate of—

(i) the amount of the allowance made in the tax year to which effect is given in taxing the individual’s trade or profession for that tax year, other than where effect is given by making a claim under section 381 by virtue of section 392, and

(ii) any unrelieved allowance, or part of an allowance, carried forward from a previous tax year in accordance withsection 304(4) to which effect is given in the tax year,

other than where such an allowance is made on a lessor or where such an allowance is made on an individual who is not an active partner (within the meaning of section 409A).

Section 531AU Capital allowances and losses

Are carried forward trade losses deductible in computing USC?

(1) Where unused trading losses are carried forward, only that part of the losses that is actually used to reduce taxable income from the same trade in the tax year to which they have been carried forward is deductible.

Are capital allowances deductible in computing USC?

(2) Normal business expenses incurred in carrying on a trade are deductible before USC is calculated. This includes allowances for capital expenditure incurred on providing certain items for the purposes of the trade, such as plant and machinery, vehicles used for business purposes, and certain buildings, such as factories or farm buildings.

Capital allowances (other than those used to create or increase a loss) must actually be used in a tax year to be deductible. Only standard rate capital allowances are deductible. Apart from farm buildings, capital allowances that are written off over accelerated 7-year periods are not allowed. Any capital allowances due to people that do not actively carry on a trade are not deductible.

Section 531AUA Universal social charge and approved profit sharing schemes

Is a disposal of APSS shares subject to USC?

If USC has been paid on the initial market value of the shares, it is not payable

(a) in the case of a disposal of shares, on the appropriate percentage of the shares’ locked-in value,

(b) where the shares give rise to a capital receipt, on the appropriate percentage of that capital receipt.

Section 531AV Married couples

Does a jointly assessed married couple get a double USC threshold?

The USC thresholds apply to each spouse individually and cannot be combined where one spouse is below the thresholds and the other above.

Section 531AW Repayments

Who is responsible for collection of USC?

(1) The Collector-General is responsible for collection of unpaid USC and making repayments of overpaid USC.

Can a person with income below the threshold reclaim USC deducted?

(2) Provided the individual submits a valid claim, Revenue must repay the overpaid USC as it it were an overpayment of income tax.

Section 531AX Restriction on deduction

Is USC deductible in computing income tax?

(1) USC is an additional tax on the same income – it does not reduce an individual’s income tax liability.

Can excess tax credits reduce USC?

(2) Income tax credits do not transfer to reduce the USC charge.

Section 531AY Recovery of unpaid universal social charge

What happens when an employee’s USC remains unpaid?

(1) Where an an employee’s USC remains unpaid for a tax year, the employer is treated as having made a payment of emoluments (notional emoluments) – see (2).

What are notional emoluments for USC?

(2) The notional emoluments figure is the one that would produce USC equivalent to the amount underpaid.

How is the USC on notional emoluments collected?

(3) The USC on notional emoluments is collected by apportioning the notional emoluments figure weekly or monthly (depending on how the employee is paid.)

The employer must then deduct USC from the notional emoluments apportioned to each week, or month, as the case may be.

Can an inspector reduce tax credits to collect unpaid USC?

(4) An inspector can adjust an employee’s tax credits and standard rate cut-off point in order to collect USC.

Can an inspector make an assessment to USC?

(5) If no assessment to USC would be made, the inspector may make an assessment to the best of his judgment. The income tax rules (apart from those relating to allowances, deductions and reliefs) regarding assessment, collection and recovery of tax then apply to the assessment of USC.

Section 531AZ Repayments of, and recovery of unpaid, income levy

Can unpaid income levy be collected as if it were unpaid USC?

(1) The rules regarding notional emoluments and adjustment of tax credits and standard-rate cut-off point apply as they would for USC.

Can repayments of income levy be made from USC?

(2) A repayment of income levy may be made from USC.

Section 531AAA Application of provisions relating to income tax

What income tax rules apply in relation to USC?

The income tax rules relating to:

(a) returns of income,

(b) assessments to tax,

(c) appeals,

(d) collection and recovery of tax,

(e) penalties, and

(f) obligations to keep records

apply with any necessary modifications to USC.

Section 531AAB Regulations

Can Revenue make regulations in relation to USC?

(1) Revenue is empowered to make regulations relating to USC, and such regulations may:

(a) require an employer to notify Revenue that he should be registered,

(b) require an employer to deduct or repay USC at the appropriate rates from an employee’s emoluments,

(c) require an employer to deduct USC at the appropriate rate in particular cases,

(d) specify how USC is to be deducted or repaid from emoluments paid by an employer,

(e) render an employer liable to pay to USC deducted to Revenue, and entitled to repayment or credit for USC overpaid,

(f) treat non-employers as employers in cases specified by the regulations,

(g) specify how USC is to be paid to Revenue, and the manner in which Revenue are to acknowledge such payment,

(h) specify the period within which USC is to be paid to Revenue,

(i) require an employer to provide Revenue, on the appropriate form, within a specified time, with details of emoluments paid and USC deducted from such emoluments,

(j) require an employer to provide Revenue, on the appropriate form, within a specified time, with details of emoluments paid and USC deducted from such emoluments,

(k) require an employer to keep a register of employees and deliver it to Revenue within a period specified by notice,

(l) require an employer to produce payroll records to an authorised officer for inspection,

(m) provide for the collection of USC that has not been deducted during the year,

(n) provide for the collection of non-employment related USC from an employee’s emoluments,

(o) provide for the collection of USC from the employee rather than the employer,

(p) provide for the collection of interest and penalties from the employee,

(q) provide for the repayment to an employer of USC overpaid, provided a claim is made within four years after the end of the tax year to which the claim relates,

(r) provide for appeals,

(s) provide for the deduction and collection of amounts due in respect of notional payments, and

(t) enable Revenue to make available an electronic system for employers and employees to fulfil their USC obligations, and allow for electornic communication between employers, employees and Revenue.

Do the USC regulations apply to notional emoluments?

(2) Any reference to relevant emoluments should be read as including a reference to notional emoluments.

Are the USC regulations self-contained?

(3) The USC regulations apply in their own right, but they do not affect any right of appeal a person may have outside of the regulations.

Can Revenue exempt an employer from the USC regulations?

(4) Revenue may exempt an employer from the obligation to comply with USC regulations.

Must USC regulations be approved by Dáil Éireann?

(5) USC regulations be laid before and passed by Dáil Éireann.

Section 531AAC Care and management

Who is responsible for care and management of USC?

The Revenue Commissioners are responsible for care and management of USC.

Section 531AAD Excess bank remuneration charge

Are bankers’ bonuses subject to a special tax?

(1) Relevant remuneration, i.e., an excessive bonus, received by a bank employee (a relevant employee of aspecified institution) is taxed at 45% (the excess bank remuneration charge).

Who is exempt from the excessive bonus charge?

(2) An employee who earns not more than €20,000 in a tax year is exempt from the excessive bank remuneration charge.

When is a bank employee treated as having been awarded a bonus?

(3) An employee is treated as having been awarded relevant remuneration if:

(a) the employer is contractually obliged to pay or provide the bonus during the year, or

(b) the employer pays or provides the bonus during the year.

What is the amount of a banker’s bonus?

(4) The amount of relevant remuneration is:

(a) in the case of money, the amount of money at the time of the award,

(b) in the case of money’s worth, the amount of money’s worth at the time of the award.

What happens if the market value exceeds the amount of the bonus?

(5) If the market value of a banker’s bonus exceeds the amount of the bonus, the market value is taken as the amount of the bonus.

How is a restriction on the award of a banker’s bonus to be treated?

(6) A restriction is to be ignored in arriving at the amount of a banker’s bonus. In this regard, a restriction means any condition or similar provision that causes the market value of a bonus to be less than it would otherwise be.

What rate of tax applies to a banker’s bonus?

(7) Relevant remuneration, i.e., an excessive bonus, received by a bank employee (a relevant employee of aspecified institution) is taxed at 45% (the excess bank remuneration charge).

This special rate of tax applies in place of the normal USC charge.

Who is responsible for collection of the tax on bankers’ bonuses?

(8) The employer must deduct tax at 45% from the amount of the bonus.

(9) Legislation spent.

What must an employer do regarding bankers’ bonuses?

(10) Within 46 days of the end of each tax year, i.e., by 15 February in the following year, each bank must file a return with Revenue detailing:

(a) the name, address and PPS number of the employee to whom a bonus was awarded,

(b) the amount of the bonus awarded,

(c) the amount of USC deducted and paid to the Collector-General in respect of that bonus,

(d) any other details required by Revenue.

Section 531AAE Property relief surcharge

What is the property relief surcharge?

(1) This section imposes an additional 5% USC charge on an individual with aggregate income of €100,000 or more (aspecified individual) to the extent that the individual uses a specified property relief (an area-based capital allowance or a specified capital allowance) to reduce his income tax liability. The 5% charge applies to the amount of specified property relief used by the individual in the tax year.

Does the property relief surcharge apply if property relief is not used?

(2) The property relief surcharge only applies to the extent to which the property relief has been used.

How is the property relief surcharge levied?

(3) The property relief surcharge is levied by increasing the amount of USC due by 5% of the specified property relief used.

Is it possible to avoid the surcharge by prioritising reliefs?

(4) The order in which reliefs are to be claimed is the same as that used for the purposes of the high earner restriction (section 485C). This will determine if any specified property reliefs are carried forward (i.e., not charged in the current year).

However, specified property reliefs which are subject to the high earner restriction (i.e., which are also specified reliefs) must be used in priority to reliefs not subject to that restriction.

Can 2012 preliminary tax be reduced on the basis that USC was not operational?

(5) A specified individual must pay 2012 USC as if USC had been in operation in 2011.

Section 531AAF Delegation of functions and discharge of functions by electronic means

Can Revenue delegate their powers in relation to USC?

Revenue may delegate their powers in relation to USC to an authorised Revenue officer or through appropriate electronic systems.

Section 532 Assets

What are “assets”?

Capital gains tax (CGT) is charged on the disposal of assets.

The word asset is used to describe property in any form, including foreign currency, property which becomes owned without being acquired and intangible property, for example:

(a) An employer’s right to extract compensation from an employee who had prematurely ended his employment contract: O’Brien v Benson’s Hosiery (Holdings) Ltd, [1979] STC 735.

(b) Rights conferred by statutes: Davenport v Chilver, [1983] STC 426. Including the right to a new lease under landlord and tenant law: Bayley v Rogers, [1980] STC 544.

(c) The right to receive a future sum: Marren v Ingles, [1980] STC 500. Including royalty payments: Rank Xerox Ltd v Lane, [1979] STC 740.

(d) The right to sue: Zim Properties Ltd v Procter, [1985] STC 90.

(e) A milk quota: Cottle v Coldicott SpC 40, [1995] SWTI 1290.

(f) Letters of allotment in respect of shares: Young v Phillips, [1984] STC 520.

(g) An option: Golding v Kaufmann, [1985] STC 152.

(h) Incorporeal rights: Cleveleys Investment Trust Co v IRC (No 1), (1971) 47 TC 300.

The term does not include freedom to trade or compete: Kirby v Thorn EMI plc, [1987] STC 627.

In general, with the exception of options (section 540), the asset being disposed of must be owned by the person making the disposal.

Property which becomes owned without being acquired: for example, goodwill: Davenport v Chilver, [1983] STC 441; copyright (Inspector Manual 19.1.1).

Section 533 Location of assets

What is the location of an asset?

The location of an asset is important in deciding whether or not its disposal is liable to Irish CGT because non-resident non-domiciled persons are only chargeable to Irish CGT on disposals of assets located in the State.

Rights attaching to land and buildings are located where the land or buildings are located.

Rights attaching to chattels are located where the chattel is located.

A debt is located in the State only if the person who is owed the debt is resident in the State.

Government or local authority securities are located in the country of the issuing authority.

Shares are located where they are registered. Shares registered in more than one place are located where the principal register is located.

Shares in an Irish-incorporated company are regarded as situated in the Republic of Ireland, and in this context, “shares” includes warrants and instruments derived from the shares in question.

Ships and aircraft (and interests therein) are located in the State only if the owner of the ship, aircraft (or interest) is resident in the State.

Business goodwill is located where the business is carried on.

Patents, trademarks and designs are located where they are registered. If registered in more than one place, they are located where the register is located. Patents, trademarks, designs, and copyright, licence rights and franchise rights are only located in the State if they or the attaching rights can be exercised in the State.

A judgment debt is located where the debt is recorded.

An estate duty case, Standard Chartered Bank Ltd v IRC, [1978] STC 272, deals with the location of assets.

Section 534 Disposals of assets

What is a part disposal?

A disposal includes a part disposal.

A part disposal arises where a person disposes of an asset but retains part of that asset.

A part disposal also arises where the disposal of the asset creates a new right in that asset.

The part disposal apportionment rules are to be operated before no gain/no loss provisions, for example, section 1028(5) which concerns disposals between spouses.

A part disposal also arises where the disposal of the asset creates a new right in that asset.

Example

You transfer a house into joint ownerhsip with your spouse.

You have made a part disposal of a half share in the house to your spouse.

You have an asset which cost €400, and you transfer part of the asset to your spouse, the market value of that part at the time of transfer being €300. The remainder of the asset has a market value of €200.

The part disposal rules are applied on the basis that the part of the asset transferred to your spouse was disposed of at market value. The apportioned cost of the part transferred is then computed as:

€400  x  ___300___  =  €240
300 + 200

On the eventual disposal of the assets, your gain will be computed by reference to a “cost” of €160 (€400 less €240) and your spouse’s by reference to a “cost” of €240.

Source: Inspector Manual 19.1.4

Example

You have 10,000 shares in X Ltd. worth €1 each. They were acquired for 50c each six months ago.

X Ltd. raises new capital by means of a 1:10 rights issue, which allows every existing shareholder in X Ltd. to buy one new share (at €1.20) for every 10 shares already held by the shareholder.

You do not take up your rights, and sell the “rights” to the new shares for €1,200.

The position after rejecting the rights offer is that you still hold 10,000 shares, valued at €12,000.

However, you have derived value (€1,200 cash) from your asset.

The chargeable gain is:
Proceeds 1,200
Allowable cost: 5,000 x ____1,200____
1,200 12,000
454
Chargeable gain 746

Section 535 Disposals where capital sums derived from assets

Does a capital sum derived from an asset mean there has been a disposal?

(1)-(2) A disposal also arises when a capital sum (money or money’s worth that is not excluded in a CGT computation) is derived from an asset even though ownership of the asset may not be transferred, for example, where:

(a) A compensation payment is received for damage to, loss of, or depreciation of, an asset, for example, infringement of copyright, infringement of ancient lights, physical damage, etc.

(b) An insurance payment is received for damage to or loss of an asset.

(c) A capital sum is received for the forfeiture of rights arising from the asset, for example, for release of another person from a contract, or a restrictive covenant.

(d) A capital sum is received for use or exploitation of the asset, for example, premiums for leases over land, lump sum payments to landowners or farmers for the granting of easements or wayleaves, whether in perpetuity or for a term of years, to lay cables, pipelines , etc., for the transmission of gas electricity water oil etc.; or capital sums for the right to exploit “know-how”.

(Inspector Manual 19.1.6).

No chargeable gain can arise on the disposal of rights of the insurer or insured person under an insurance policy (other than an assurance policy on human life) except where such rights are assigned after the event which gave rise to the loss or damage.

There is a disposal of an asset where a capital sum is derived from that asset: IRC v Montgomery, [1975] STC 182;Marson v Marriage, [1980] STC 177.

A capital sum may be derived from an intangible asset, for example:

(a) An employer’s right to extract compensation from an employee who had prematurely ended his employment contract: O’Brien v Benson’s Hosiery (Holdings) Ltd, [1979] STC 735.

(b) A statutory right to compensation: A capital sum derived from such a right was held not to be derived from an asset in Davis v Powell, [1977] STC 32 and Drummond v Austin Brown, [1984] STC 321 but was held to derive from an asset in Davenport v Chilver, [1983] STC 426 and Pennine Raceways v Kirklees MC, [1989] STC 122. See alsoBayley v Rogers, [1980] STC 544.

(c) The right to receive a future sum: Marren v Ingles, [1980] STC 500. Including royalty payments: Rank Xerox Ltd v Lane, [1979] STC 740.

(d) The right to sue: Zim Properties Ltd v Procter, [1985] STC 90.

(e) A milk quota: Cottle v Coldicott SpC 40, [1995] SWTI 1290.

(f) Letters of allotment in respect of shares: Young v Phillips, [1984] STC 520.

(g) An option: An abandonment of an option for full consideration was held not to be an “abandonment” in Dilleen v Kearns, 4 ITR 547; contrast Golding v Kaufmann, [1985] STC 152; Welbeck Securities Ltd v Powlson, [1987] STC 468 in which an abandonment of an option was regarded as a disposal.

(h) Incorporeal rights: Cleveleys Investment Trust Co v IRC (No 1), (1971) 47 TC 300. But see Foster v Williams; Horan v Williams, SpC 113 [1997] SWTI 232 where compensation to account holders for loss of equity rights on transfer of building society to a banking group was held not to derive from an asset.

The question of which asset a capital sum is derived from was discussed in Marren v Ingles, [1980] STC 500. In that case, shares were sold for £750 each plus the right to receive a future sum. The subsequent receipt of that sum was held to derive from the right to receive the future sum, not from the sale of the shares.

Freedom to trade or compete is not an asset, and therefore compensation for loss of such freedom does not derive from an asset: Kirby v Thorn EMI plc, [1987] STC 627.

Compensation of an income nature (see notes to section 18), for example, compensation for loss of stock, cannot by definition be a “capital sum” derived from an asset: Lang v Rice, [1984] STC 172.

Compensation taxed as a part disposal (section 534) cannot also be taxed under this section: Chaloner v Pellipar Investments, [1996] STC 234.

A premium payable by the EC in respect of grubbing up orchards is a capital receipt (Revenue Precedent IT95-3511, 15 August 1995, G125(3), 28 July 1995).

Compensation for suspension of milk quota is regarded as capital (Revenue Precedent IT89-2037, 23 October 1989).

Section 536 Capital sums: receipt of compensation and insurance moneys not treated as a disposal in certain cases

When is compensation not treated as a disposal?

(1) Compensation proceeds are not treated as a disposal if the entire proceeds are used to restore the asset.

Instead, for the purposes of subsequent disposals, the base cost (acquisition cost including enhancement expenditure) of the asset is reduced by the compensation proceeds.

Relief is also given if most of the compensation proceeds are used to restore the asset, i.e., where a “small” part of the proceeds, not needed for the restoration, are not reinvested.

This latter relief (95% reinvestment: see below) does not apply where the asset had no pre-compensation cost, or if the compensation proceeds exceed its pre-compensation cost.

In practice, “small” means not exceeding 5% of the capital sum.

Where the compensation is received in respect of damage to an asset which is part of a larger unit, the test of smallness in relation to the value of the asset should be applied to the smallest unit which could reasonably be sold as such. For example, if a cottage is damaged, the unit is the cottage and not the estate on which it stands (Inspector Manual 19.1.7).

Example

Price you paid for the asset 40,000
Compensation received for flood damage 15,000
Amount of compensation re-invested in apartment 15,000

Since the entire compensation is re-invested, relief is given and the asset has a new base cost of €40,000 – €15,000.

Example

Price you paid for the asset 13,000
Compensation received for flood damage 15,000
Amount of compensation re-invested in apartment 14,500

Since 96.66% of the compensation is re-invested, relief should be due.

However, as the compensation proceeds (€14,500) exceed the asset’s pre-compensation cost (€13,000), no relief is given. The €15,000 is treated as a part disposal, and the asset retains its base cost of €13,000, together with €14,500 enhancement expenditure.

What is the time limit for reinvestment?

(2) Compensation proceeds re-invested within one year of the disposal in a replacement asset are treated as disposal proceeds giving rise to no gain/no loss. This relief must be claimed. The one year period may be extended by the inspector.

The base cost of the new asset is reduced by the excess of the compensation proceeds (plus the asset’s residual scrap value) over the disposal proceeds that would produce no gain/no loss.

Where the delay can reasonably be regarded as unavoidable, the “replacement period” may be extended to two years. The word “replacement” should be interpreted reasonably. If the new asset is of a similar functional type to the old asset, a claim may be admitted (Inspector Manual 19.1.7).

Strictly, no relief is due in law where a building has been destroyed, as the building and the land on which it stands are one asset. However, in practice, the old and the new buildings may be treated as distinct assets separate from the land on which they stand and relief may be allowed. This practice does not apply to a leasehold interest with less than 50 years to run (Revenue Precedent G130, 28 April 1997).

Example

Cost of rented house (June 2001) 80,000
Enhancement expenditure (July 2001) 30,000
Fire insurance compensation proceeds (May 2009) 200,000
Entire proceeds reinvested in building apartments in same place 250,000
Excess of the compensation proceeds (€200,000)
over proceeds that would produce no gain/no loss (€110,000) 90,000

The base cost of the new asset, €250,000, is reduced by this €90,000 excess to give a future net allowable cost of €150,000 for the new asset.

Is relief given when part of the compensation is reinvested?

(3) If only part of the compensation proceeds is reinvested in a new asset, no relief is given.

If, however, the part not reinvested is less than the gain, the gain is reduced (on due claim) to the amount not reinvested, and the new asset’s base cost is reduced by the same amount.

Example

Taking the facts of the previous example, assume that €150,000 (i.e., 75% of the compensation proceeds,) was spent replacing the old asset.

Your gain is:

Proceeds (2010) 200,000
Cost (2001) 110,000
Indexed at 1.309 119,570
Gain 80,430

The gain is reduced to the amount not re-invested (€200,000 – €150,000 = €50,000), and CGT is payable on this gain.

The €250,000 base cost of the new asset is reduced by the balance of the gain (€80,430 – €50,000 = €30,430,) giving rise to a future net allowable cost of €219,570 for the new asset.

Does compensation relief apply to wasting assets?

(4) This relief does not apply to wasting assets (section 560).

Section 537 Mortgages and charges not to be treated as disposals

Is the transfer of an asset as security a disposal?

(1) The transfer of an asset as security, for example for a loan or mortgage, is not a disposal. The retransfer of the asset on redemption of the loan is not a disposal.

The exemption only applies where the asset transferred as security reverts to the transferor on the redemption of the loan: Aspden v Hildesley, [1982] STC 206.

Is the enforcement of a security a disposal?

(2) Dealings in the secured asset to enforce the security are regarded as dealings by a nominee of the owner of the asset.

A sale by the security holder is treated as a sale by the borrower’s nominee. Any chargeable gain arising on the disposal is therefore attributed to the borrower, not the lender.

Is an encumbrance a deductible acquisition cost?

(3) Assets are treated as acquired free of security. The cost of any security attaching to the asset is treated as part of the cost of the asset.

For the acquisition of an encumbered property, see Thompson v Salah, [1971] 47 TC 559, Passant v Jackson, [1986] STC 164.

Example

You buy a property worth €100,000 from X for €70,000 (as the outstanding mortgage on the property is €30,000, and you agree to continue the mortgage payments).

You are treated as acquiring the property for €100,000 (not €70,000). In other words, the cost of the mortgage (€30,000) is added to the net cost of the asset (€70,000) to arrive at the asset’s cost for capital gains tax purposes.

Section 538 Disposals where assets lost or destroyed or become of negligible value

Does the loss of an asset constitute a disposal?

(1) This subsection deals with realised losses.

The entire loss or destruction of an asset constitutes a disposal of that asset.

Can a loss be claimed where an asset’s value becomes negligible?

(2) If an asset becomes worthless, a claim may be made to have the asset treated as sold (for nothing) and reacquired giving rise to an allowable loss.

This provision deals with unrealised losses. A claim for relief for an unrealised loss takes effect in the tax year in which the claim is filed and not the year the loss arose.

Such a claim cannot be backdated to absorb losses in earlier years: Williams v Bullivant, [1983] STC 107; Larner vWarrington, [1985] STC 442.

Relief was not given in Cleveleys Investment Trust Co. v IRC (No 2), [1975] STC 457.

What anti-avoidance provisions apply to negligible value claims?

(2A) If the asset which has become worthless (see (2)) consists of shares in a body corporate, the property of which was acquired by the State under the State Property Act 1954 (creating an unrealised, but nonetheless allowable loss for the shareholders), and if the State waives its right to the property in question in favour of the shareholder, theclaimed loss may not be claimed in any tax year earlier than the tax year in which you dispose of the property.

A share in a body corporate includes an equivalent interest in a body corporate that has no share capital.

Where part of the property (section 534) is disposed of, only part of the claimed loss is allowed against the gain. The part of the loss allowed is based on the fraction which the part’s market value bore to the entire property’s market value on the date the property was acquired.

In the case of a disposal to a spouse, so that the disposal is treated as giving rise to no gain/no loss (section 1028(5)), the tax year in which the property is disposed of means the tax year in which the acquiring spouse eventually disposes of the property.

Can buildings and land be separated for a negligible value claim?

(3) Where the realised or unrealised loss arises in relation to a building or similar structure, the site of the building or structure is treated as having been disposed of and immediately reacquired at market value.

This allows the strict legal position (that the outright owner of land, owns all buildings on that land) not to be applied where a building is destroyed or becomes worthless. This ensures that any gain in the value of the land reduces the size of the deemed loss on the building. In other words, an unrealised loss on a building cannot be detached from a gain arising on the land to which the building is attached. Only the net loss, if any, is available for set off.

In practice, however, any appreciation in the value of the site of the building or structure would not be precisely computed or ascertained if it is clear that the appreciation in value of the site is small, being not more than 5% of the loss which has been sustained on the destruction of the building or structure (Inspector Manual 19.1.9).

Section 539 Disposals in cases of hire purchase and similar transactions

Does CGT apply to hire purchase transactions?

(1)-(2) CGT should arise only very rarely in relation to hire purchase transactions. In the case of the vendor/financier such transactions will normally be reflected in income tax profits, while in the case of the hirer the assets involved will usually be:

(a) wasting assets which are exempt (section 560), or

(b) wasting assets which have qualified for capital allowances (section 561).

The transfer of ownership of an asset under a hire purchase transaction (or similar lease purchase transaction) is regarded as taking place at the start of the hire period.

The resulting charge may be adjusted if it transpires that ownership never passed to the hirer.

Example

01.01.2010 you sell a painting worth €100,000 under a 10 year lease purchase agreement from you.

Although, normally ownership passes to the lease purchaser after two years, you are treated as having disposed of the painting to X on 1 January 2010.

Assume X defaults on the lease payments, and on 1 January 2011, you repossess the painting.

Your tax is readjusted to reflect that you never made the disposal on 1 January 2010.

Section 540 Options and forfeited deposits

What is a “quoted option”?

(1) A quoted option is an option that, at the time of its disposal, is quoted on a stock exchange.

A traded option is an option that, at the time of its abandonment or disposal, is quoted on a stock exchange or futures exchange.

An option includes any transaction which a grantor of a lease binds himself to enter into, including an option that binds the grantor to grant a lease for a premium.

Is the grant of an option a disposal?

(2) The grant of an option is the disposal of a new asset (the option itself).

This treatment applies where the option grantor binds himself to sell an asset he does not own, and because the option is abandoned, never does own.

It also applies where an option grantor binds himself to buy an asset, and because the option is abandoned, never does buy.

An option has been defined as “an irrevocable offer which is open to acceptance by the exercise of the option”:Sainsbury plc v O’Connor, [1991] STC 318. An option is an asset (section 532).

The granting of an option is the disposal of an asset, and if the option is not exercised the entire proceeds received for the granting of the option are chargeable: Strange v Openshaw, [1983] STC 416.

Payment for release from a restrictive covenant is not deductible in calculating the consideration received for the grant of the option: Garner v Pounds Shipowners and Shipbreakers Ltd, [2000] STC 420.

How is the exercise of an option to buy treated?

(3) Where an option is exercised, and the optioned asset is bought or sold, the granting of the option is treated as part of the larger transaction.

If the option binds the grantor to sell, the option sale proceeds are treated as part of the asset sale proceeds.

If the option binds the grantor to buy, the option cost is deducted from the asset purchase cost.

Example

01.01.2008 You grant an option to X for €1,000 binding you to sell shares in Y Ltd.to X for €20,000 if called upon to do so before 31 December 2010.

01.06.2010 X exercises his option.

Your sale proceeds from the transaction are €21,000 (€1,000 + €20,000).

Example

01.01.2010 You grant an option to X for €1,000 binding you to buy from X shares in Y Ltd. for €20,000 if called upon to do so before 31 December 2010.

01.06.2010 X exercises his option.

Your purchase cost for the transaction is €19,000 (€20,000 – €1,000).

How is the exercise of an option to sell treated?

(4) The exercise of an option is not treated as a separate asset, and therefore its exercise is not a disposal.

Where an option is exercised by a grantee, and the asset is bought or sold, the grant of the option is treated as part of the larger transaction.

If the option binds the grantor to sell, the option sale proceeds are treated as part of the grantee’s asset purchase cost.

In practice, a person who grants an option is generally an option dealer, and the option money is treated as a receipt of his trade (Inspector Manual 19.1.11).

Example

01.01.2008 X grants an option to you for €1,000 binding him/her to sell you shares in Y Ltd. for €20,000 if called upon to do so before 31 December 2008.

01.06.2009 You exercise your option.

Your purchase cost for the transaction is €21,000 (€1,000 + €20,000).

Example

On 1 January 2008, for €1,000, X grants an option to you binding him/her to buy from you shares in Y Ltd. for €20,000 if called upon to do so before 31 December 2008. On 1 June 2007, you exercise your option.

Your sale proceeds from the transaction are €19,000 (€20,000 – €1,000).

How is the abandonment of an option treated?

(5) The abandonment of an option by the grantee is treated as a disposal.

In general, an abandonment of an option cannot be used to create an allowable loss (but see (7) and (8)(a)).

An abandonment of an option for full consideration was held not to be an “abandonment” in Dilleen v Kearns, 4 ITR 547; contrast Golding v Kaufmann, [1985] STC 152; Welbeck Securities Ltd v Powlson, [1987] STC 468.

Is a quoted option a wasting asset?

(6) A quoted option is a wasting asset the life of which ends when the option term ends, or the option becomes worthless, whichever comes first.

Can the abandonment of an option give rise to a loss?

(7) The abandonment of an option to acquire trade assets may give rise to an allowable loss if the trade commences within two years of the acquisition of the option.

No part of the acquisition cost of such an abandoned option is “wasted”, (section 560(3)). The full acquisition cost is deductible.

Can the abandonment of a quoted option give rise to a loss?

(8) The abandonment of a quoted option to subscribe for shares may give rise to an allowable loss.

No part of the acquisition cost of such a disposal or abandonment is treated as wasted (section 560(3)), i.e., the full acquisition cost is deductible.

A quoted option that is traded within three months of a company reconstruction or amalgamation may, in accordance with the rules that allow new shares to stand in the place of the old shares (sections 584587), be treated as the shares obtainable by exercising the option, and valued on that basis.

This means that if the shares are later disposed of, their acquisition cost is based on the market value of the shares, and not on the value of the option.

How is a put-call option treated?

(9) An option that allows the grantor to buy or sell an asset is treated as two separate options. If such an option is sold, half the proceeds are apportioned to each sub-option.

How is a forfeited deposit treated?

(10) A forfeited deposit is treated the same as an option binding the grantor to sell, which is not exercised.

In other words, a forfeited deposit is treated as an abandonment of an option. The person who keeps the deposit is regarded as having made a disposal (or part disposal) of an asset.

The person who paid the deposit does not have an allowable loss unless it comes within (7) or the first two paragraphs of (8).

Section 541 Debts

Is the disposal of a debt subject to CGT?

(1) The disposal of a debt by the original creditor does not give rise to a chargeable gain, except on the disposal of a debt on a security within section 585, i.e., government or corporate bonds.

“Debt on a security” does not mean “a secured debt” and “must include some unsecured debts”: Cleveleys Investment Trust Co v IRC (No 2), [1975] STC 457. It means a debt “with such characteristics as enable it to be dealt in and if necessary converted into other shares and securities”: Aberdeen Construction Group v IRC, [1978] STC 127. The sum payable must be capable of ascertainment: W T Ramsay Ltd v IRC, [1981] STC 174. See also E V Booth (Holdings) Ltd v Buckwell, [1980] STC 578.

In Mooney v Sweeney, HC, 6 April 1997, the court held that a loss on a loan to a company (the loan being of a type that could be convertible into shares) was a debt on a security as the taxpayer had the option to convert the loan, even though he/she did not exercise that option. The judge disagreed with the dicta in Taylor Clarke International Ltd v Lewis, [1997] STC 499 (see also section 585).

A debt does not include a right to an unquantifiable contingent future sum: Marren v Ingles, [1980] STC 500; Marson v Marriage, [1980] STC 177.

The disposal of a currency forward contract was not the disposal of a debt: Whittles v Uniholdings Ltd (No 3), [1996] STC 914.

What counts as the disposal of a debt?

(2) The satisfaction of a debt, or part of a debt, including a debt on a security, is a disposal of a debt.

How is property acquired in satisfaction of a debt valued?

(3) Property acquired in satisfaction of a debt is not treated as acquired at more than its market value.

However, a gain made by the acquirer (i.e. the original creditor) on the disposal of the property is limited to the gain that would have arisen had he acquired the property for the amount of the debt.

Example

01.01.2009 X gives you an antique worth €9,000 in satisfaction of X’s debt of €10,000.

01.01.2009 You sell the antique for €14,000. Your gain is: € 14,000
Less deemed consideration 10,000
Gain 4,000

How is a disposal of a debt by a connected person treated?

(4) The disposal of a debt by a connected person cannot give rise to an allowable loss. This rule also applies where the debt was acquired through a series of connected persons.

Example

You transfer a debt of €10,000 (now worth €5,000) to your son for €7,500. Your son sells the debt to a collecting agency for €5,000.

Subs (4) prevents the son claiming relief in respect of the “loss” of €2,500.

How is a debt which is settled property treated?

(5) A beneficiary who becomes absolutely entitled (as against the trustee) to a debt consisting of settled property, is treated as the original creditor’s personal representative or legatee.

How is the disposal of a foreign currency balance treated?

(6) The disposal of a foreign currency debt gives rise to a chargeable gain, unless the debt was acquired for foreign personal or family expenditure.

In other words, a gain realised through holding a foreign currency bank balance is chargeable.

What debentures count as a “debt on a security”?

(7) The following are chargeable:

(a) A disposal, following the allotment of the debenture, as part of the reorganisation (section 584(2)) of a company’s share capital.

(b) A disposal, as part of an amalgamation (section 586(2)), in exchange for shares or debentures in the other company.

(c) A disposal as part of a company reorganisation or reconstruction (587(2)).

(d) A disposal in connection with a transfer (within the EU) of a trade by a company to another company in return for securities in the new company (section 631).

(e) A disposal in connection with a transfer (within the EU) of trade assets by a company to its parent (section 632).

(f) A disposal related to a transfer (within the EU) of a trade, not covered by Part 21 for which relief under Part 21 has been sought (section 637).

(g) A disposal of rights attaching to a debenture within (a)-(c). This prevents a person from claiming he did not receive the legal ownership of a debenture on a company reconstruction etc, while obtaining all the benefits attaching to the debenture.

This subsection, by describing the circumstances in which a debenture is deemed to be a debt on a security, puts beyond doubt that a debenture issued by a company in exchange for shares on a reorganisation of a company’s share capital is not a debt for the purposes of section 541 but is, in fact a debt on a security as defined in section 585, which when subsequently disposed of, is chargeable to CGT. Before this subsection was introduced questions had been raised on this issue

Is the disposal of rights attaching to a debenture chargeable?

(8) A disposal of rights attaching to a debenture within (7)(d)-(g) is also chargeable.

Section 541A Treatment of debts on a change in currency

Amendments

Section 541A inserted by Finance Act 1998 section 47 and Schedule 2 para 9 from 31 December 1998 (appointed by the Minister of Finance under Finance Act 1998 (Section 47) (Commencement) Order 1998 (SI 502/1998).

This section, which relates to the introduction of the Euro, is now spent.

Section 541B Restrictive covenants

How is a restrictive covenant taxed?

(1) This anti-avoidance section applies where a person enters into a restrictive covenant, i.e., undertakes not to engage in certain activities, for example not to compete with a former employer. If the sum payable under such an agreement is not taxable as income, then it is taxed as a chargeable gain accruing in the tax year in which it is paid. If the payment is made to another person it is deemed to have been paid to the person who gave the undertaking.

Example

You are a partner in a professional firm, and you are due to retire. You enter into a non-compete agreement with the firm and in return, following your retirement, you will be paid a lump sum of €600,000, in three installments of €200,000 over three years.

The payment is not for past or future services. The payments are caught for CGT.

Is a non-monetary restrictive covenant payment taxed?

(2) If a person who enters into a restrictive covenant receives such a payment in non-monetary form, (for example, a holiday home,) the value of the non-monetary consideration is taken.

Example

(Continuing from the previous example)

Instead of taking €600,000 in three equal instalments, you take a holiday home in Spain worth €200,000, and two instalments of €200,000 each. The non-monetary payment is taxed at its value, i.e., €200,000.

Section 541C Tax treatment of certain venture fund managers

What is carried interest?

(1) Carried interest ) means the management’s share of the total profits of a qualifying venture capital fund which is a partnership to make relevant investments on behalf of companies, partnerships and individuals.

A relevant investment is a three year investment in a private company that carries out R & D or develops non technological, telecommunication, scientific or business processes (innovation activities).

The proportion of interest derived from derived from a relevant investment to which the section applies is the proportion that carried interest derived from investments in EEA countries bears to the carried interest from all relevant investment.

What is the tax treatment of carried interest?

(2) Provided the management’s share of the total profits is no greater than 20% (carried interest to which this section applies), the carried interest is subject to CGT (in the case of a partnership) or corporation tax on chargeable gains (in the case of a company).

What CGT rate applies to carried interest?

(3) For partnerships, the rate is 15%. For companies, the rate is 12.5%.

Section 542 Time of disposal and acquisition

What is the time of disposal of an asset?

(1) The time of disposal of an asset is generally the date of the contract for its disposal.

If the contract is conditional, the disposal date is the date the condition is satisfied.

The disposal date for compulsorily acquired land is the date the compensation is agreed, or if earlier, the date the authority enters on the land in pursuance of its powers.

Where farm land is compulsorily acquired from a farmer for road-widening purposes, the disposal date is deemed to take place in the tax year in which the farmer receives the disposal proceeds.

From 4 February 2010, in the case of compulsorily acquired land, the time of disposal is when the compensation is received. The proceeds are liable to CGT if the person making the disposal dies before receiving the consideration.

A disposal under a contract made prior to the introduction of CGT was held chargeable in: Johnson v Edwards, [1981] STC 660. See also Magnavox Electronics Co Ltd (in liquidation) v Hall, [1986] STC 561.

Conditional contracts: a contract may contain two types of conditions:

(a) A condition precedent which must be met before there is any contract. A conditional contract is deemed to take place when the condition is satisfied: Stanton v Drayton Commercial Investment Company Ltd, [1981] STC 525. See also Eastham v Leigh London and Provincial Properties Ltd, (1971) 46 TC 699, which discusses the distinction between a condition and a mere term of the contract.

(b) A condition subsequent, which one of the parties undertakes to fulfil once the contract is agreed.

A contract is conditional if the condition attaching is a condition precedent. A condition precedent is a condition which which must be satisfied before an obligation to perform the contract arises. The contract is not enforceable until the condition is satisfied.

Where a contract is subject to loan approval, the time of disposal is when the condition is satisfied, i.e., when loan approval is granted, not when the contract is signed and not when the contract is closed: Tax Briefing 41.

A condition providing that ownership of taxi licences (in connection with the sale of a taxi fleet) would not pass to the purchaser until the final instalment had been paid was held to be a condition subsequent on the basis that the licence could not be separated from the vehicle. Ownership passed on the date of the original taxi sale contract, not the date the final instalment was paid: Lyon v Pettigrew, [1985] STC 369.

If a contract is confirmed by a court order, the disposal date is the date of the order: Harvey v Sivyer, [1985] STC 439.

For an unenforceable oral contract, see Thompson v Salah, (1971) 47 TC 559.

See also note of the decision of the Appeal Commissioners, 2 AC 2000, at section 573(1).

Date of disposal is the date on which the condition is fulfilled: Hatt v Newman, [2000] STC 113.

Disposals by farmers of land for road building – Clarification of rate of CGT: eBrief 86/09

What changes apply after 1 January 2016?

(1A)-(1B) The time a chargeable gain accrues on an acquisition by or disposal to an authority with compulsory purchase powers shall be the time the compensation is received where it is received on or after 1 January 2016.

What is the disposal date where a capital sum is derived from an asset?

(2) Where a capital sum is derived from an asset ( section 535), the disposal date is when the sum is received.

Section 543 Transfers of value derived from assets

What is value shifting?

(1)-(2) This anti-avoidance section deals with “value shifting”, i.e., shifting value from one group of shares within a company to another.

A person who controls a company is deemed to have made a disposal if he exercises his control in such a way that value passes out of his company shares. The deemed disposal is treated as having been made at market value.

“Control” includes control by more than one person, and “exercise of control” can include inaction: Floor v Davis, [1979] STC 379.

If the person owning any of the shares at the date of transfer is a close company or would be a close company but for the fact that it is not resident in the State the amount apportioned to the shares should be apportioned among the shares of that close company and so on, through any number of close companies in respect of shares in any one of those companies which were acquired before the transfer of the asset at undervalue. This is necessary because the value of each subsidiary share depends on the value of the assets of the first company and, consequently every shareholder in the chain is affected.

Example

2007 You bought 2000 ordinary shares in X Ltd., which gave you control of the company. The purchase price was €10,000.

2009 You arranged for the authorisation and issue at par of 1,000 of a new class of €1 “A” ordinary shares to your son. Immediately thereafter, the rights attaching to the original ordinary shares were reduced to the status of preference shares carrying only an 8% dividend; and all other rights of voting, in profits, and on liquidation were passed to the “A” shares.

The value of the original shares was thus reduced and value passed to the new shares.

If the value of the old shares immediately before the arrangement was agreed at €15,000, and immediately after that date at €2,000, the computation is:

Value of shares before the change 15,000
Value of shares after the change 2,000
Value passing from old to new shares 13,000
Part cost allowable:
€10,000 x (13,000/15,000)
8,667
Chargeable gain 4,333

The acquisition price of the “A” shares to your son would be €13,000 plus €1,000 = €14,000.

Example

2007 Y Ltd. was formed with an authorised share capital of €10,000 in €1 ordinary shares. You subscribed for 7,500 shares at par and your spouse subscribed for 2,500 shares at par.

01.06.2009 You arranged for the authorisation and issue of 5,000 new €1 ordinary shares, 2,500 to be subscribed for by each of your two children at €1 per share.

Before the new issue, the value of your shares was €5 per share. As a result of the new issue and due to your loss of control, the value of your shares after the new issue was €3 per share.

After the new issue, the value of the three holdings of 2,500 shares (i.e., by your spouse and each of the 2 children) was €2 per share. The value of the original shares was thus reduced and some value passed from the old to the new shares. The computation of the gain chargeable on you (subject to expenses and ignoring indexation) is:

Value of your shares before this issue of new shares 37,500
Value of your shares after the issue of new shares 22,500
Value passing out of your shares 15,000

But the value passing out of the shares is greater than that which passed into the new shares so that some restriction of the gain must be made.

1st child 2nd child
Value of children’s shares (2,500 at €2 per share) 5,000 5,000
less price paid per share (€1) 2,500 2,500
2,500 2,500

Total value passing into new shares: €5,000

The acquisition cost of the new shares was €5,000 in the case of each child, i.e., €2,500 cash subscription plus €2,500 value passing from the old shares.

The figure of disposal proceeds used in the computation of your chargeable gain is restricted to the value passing into the new shares as follows:

Disposal proceeds 5,000
Less portion of cost allowable
€7,500 x (5,000/(5,000 + 22,500)) 1,364
Chargeable gain 3,636

Example

2007 You buy 200 ordinary shares in a close company (of which the issued share capital is 1,000 ordinary shares) for €300.

2008 The company sells to a “connected person” (section 10) for €800 a chargeable asset whose market value at the date of sale is €2,000.

The sale is deemed to have taken place at €2,000 and the chargeable gain of the company in computed accordingly.

2009 You sell the 200 shares for €450. The chargeable gain is computed as:

Sale price of 200 shares 450
Less cost of shares 300
Less undervalue apportioned to 200 shares
€1,200 (€2,000 less €800) x (200/1,000) 240
Cost 60
Chargeable gain 390

Does a change to the terms of a lease count as value a disposal?

(3) On a sale and leaseback, a change in the lease terms that results in value passing to the lessor is treated as a disposal by the lessee.

Example

You transfer land worth €100,000 to X under a 999 year lease, but the lease terms provide that you continue to lease the land from X for the first 100 years, at an annual rent of €10.

In effect, you continue to hold the land for a nominal annual rent.

If the lease terms are changed to revise the rent to €10,000 per annum, with three year rent reviews, you no longer hold the land for a nominal rent. You are treated as having made a disposal.

Example

2007 You buy freehold property for €100,000.

2008 You give the freehold to your son subject to a 99-year lease reserved to you, the rent payable by son being 5c per year, if demanded. The effect is to leave you with virtually the whole property, since your son is entitled only to a reversion at the end of 99 years and this has negligible value. (You have made a part disposal, but the value passing to your son is too small to warrant a computation of the gain on that part disposal.)

2009 You agree to pay to your son a full economic rent for the remainder of the term of the lease. The real value has now passed out of your leasehold interest, and you are treated as making a disposal at market value of the interest passed to your son. If that value was €150,000, the gain is:

Value transferred 150,000
Cost of freehold 100,000
Chargeable gain 50,000

The acquisition price of your son’s interest in the property is €150,000

Does the extinction of a right count as a disposal?

(4) The extinction of a right or restriction over an asset is treated as the disposal of that right by you as the person entitled to enforce it, at market value.

Example

You give the farm which cost €180,000 in 2003, to your son subject to your continuing occupation of the farm under a lease. You are under 55 years of age.

If the market value of the farm subject to that lease is €200,000, the gain chargeable at the date of the gift is computed by reference to that value as a part disposal, the value of the right to occupy being included in the denominator of the part disposal fraction.

If you subsequently give up your lease, there is a further disposal within section 543(4) of your rights in the property.

If the value of the right to occupy is €50,000 at the date of the gift and €45,000 at the end of the lease, the chargeable gains is:

On the gift:
Market value of farm subject to lease 200,000
Part cost allowable
€180,000 x (200,000/(20,000 50,000)) 144,000
Chargeable gain 56,000
On giving up the lease:
Market value of the right to occupy 45,000
Balance of cost €180,000 less €144,000 36,000
Part wastage (see below) 9,000 27,000
Chargeable gain 18,000

The right of occupation is a wasting asset (section 560). If your expectation of life at the date of the gift (in 2003) was 20 years and the lease was ended 5 years later (in 2008), the part not allowable is 5/20 x €36,000 = €9,000.

Section 544 Interpretation and general (Chapter 2)

What is a “renewals allowance”?

(1) The cost of replacing an asset (a renewals allowance) is deductible in calculating a gain on the disposal of the replaced asset.

Can revenue items be included in a CGT computation?

(2) Receipts or expenditure of a revenue nature are not chargeable and not deductible, respectively, for CGT purposes.

Is the gross or net figure included?

(3) In a CGT computation income includes income subject to tax deduction.

Can expenditure be deducted twice?

(4) A deduction for expenditure is only given once in a CGT computation. No expenditure can give rise to a double deduction in that computation or any other computation.

How are proceeds and expenditure apportioned?

(5) Sale proceeds or related expenditure that relate to two or more transactions must be justly and reasonably apportioned between the transactions.

For sale and mortgage treated as separate transactions, see Coren v Keighley, (1972) 48 TC 370 and Thompson v Salah, (1971) 47 TC 559. For apportionment of composite revenue and capital payments, see Neely v Rourke, [1987] STC 30.

A sale of shares and an assignment of a loan were treated as separate transactions in E V Booth (Holdings) Ltd v Buckwell, [1980] STC 578.

How is part disposal expenditure apportioned?

(6) In a CGT computation, the apportionment of expenditure relating to a part disposal must be made before considering:

(a) relief for disposals between spouses and civil partners,

(b) roll over relief,

(c) any other relief that ensures no gain/no loss arises on a transaction.

Can CGT and income tax treatments differ?

(7) To the extent that a CGT provision depends on an income tax provision, the income tax assessment, or appeal decision, is regarded as conclusive.

In other words, Revenue recognition of receipts or expenditure in an income tax assessment may not be reopened for discussion in a CGT assessment or appeal.

How are events before 6 April 1974 treated in a CGT computation?

(8) In a CGT computation, events that took place before 6 April 1974 may be recognised, unless expressly excluded.

Example

01.01.1974 Painting was bought for €700,000 (£551,295).

01.01.2007 Painting sold for €1.3m.

Due to a slump in the market, the painting was worth €90,000 (£70,880) on 6 April 1974.

CGT computation Actual
Proceeds 1,300,000 1,300,000
Cost: €90,000 indexed at 7.528 677,520 700,000
Gain 622,4800 600,000

In this case, the actual gain, which is less than the computed gain, is taken as the gain.

Section 545 Chargeable gains

What are non-chargeable assets?

(1) A chargeable gain does not arise where you dispose of non-chargeable assets.

How is a gain calculated?

(2) The gain on the disposal of an asset is computed using the computation rules contained in this Chapter. A CGT computation takes the general form:

Proceeds (consideration for disposal of the asset) XXXXX
Less incidental costs of disposal XXX
Net sale proceeds XXXXX
Less: deductible expenditure
Acquisition cost (YYYY) of the asset
indexed at X.XXX XXXXX
Plus incidental costs of acquisition XXX
XXXXX
Enhancement expenditure (YYYY) on the
asset indexed at X.XXX XXXXX
XXXXX
Chargeable gain (or allowable loss) ZZZZZ

To ensure proceeds are not artificially suppressed, Revenue insist that market value is used to determine sales proceeds (and purchase costs) in non-arm’s length transactions and transactions between connected persons (section 547549).

Revenue type income receipts are generally not regarded as consideration chargeable to CGT (section 551).

Deferred future consideration must be included as part of the proceeds (section 563).

Revenue type costs are not deductible in a CGT computation (section 554).

The deductible expenditure is made up of incidental disposal costs (usually deducted from the sale proceeds) together with the acquisition cost of the asset and expenditure on enhancing the asset (section 552). Acquisition cost and enhancement expenditure are indexed to remove the inflationary element of the gain (section 556).

On a part disposal of an asset, deductible expenditure is reduced in proportion to the part disposed of (section 557).

Deductible expenditure relating to a wasting asset is rateably wasted over the asset’s useful life (section 560).

No deduction is given for contingent liabilities (section 562).

What gains are chargeable?

(3) Every gain is a chargeable gain, and is therefore chargeable unless otherwise indicated.

Section 546 Allowable losses

Does the disposal of a non-chargeable assets give rise to a loss?

(1) The disposal of a non-chargeable asset does not give rise to a loss.

How is a loss computed?

(2) An allowable loss is calculated in the same manner as a chargeable gain.

The kind of technical paper loss allowed in McGrath and Others v MacDermott, 3 ITR 683 is now precluded by the general anti-avoidance legislation contained in section 811.

What rules determine if a loss is allowable?

(3) The CGT rules that make gains chargeable also make losses allowable. If a transaction results in a gain being chargeable, a loss, if it had arisen on the same transaction, is allowable.

Is a loss arising to a non-resident allowable?

(4) A non resident is only chargeable on the disposal of land, minerals, exploration rights, or trade assets of a branch located in the State (section 29(3)).

A non resident may only claim losses from such disposals. In other words foreign losses are not allowable.

A potential loss is not allowable. In Heron v Minister for Communications, (1985) 3 ITR 198, a taxpayer who received compensation when his lands were compulsorily acquired by the Minister for Communications was not allowed to have the compensation revised to take account of potential CGT liability when he later sold the land.

Note: this provision may be in breach of EU law as it discriminates against EU based non-residents

Example

You are resident and domiciled in France. You incur a loss on the disposal of a property in France during the year 2015.

The loss is not allowable as the corresponding gain is not chargeable.

You also have a loss on a disposal of a property in Cork.

The loss is allowable as the corresponding gain would be chargeable.

Can I carry back a loss?

(5) An allowable loss may not be set off against chargeable gains of any earlier tax year. An exception to this rule allows the set off of a (terminal) loss arising in the year of death against chargeable gains of the three immediately preceding tax years (section 573).

Loss relief is only given once. An income tax loss cannot be set against a chargeable gain.

Can carried forward losses be offset against highest rate gains?

(6) Where you have gains chargeable at different CGT rates, you may maximise your relief by setting any unused losses carried forward against the gains chargeable at the highest rate.

Section 546A Restrictions on allowable losses

What is “tax advantage”?

(1) A tax advantage means:

(a) a tax relief (or increase in such a relief),

(b) a tax repayment (or increase in such a repayment),

(c) avoiding or reducing a tax charge or assessment, or

(d) avoiding a possible assessment to tax.

When is a capital loss not allowable?

(2) A capital loss is not allowable if it results from arrangements (i.e. any agreement, scheme, understanding or transaction), the purpose of which is to secure a tax advantage (see (1)).

What are regarded as “arrangements”?

(3) In determining whether a capital loss results from arrangements intended to secure a tax advantage, it is not relevant whether:

(a) the loss accrues at a time when there were no chargeable gains against which it could be offset, and

(b) the tax advantage is secured for the person to whom the loss accrues, or for some other person.

Section 547 Disposals and acquisitions treated as made at market value

When is market value taken as consideration?

(1) Market value is taken as consideration where an asset is acquired:

(a) In a non-arm’s length transaction.

See Aspden v Hildesley, [1982] STC 206; Berry v Warnett, [1982] STC 396.

In Bullivant Holdings Ltd v IRC, [1998] STC 905, the arm’s length rule was not applied to a company that acquired two separate 25% holdings in another company.

(b) As a company distribution.

(c) For consideration that cannot be valued.

(d) In connection with a loss of employment or reduction in salary.

In Whitehouse v Ellam, [1995] STC 503, taxpayers who bought a debt due to their company for a fraction of its value could not use the market value of the debt as their acquisition cost as the debt was not acquired “in connection with” their loss of employment.

Disposal proceeds include a sum paid to discharge a subsidiary’s debt: Spectros International plc v Madden, [1997] STC 114.

(e) In recognition for past service in an employment.

Where the consideration received for the disposal of an asset is another asset, the consideration for each disposal may be a realistic value agreed between the parties: Stanton v Drayton Commercial Investment Company Ltd, [1982] STC 585.

What is the acquisition cost of State property?

(1A) Where State property is acquired as a result of the State’s waiving its rights to that property (State Property Act 1954 section 31), the property’s acquisition cost is taken to be the price, if any, paid for the waiver.

How are new shares valued?

(2) New shares acquired from a connected company are valued at the lower of:

(a) The consideration paid for the shares.

(b) The excess of the value of the allotee’s shareholding after the allotment over the value of the shareholding before the allotment. If there was no shareholding before the allotment, this figure is taken to be the market value of the new holding after the allotment.

This anti-avoidance provision prevents a taxpayer from using the market value rules to artificially inflate an asset’s acquisition cost. This prevents the use of the decision in Harrison v Nairn Williamson Ltd, [1978] STC 67, for tax avoidance purposes.

Example

This example is to illustrate what the subsection counteracts: avoidance through a “reverse Nairn Williamson” scheme, so called following the decision in Harrison v Nairn Williamson Ltd, [1978] STC 67.

X and Y founded X Ltd. in April 1974. X and Y were issued with a €1(£0.787) share in return for initial capital investment of €1(£0.787) each. No further shares were issued.

On 01.05.2008, X and Y were each offered €0.5m for your shares in X Ltd.

X Y
Proceeds 500,000 500,000
Cost €1 indexed at 7.528 7 7
Gain 499,993 499,993

On 02.05.2008, X Ltd. issued 999,986 bonus shares, 499,993 each to X and to Y. If these shares are valued at market value, the computation becomes:

X Y
Proceeds 500,001 500,001
Deemed acquisition cost 499,999 499,999
Gain 2 2

However, the shares are valued at the lower of the consideration paid for the shares (€1 each) or the excess of the value of the shareholding after the allotment (€500,001) over its value before the allotment (€500,000), €1 in either case.

When is market value not used?

(3) Market value is not used where:

(a) there is no corresponding disposal of the asset, and

(b) no consideration is given for the asset, or the consideration given is lower than the asset’s market value.

This is designed to prevent an artificially high deductible cost in the case of shares acquired under unapproved share option schemes. On the disposal of the shares, although the price (if any) paid by the employee was less than market value, the employee could have a higher acquisition cost based on market value rather than cost, thus reducing any gain on a subsequent disposal of the asset.

When is market value used?

(4) Market value is used where an asset is disposed of:

(a) in a non-arm’s length transaction, or

(b) for consideration that cannot be valued.

Section 548 Valuation of assets

What is market value?

(1) Market value means the price an asset might reasonably fetch if sold in the open market.

See Holt v IRC, (1953) 32 ATC 402, and McMahon v Murphy, 4 ITR 125.

Does the sale of a collection affect market value?

(2) The estimated market value of a lot (or collection) of assets is not to be reduced because the entire lot is placed on the market at the same time.

How are quoted shares valued?

(3) Shares quoted on the Stock Exchange Official List (Irish) are valued at the lower of:

(a) The list price at which bargains were recorded on the day.

(b) If no bargains were recorded on the day, the price recorded (or, if several prices were recorded the price halfway between the highest price and the lowest price).

Shares listed in the Stock Exchange Daily Official List are valued at the lower of:

(a) The lower of the two prices shown on the day, plus a quarter of the difference between the two prices.

(b) The list price at which bargains were actually recorded on the day. If no bargains were recorded on the day, the price recorded (or, if several prices were recorded, the price halfway between the highest price and the lowest price).

If shares are listed on both the Stock Exchange Official List (Irish) and the Stock Exchange Daily Official List, the lowest valuation is taken.

These valuation rules do not apply if the shares are traded on a more active market.

If the stock exchange is closed, shares are valued by reference to the latest previous date or earliest subsequent date it is open, whichever gives the lower valuation.

How are unquoted shares valued?

(4) Unquoted shares are valued on the basis that a prudent prospective purchaser has ready access to all the information necessary to make an informed purchase decision.

A share is a collection of rights between the shareholders themselves and between the shareholders and the company:Borland’s Trustee v Steel Bros and Co Ltd, (1901) 1 Ch 279.

Information that might reasonably be required by a prospective purchaser was considered in Clark v Green SpC 5 [1995] SWTI 527.

The effect on the share value of a restriction on transfer was considered in Salvesen’s Trustees v IRC, (1930) SLT 387 and IRC v Crossman, [1936] 1 All ER 762.

The Crown can bring evidence of actual transactions in shares in the same company and of previous agreements with Revenue as to valuation: IRC v Stenhouse Trustees, [1992] STC 103.

What is the market value of units in a unit trust?

(5) The market value of units in a unit trust means their buying price as published on the valuation date or the latest previous date their price was published.

How is an appeal in relation to the value of unquoted shares determined?

(6) An appeal against the valuation of unquoted shares is to be determined in the same manner as an appeal against an assessment made on the company.

See McBrearty v IRC, [1975] STC 614.

Section 549 Transactions between connected persons

What are the “connected persons” rules?

(1) These rules apply where the person disposing of an asset is connected with the person acquiring the asset.

How is a connected person transaction treated?

(2) A disposal to a connected person is treated as a non-arm’s length transaction: market value is substituted for the price (if any) paid for the asset.

Is a loss on a disposal to a connected person allowable?

(3) A loss on a disposal to a connected person may only be set against a gain on a disposal to the same person.

For a scheme which avoided this restriction see Shepherd v Lyntress Ltd, [1989] STC 617.

Is a loss on a disposal to a cultural association allowable?

(4) The restriction does not apply to a gift in settlement to an association for educational, cultural or recreational purposes, provided all or most of the association’s members are not connected.

Is a loss on the disposal of an option acquired from a connected person allowed?

(5)A loss on the disposal of the option acquired from a connected person is not allowable unless the onward disposal is at arm’s length to an unconnected person.

Does a restriction reduce market value?

(6) Where an asset disposal to a connected is subject to a restriction enforceable by the disponer, the asset’s market value is reduced by the lesser of:

(a) The market value of the restriction.

(b) The increase in the asset’s value if the restriction was extinguished.

Example

You give farmland to your daughter subject to a restriction that the land remains undeveloped.

The land’s agricultural value is €100,000. Its development value is €1,000,000.

Assume the restriction’s market value is €600,000.

The CGT computation is:

Market value ignoring restriction 1,000,000
Less lower of
(a) Market value of the restriction 600,000
(b) Increase in value without the restriction 900,000
Deduct the lower of (a) or (b) 600,000
Deemed proceeds 400,000

What restrictions are ignored?

(7) The following restrictions may be ignored when calculating the market value:

(a) A right the enforcement of which would destroy or greatly damage the asset’s value, without bringing any advantage to the disponer.

(b) A right that is an option to acquire the asset disposed of.

(c) A right to extinguish an asset (that is an option) in the hands of the acquirer.

See Berry v Warnett, [1982] STC 396.

Can a restriction create a loss?

(7A) If the asset’s value, ignoring the restriction, is greater than the consideration paid for it,

a loss arising on any subsequent disposal is ignored.

When is a restriction not ignored?

(8) a right or restriction is not held by a person not within the charge to CGT (for example a tax haven company) is not ignored. See McGrath and Others v MacDermott, 3 ITR 683, [1988] ILRM 647, in which a similar scheme was used.

Example

You expect to realise a gain of €1,000,000:

To create an artificial loss to set off against this gain, you buy shares (worth €1m) in Y Ltd. for €1,000. X Ltd, a connected company based in a tax haven, retains an option to buy the shares in Y Ltd. for €1,000. Accordingly the shares are valued at €1,000 (not €1m).

X Ltd. has no CGT on its disposal of the shares. However, the artificial acquisition cost of €1m is available to you. You could now sell the shares to an unconnected person for €1,000, thus creating an artificial loss of €0.999m, to be set off against your “real” gain of €1m.

Because you are deemed to have acquired the shares at market value, X Ltd.’s option to acquire the shares is ignored in determining their value, i.e., X Ltd. is regarded as having disposed of the shares for €1m and you are regarded as having acquired the shares for €1m, thus giving you an acquisition cost of €1m.

The anti-avoidance rule ensures that X Ltd.’s option is not ignored.

Is a right exerciseable on breach of lease terms ignored?

(9)A right exerciseable on breach of lease termsis not ignored when calculating market value

Section 550 Assets disposed of in series of transactions

Does the separate sale of group items reduce their value?

Assets may be worth more as a group than when considered separately. When such assets are disposed of separately to a connected person, the market value of the assets as a group is apportioned to the separate transactions.

Example

You gave a row of three derelict houses to your son. You gave your son the first house in May, the second house in July, and the third house in November. Taken separately, each house is worth €120,000. Taken together, they comprise a development site worth €900,000.

You are treated as having made three separate disposals worth €300,000 (€900,000 divided by 3) to your son.

Section 551 Exclusion from consideration for disposals of sums chargeable to income tax

Is a revenue receipt subject to CGT?

(1)-(2) Revenue receipts are not chargeable to CGT.

This exclusion does not restrict relief for management expenses in the computation of trading income of a life assurance company (section 707).

Example

You lease a shop to X for 10 years in return for a premium of €8,000 and an annual rent of €5,000. You have no other rental income.

In your income tax computation rental income is taken as:

Rent 5,000
Part of premium liable to income tax:
€8,000 – (€8,000 x (10 – 1) x 2%) = 6,560
Total 11,560

The part of the premium chargeable to income tax (€6,560) is not taken into account for CGT purposes.

The balance of the premium (€1,440) is chargeable to CGT.

Composite revenue and capital payments: see Neely v Rourke, [1987] STC 30.

Is a balancing charge treated as consideration?

(3) Although Revenue receipts are not generally treated as consideration for CGT purposes, a balancing charge may be taken into account as consideration.

Is the capitalised value of a rental stream treated as CGT consideration?

(4) The capitalised value of a right to receive rent or income payments for a future period is treated as CGT consideration.

Section 552 Acquisition, enhancement and disposal costs

What deductions are allowed in calculating a gain?

(1) In computing a chargeable gain the nfollowing are deductible:

(a) The cost of acquiring the asset.

See Stanton v Drayton Commercial Investment Company Ltd, [1982] STC 585. Payment for release from a restrictive covenant is not deductible: Garner v Pounds Shipowners and Shipbreakers Ltd, [2000] STC 420.

A non-monetary obligation is deductible at its equivalent monetary value: Chaney v Watkis, [1986] STC 89.

As to whether expenditure incurred includes deemed expenditure see Mashiter v Pearmain, [1985] STC 165.

The Appeal Commissioners have held that probate tax comprised in the acquisition cost is allowable: 1 AC 2000.

(b) Expenditure on enhancing the asset, that is reflected in the state of the asset at the time of the disposal.

Enhancement expenditure does not include:

(a) the notional cost of the taxpayer’s own labour: Oram v Johnson, [1980] STC 222,

(b) arrears of rent: Emmerson v Computer Time International Ltd, [1977] STC 170,

(c) the cost of a loan waiver: Aberdeen Construction Group Ltd v IRC, [1978] STC 127,

(d) the cost of an insurance premium: Allison v Murray, [1975] STC 524,

(e) the cost of a tax avoidance scheme: Eilbeck v Rawling, [1981] STC 174,

(f) the cost of a guarantee: Cleveleys Investment Trust Co v IRC, (No 2), [1975] STC 457,

(g) a payment by residuary legatee to the executor: Passant v Jackson, [1986] STC 164.

Where a chargeable asset is acquired otherwise than as an asset of a trade the cost should be VAT inclusive. If the VAT borne on it is part of the trader’s deductible “input tax” the cost should be VAT exclusive.

A gain is to be computed by reference to the VAT exclusive proceeds. If VAT is suffered on the expenses of disposal and this is available for set off in the vendor’s VAT account, the expense exclusive of VAT is to be deducted in computing the gain. If no set-off is available, the expense inclusive of VAT is to be allowed (Inspector Manual 19.2.2).

(c) Incidental acquisition and disposal costs.

Incidental costs include valuation fees, commission, legal costs, advertising costs, and interest charged to capital(section 553). Valuation fees for probate purposes may be allowed: IRC v Richards’ Executors, (1971) 46 TC 626.

Trustees’ costs of varying a marriage settlement to allow assets to be paid to beneficiaries were regarded as incidental disposal costs in: IRC v Chubbs Trustee, 47 TC 353.

Example

1997 You buy for €10,000 (including expenses) a plot of land (not being part of a garden within section 604) and you lay out on it a tennis court at a cost of €5,000.

2001 You do away with the tennis court and build in its place a swimming pool at a cost of €12,500.

2009 You sell the land for €34,000 (after deduction of expenses).

The €5,000 which you spent on the tennis court is not allowable because it is not reflected in the state of the land on its disposal. The computation is as follows-

Sale price (2009) 34,000
Cost of land €10,000 x 1.232 (1997) 12,320
Cost of swimming pool €12,500 x 1.087 (2001) 13,587
Allowable expenditure 25,907
Chargeable gain 8,092

Note

1. The demolition of a tennis court is not the “entire loss, destruction, dissipation or extinction of an asset” within section 538(1), because it is not an “asset”, it is only part of an asset (the land); and it is not within section 538(3) because it is not a building or a structure in the nature of a building.

2. Demolition costs may be permanently reflected in the state of the land by the absence of the demolished building. In practice, the sole test of allowability is whether the purpose in incurring the expenditure was to enhance the value of the asset. Where, for example a building is erected in a garden and is subsequently removed and the garden reinstated, neither the cost of the building nor of its removal are normally allowable. Where, however, the cost of demolition is small in relation to the cost of constructing a new erection (as, for example, the cost of demolition of the tennis court above) no adjustment need be made.

Source: Inspector Manual 19.2.10

What is the acquisition cost of an asset bought in a foreign currency?

(1A) The acquisition cost of an asset bought in a foreign currency is its foreign currency cost using an arm’s length (market value) exchange rate at the acquisition date.

This gives legislative effect to the decision in Bentley v Pike, [1981] STC 360. The gain is not to be computed by reference to the Euro equivalent of the foreign currency difference between the acquisition cost and disposal cost. See also Capcount Trading v Evans, [1993] STC 11.

Does the write-off or release of debts affect allowable costs?

(1B)(a) Debts include debts incurred by persons connected with the person making a disposal.

(b) Where all or part of a debt incurred for the purpose of acquiring assets is released the cost of the asset shall be reduced by the amount of the the release, but not so as to create a chargeable gain if there wouldn’t be one without this subsection. In other words this provision will reduce the amount of a loss that can be carried forward but will not create a gain where there would not otherwise be one.

(c) the date of release of a debt will be determined in accordance with the rules in section 87B(4).

(d) Where the release happens after the year in which the disposal occurred then a chargeable gain equal to the amount of the reduction that would be made under paragraph (b) will be deemed to arise thus reducing the loss forward. If the disposal was to a connected person the deemed gain is also treated as having arisen on a disposal to the connected person so that the loss forward may be offset against it.

(e) Paragraph (d0 cannot create a deemed gain on a non-chargeable asset.

(f) this section does not apply to the release of inter-company debts in a group (because the effect is neutral in the group as a whole).

What incidental costs are deductible?

(2) To be deductible incidental acquisition or disposal costs (for example professional, legal, accounting, advertising and estate agent fee) must be incurred wholly and exclusively in connection with the acquisition or disposal of the asset.

The cost of appealing an assessment was not allowed in Couch v Caton (Administrators of the Estate of, dec’d), [1997] STC 970.

Is interest deductible?

(3) Interest on a property loan is not deductible for CGT purposes unless it has been capitalised, i.e., charged in the disponer’s accounts as part of the capital cost of the property and not claimed as a revenue type deduction.

Is insurance deductible for CGT purposes?

(4) Insurance is a revenue expense and is not deductible for CGT purposes.

Is the cost of transferring an asset to a beneficiary deductible?

(5) A beneficiary who has become absolutely entitled to an asset as against a trustee may deduct the cost of transferring that asset when calculating a gain on disposal of the asset.

Section 553 Interest charged to capital

Is capitalised interest deductible ?

Interest charged as part of the capital cost of a building or structure is deductible for CGT purposes.

See Chancery Lane Safe Deposit and Offices Co Ltd v IRC, (1965) 43 TC 83; Fitzleet Estates Ltd v Cherry, [1977] STC 95; Metropolitan Railway Co v IRC, (1936) 20 TC 102; Central London Railway Co v IRC, (1936) 20 TC 102; Nobes (B W) and Co Ltd v IRC, (1965) 43 TC 133.

Section 554 Exclusion of expenditure by reference to income tax

Is revenue expenditure deductible for CGT purposes?

(1) Revenue type expenditure is not deductible in a CGT computation.

For example, incidental disposal costs of an asset, such as valuation fees, cannot be claimed as a deduction against profits and also claimed in the CGT computation. The deduction is only given once.

The cost of rent was disallowed in Emmerson v Computer Time International Ltd, [1977] STC 170.

Is interest deductible if the asset was never used?

(2) Interest on capital expenditure to acquire a fixed asset which was never used in the business is not allowed.

Section 555 Restriction of losses by reference to capital allowances and renewals allowances

Does the cost of an asset exclude capital allowances claimed?

(1) In computing a gain the part of the asset’s cost that qualified for capital allowances is deductible, i.e. it is not excluded by section 554. A balancing charge, if any, arising on the disposal of an asset must be included in the proceeds part of the computation.

To the extent that capital allowances create on what otherwise be an allowable loss, they are not deductible.

Example

01.01.1989 You begin to use a commercial premises and you obtain €200,000 of the cost as a deemed industrial building allowance.

02.01.2009 You sell the premises for €2,000,000. No balancing charge arises as the premises was sold more than 13 years after it was first put to use (section 323(4)).

As you have a chargeable gain on the disposal (€2,000,000 – €200,000), the capital allowance is ignored.

Assume that you sold the premises for €150,000. Theoretically, you have an allowable loss of €50,000 (€200,000 – €150,000). However, the transaction is treated as giving rise to no gain/no loss.

When must capital allowances be considered?

(2) A successor to a trade may jointly agree with the predecessor to treat a transferred asset as sold at a price equal to the asset’s unexpired capital allowances (section 289(6)). A successor to a deceased trader may make a similar election (section 295).

Companies (and partnerships) under common control may also opt to substitute a transferred asset’s tax written down value for its open market value (section 312(5)).

In these circumstances, capital allowances must also be taken into account in deciding whether a loss is allowable.

When must a balancing adjustment be considered?

(3) The adjustment required to ensure that capital allowances do not give rise to an allowable loss (see (1)) must also take account of any balancing adjustment occasioned by the disposal itself.

Section 556 Adjustment of allowable expenditure by reference to consumer price index

Does inflation reduce a capital gain?

(1)-(2) The cost of an asset may be indexed (but only up to 2003)to remove the inflationary element of the gain.

Indexation is carried out by using the Revenue multipliers which are derived from the Central Statistics Office.

Indexation does not apply to expenditure incurred in the 12 months preceding the disposal.

Can pre 1974 expenditure be indexed?

(3) Indexation only applies from 6 April 1974. This is achieved by “deeming” the asset to have been sold and immediately re-acquired at market value on that date.

Example

1966 You bought a property for €5,000 (£3,937).

06.04.1974 The property was worth €60,000 (£47,253).

01.01.2009 You sold the property for €500,000.

CGT computation:
Proceeds 500,000
Market value 6 April 1974 60,000
Indexed at 7.528 451,680
Gain 48,320

Can indexation to turn a gain into a loss?

(4) Indexation cannot be used to:

(a) increase an actual gain or convert an actual gain into a loss,

(b) increase an actual loss or convert an actual loss into a gain.

Example

01.01.1968 You bought an asset for €12,000 (£9,451).

06.04.1974 The asset was worth €1,500 (£1,181).

On 1 January 2009, you sold the asset for €15,000.

CGT computation:
Proceeds 15,000
Market value 6 April 1974 1,500
Indexed at 7.528 11,292
Gain using indexation 3,708
Actual gain 3,000
Indexation cannot increase an actual gain, so the chargeable gain is 3,000

Example

01.01.1968 You bought an asset for €10,000 (£7,876).

06.04.1974 The asset was worth €2,500 (£1,969).

01.01.2009 You sold the asset for €12,000.

CGT computation:
Proceeds 12,000
Market value 6 April 1974 2,500
Indexed at 7.528 18,820
Loss using indexation -6,820
Actual gain 2,000
Indexation cannot turn a gain into a loss, so the result is no gain / no loss

Example

01.01.1968 You bought an asset for €10,000 (£7,876).

06.04.1974 The asset was worth €2,000 (£1,575).

01.01.2009 You sold the asset for €9,000.

CGT computation:
Proceeds 9,000
Market value 6 April 1974 2,000
Indexed at 7.528 15,056
Loss using indexation -6,056
Actual loss 1,000
Indexation cannot increase an actual loss, so the allowable loss is 1,000

Example

01.01.1968 You bought an asset for €10,000 (£7,876).

06.04.1974 The asset was worth €500 (£394).

01.01.2009 You sold the asset for €8,000.

CGT computation:
Proceeds 8,000
Market value 6 April 1974 500
Indexed at 7.528 -3,764
Gain using indexation 4,236
Actual loss 2,000
Indexation cannot turn a loss into a gain, so the result is No gain / no loss

What is an indexation multiplier?

(5) This subsection lists the indexation multipliers for disposals made in 1997-98 (see notes to subs (6) for other years).

Who publishes indexation multipliers?

(6) The Revenue Commissioners made regulations listing the indexation multipliers for 1998-99 to 2003.

What is the indexation multiplier for a disposal after 2003?

(6A) This subsection provides the indexation multiplier to be used for disposals in 2004 and later tax years.

Must indexation regulations be approved by the Dáil?

(7) Regulations relating to indexation must be laid before and passed by Dáil Éireann.

Does reinvestment affect an asset’s base cost?

(8) If compensation proceeds are reinvested in restoring an asset (section 536(1)(a)), the asset’s future base cost must be reduced by the amount reinvested. This is achieved by reducing the restoration expenditure (which would otherwise qualify as enhancement expenditure) by the re-invested amount.

Is the grant exclusive cost indexed?

(9) Only the net of grant value at 6 April 1974 of a pre 6 April 1974 purchase may be indexed.

Section 557 Part disposals

What is deductible if part of an asset is disposed of?

(1) In the case of part of an asset, deductible expenditure is apportioned between the part disposed of and the remaining part.

In Berry v Warnett, [1982] STC 396, a disposal of an interest in a trust was not a part disposal.

Where a part of an area of land comprising a number of acquisitions is disposed of, the part disposal rules should be applied to the smallest separate acquisition or number of acquisitions out of which the part disposal is made.

Example

Over a period of years, you acquire land as follows:

(a) You inherit a farm.

(b) You buy adjacent land to extend the farm.

(c) You inherit a house and garden on the farm following the death of your mother.

The whole is farmed as one unit.

You later sell a strip of land to a local authority for road making. The strip crosses the land in (b) and cuts a corner off the garden in (c).

In computing the chargeable gain or allowable loss on the disposal of the land, the consideration for the disposal should be apportioned to the units represented by acquisitions (b) and (c) respectively, and the rules for part disposal applied to each acquisition.

For the purposes of valuation on 6 April 1974, each of the units of valuation (and the land within acquisition (a)) should be treated as a separate asset.

Source: Inspector Manual 19.2.14

What is the part disposal formula?

(2) The part of the expenditure attributable to the part disposed of is calculated as:

Cost x [A / (A + B) ]

where A represents the proceeds of the part disposal, and B represents the market value of the remaining part on the date of the disposal.

Example

06.04.1974: You received a gift of a 250 acre farm from your mother. At that time, the farm was worth €45,000 (£35,440).

01.05.2009: You sold 50 acres of farm land (with no development value) for €100,000. The value of the remaining farm land on that date was €350,000.

CGT computation:

Proceeds 100,000
Market value 6 April 1974
45,000 x ____100,000____
100,000 350,000
10,000
Indexed at 7.528 75,280
Gain 24,720

Do capital allowances affect part disposal apportionment?

(3) The part disposal expenditure apportionment must be made before considering whether capital allowancesshould be disallowed (section 555).

In computing a post part disposal gain, the allowances to be considered are those on acquiring and enhancing the asset, whether before or after the part disposal, as reduced by the amount that ensures no allowable loss arises on the earlier disposal.

Must the cost of the part disposal be apportioned?

(4) Expenditure that relates entirely to the part being disposed of need not be apportioned.

Section 558 Part disposals before 6th day of April, 1978

How do I calculate the base cost of an asset where there was a part disposal before 6 April 1978 of an asset I held on 6 April 1974?

(1) Where a part disposal was made before 6 April 1978 of an asset which you held on 6 April 1974, even though the gain may have been calculated on the basis of a uniform growth rate during the period the asset was held, the remaining part of the asset takes its base cost from 6 April 1974.

How do I calculate the base cost of an asset where there was a part disposal before 1978 of an asset acquired after 6 April 1974?

(2) Where a part disposal was made before 6 April 1978 of an asset acquired on a death after 6 April 1974, and the gain was calculated on the basis the asset was acquired earlier than the date of death, the remaining part of the asset held on 6 April 1978 takes its base cost from the date of death.

This section is not to disturb CGT liabilities on disposals made before 6 April 1978.

Section 559 Assets derived from other assets

How is the deductible cost of an asset derived from another asset calculated?

(1) Where an asset is derived from another asset, deductible expenditure is apportioned between the first and second asset.

Expenditure on a derived asset may be followed through several derivations: Aberdeen Construction Group Ltd v IRC, [1978] STC 127.

Example

You acquire a 20 year lease of a building.

One year later, you acquire the freehold. You now own the entire building.

If you now sell the unencumbered freehold, the cost of the lease to the date of acquisition of the freehold must be “wasted” (section 560).

On what basis is the apportionment calculated?

(2) The apportionment is based on the market value, at the time of disposal, of the assets not disposed of, and the consideration received for the assets.

Section 560 Wasting assets

What is a wasting asset?

(1) A wasting asset is an asset with a predictable useful life of 50 years or less.

Freehold land is not a wasting asset.

An asset’s residual or scrap value is its value at the end of its predictable useful life.

Plant and machinery are wasting assets. In estimating predictable useful life it is assumed that equipment is used “in the normal manner” during that life, and that its life ends when it is no longer used.

A life interest in trust property is not a wasting asset unless the life expectancy of the life tenant is 50 years or less. Life expectancy in such cases is to be calculated using Revenue approved actuarial tables.

The actuarial tables approved by the Revenue Commissioners for use in ascertaining the expected duration of life interests in settled property and of annuities are the select tables in The a(55) Tables for Annuitants, published in 1953 by the Cambridge University Press for the Institute of Actuaries and the Faculty or Actuaries. These tables are the same as those prescribed for the determination of the capital element of purchased life annuities by the Income Tax (Purchased Life Annuities) Regulations 1959 (SI 152/1959).

Copyright is a wasting asset from the end of the year in which:

(a) the author, etc., dies, or

(b) the work is first published or produced, whichever is the later.

Works of art as defined are not treated as plant and are not, therefore, wasting assets.

Is the disponer presumed to know the asset’s useful life?

(2) If not immediately ascertainable the predictable useful life of an asset is taken as known at the time the asset was acquired or provided.

What part of the cost of a wasting asset is deductible?

(3) The proportionate part of the cost that has expired (or wasted) while the asset was held is not deductible.

The asset must be “wasted” at a uniform rate over its useful life.

A wasting asset that is a lease of land is not written off at a uniform rate. It should be written off using the Table inSchedule 14.

Enhancement expenditure on a wasting asset must also be wasted at a uniform rate from the enhancement date to the end of the asset’s useful life.

Example

01.01.2009 You buy a six month option to buy shares in X Ltd. for €1,200.

01.05.2009 You sell the option to Y for €4,000.

Your gain is:

Proceeds 4,000
Cost (not deductible) 1,200
Part wasted while owned (4/6ths not deductible) 800
Deductible 400
Gain 3,600

Is increased residual value deductible?

(4) If an asset’s residual value has increased as a result of enhancement expenditure, the higher residual value must be deducted when calculating the amount of enhancement expenditure to be written off.

Is wasted cost deductible?

(5) The “wasted” part of the cost of a wasting asset may not be deducted.

Example

01.01.2009 You leased a freehold property to X for 25 years, in return for a premium of €50,000 and an annual rent of €5,000 .

01.05.2009 X bought out your superior interest in the property for €100,000, thus merging his/her leasehold interest with the superior interest and making him/herself the owner of the freehold.

One month later X sold the freehold for €500,000.

Your 2009 rental income is taken as:

Rent 5,000
Part of premium liable to income tax:
€50,000 – [ €50,000 x (25 – 1) x 2%] = 26,000
Total 31,000

The balance of the premium (€24,000) is chargeable to CGT.

X’s gain is calculated as:

Proceeds 500,000
Cost:
Superior interest 100,000
Capital part of lease premium 24,000
Less: Regarded as wasted (27%) 6,480 17,520
117,520
Gain 382,480

27% is calculated as (81.1 – 59.0)/81.1 using the Table in Schedule 14.

Section 561 Wasting assets qualifying for capital allowances

Do wasting asset rules apply to an asset that qualifies for capital allowances?

(1) The wasting asset restrictions (section 560(3)-(5)) do not apply to wasting assets that qualify for capital allowances.

Do the wasting asset rules apply to an asset that part-qualifies for capital allowances?

(2) In the case of an asset used partly for non-business purposes:

(a) The disposal proceeds and the asset’s cost must be apportioned in proportion to the expenditure that qualified for capital allowances. See (d).

(b) A separate computation must be made for the part of the asset that qualified for capital allowances and the part that did not qualify.

(c) The wasting asset restrictions (section 560(3)-(5)) do not apply to the part that qualified for capital allowances.

(d) Any existing capital allowance apportionment that has been made (for example, to make a balancing charge) should be used to apportion the disposal proceeds before making any other such apportionment.

(e) See (a).

The wasting asset rules do not apply to disposals of business machinery or plant, unless the equipment was only partially used for business purposes. In such cases, the wasting asset rules apply to the “non-business” part of the asset.

Example

You hire cabin cruisers to holiday-makers.

01.04.1998 You purchase for €100,000 a new cruiser largely for your own private use, but you hire it out for some months in every year. Its predictable life is 40 years and its scrap value €4,000. The amount of expenditure less the scrap value is thus €96,000. In computing your taxable profits you claim capital allowances in respect of one-quarter of the cost.

01.04.2009 You sell the cruiser for €80,000. The capital allowances given are adjusted by way of a balancing charge so that the net total is ¼ x (€l00,000 less €80,000) = €5,000.

For CGT, the part of the expenditure to which the capital allowances relate is considered without reference to the wasting assets provisions, as follows:

Sale price €80,000 x ¼ 20,000
Cost price €100,000 x ¼ 25,000
Loss 5,000

Since capital allowances of this amount have been given for income tax purposes, the €5,000 is not an allowable loss.

Section 562 Contingent liabilities

Is a contingent liability deductible?

(1) No deduction is given for a contingent liability:

(a) On the assignment of a lease where the deduction is contingent on default of liabilities assumed by the assignee.

(b) On a sale or lease of land, or the grant of an option binding a person to make such a sale or lease, if it is contingent upon quiet enjoyment of the property being sold or let.

(c) If a warranty or representation is given in relation to a sale or lease of property other than land.

Example

A chemical processing company sells a disused plant to X Ltd. for €600,000.

The ground under the plant was chemically contaminated, and before selling the plant, the company incurs €100,000 on making the site safe.

As part of the sale contract, the company undertakes to repay X Ltd €150,000 should chemicals be found present on site within three years of the sale.

The €150,000 is a contingent liability and is not deductible.

Is a crystallised contingent liability deductible?

(2) If the contingent liability crystallises, the CGT liability can be revised. Any tax overpaid as a result of this adjustment must then be repaid.

See: Randall v Plumb, [1975] STC 191.

Example

Continuing with the previous example, assume that one year after the sale, chemicals are found to have leaked onto the site. X Ltd sues the disponer company, and it repays €150,000 to them.

The gain on the disposal may be recalculated to reflect the crystallised liability of €150,000.

When is a crystallised contingent liability deductible?

(2A) No adjustment may be made in respect of a crystallised contingent liability unless such liability has actually been paid.

Is a contingent liability deduction subject to a time limit?

(3) The general time limits do not apply to an adjustment mentioned in (2).

Section 563 Consideration due after time of disposal

Is deferred consideration taxable?

(1) Deferred consideration must be included as part of the consideration proceeds.

If the deferred consideration is never received the CGT liability must be adjusted to reflect the reduction. Any tax overpaid must be repaid.

The total consideration payable is taxed at the disposal date, with no discount for postponement: Randall v Plumb, [1975] STC 191.

To be taxed as a disposal of the right to the future sum, deferred consideration must be quantified and paid: Marren v Ingles, [1980] STC 500; Marson v Marriage, [1980] STC 177.

A loss on exchange was held not irrecoverable (and therefore no adjustment was required): Goodbrand v Loffland Bros North Sea Inc, [1998] STC 930.

Example

01.01.1998: You buy a property for 30,000
30.04.2012: You sell the property to X for 200,000
Under the contract of sale, X will pay you as follows:
On 10 May 2012 100,000
On 30 May 2013 75,000
On 30 April 2014 25,000
Total 200,000

You cannot claim that you have three separate disposals, chargeable in 2012, 2013, and 2014 respectively. You are chargeable on the entire gain in 2012, as follows:

Proceeds (2012) 200,000
Less:
Acquisition cost (1997-98) €30,000 at 1.309 39,270
Chargeable gain 160,730
Capital gains tax at 30% 48,219

If hardship as a results, you can opt to pay the tax over five years.

Is a company subject to CT on deferred consideration?

(2) The deferred consideration rules also apply to companies.

Section 564 Woodlands

Is a disposal of woodlands chargeable?

(1) On a disposal of woodlands, sales proceeds relating to trees growing on the land or insurance proceeds for the destruction of such trees are excluded.

Is the cost of trees deductible?

(2) On a disposal of woodland, the acquisition cost must exclude the part relating to trees growing on the land.

Example

06.04.2003 You buy an area of woodland for €10,000, €3,000 of which is attributable to the value of timber then growing on the land.

01.12.2008 You sell the woodland for €24,000, and €10,000 of the sale price is attributable to the value of timber growing on the land at the date of sale.

Subject to expenses, the computation of the chargeable gain is as follows:

Sale price of land (tax year 2008) 24,000
Less attributable to growing timber 10,000
14,000
Cost of land (2003) 10,000
Less attributable to growing timber 3,000
7,000 7,000
Chargeable gain 7,000

Note

Where standing timber is disposed of by the grant of a right, on such terms (for example, a grant over a long period) that the grantee enjoys the benefit of the future growth of the timber, then the grant is a disposal of a right over land, i.e., a part disposal of land. Such a grant will accordingly give rise to a chargeable gain or allowable loss computed under the general rules for part disposals (section 557).

Is saleable underwood subject to CGT?

(3) Sale proceeds relating to saleable underwood are excluded from the CGT computation.

Section 565 Expenditure reimbursed out of public money

Is grant aided expenditure deductible?

In a CGT computation, any part of the expenditure which has been grant-aided is not deductible.

Section 566 Leases

Is a lease of land a wasting asset?

The cost of a wasting asset that is a lease of land need not be written off at a uniform rate (section 560). Instead, the lease should be written off using the Table in Schedule 14.

Section 567 Nominees, bare trustees and agents

When is a beneficiary absolutely entitled against a trustee?

(1) A beneficiary is absolutely entitled to an asset as against the trustee if, having paid any costs or other outgoings the trustees may collect from the asset, he has the right to direct how the asset is dealt with.

A person who is absolutely entitled as against the trustee to trust property, is the effective legal owner of the property:Harthan v Mason, [1980] STC 94; Jenkins v Brown, [1989] STC 577. If the trustees are bound to carry out the wishes of the settlor in relation to the trust, the settlor is absolutely entitled to the trust property as against the trustees: Booth v Ellard, (1980) 53 TC 393, [1980] STC 555.

A person who is not beneficially entitled to trust property may nevertheless be absolutely entitled to the property: Hart v Briscoe and Others, Hoare Trustees v Gardner, [1978] STC 89; Bond v Pickford, [1983] STC 517; Roome v Edwards, [1981] STC 96. As to beneficial ownership see De Pol v Cunningham, (1974) 49 TC 445.

Children, although entitled to income from a trust, who were not to receive the capital source of the income until they reached 21 years of age were held not absolutely entitled to the capital in Tomlinson v Glyns Executor and Trustee Co, (1969) 45 TC 600.

A beneficiary who could not call for immediate payment was held not to be absolutely entitled to payment of a share in a trust fund consisting of land where the trustees had power to postpone the sale: Crowe v Appleby, [1976] STC 301.

A non-resident beneficiary entitled to a residuary interest in his father’s estate was held not to be absolutely entitled to assets sold by the trustees to pay expenses and provide for his sister’s legacy, as these items were never part of the residue: Cochrane’s Executors v IRC, [1974] STC 335, 49 TC 299.

“Or other outgoings” does not include a charge on the residue requiring payment of annuities to another beneficiary:Stephenson v Barclays Bank Trust Co Ltd, [1975] STC 151, 50 TC 374.

Trustees were held chargeable in Prest v Bettinson, [1980] STC 607.

Is a disposal by a nominee subject to CGT?

(2) Acts by a nominee (bare trustee) are regarded as the acts of that beneficial owner. “Absolutely entitled” includes being jointly so entitled.

An executor is not a bare trustee: Cochrane’s Executors v IRC, [1974] STC 335.

“Jointly” in relation to land can include tenancy in common and is not confined to joint tenancy: Kidson v MacDonald, [1974] STC 54, 49 TC 503. See also Harthan v Mason, [1980] STC 94.

Where there are two or more beneficial owners of property held by a “bare trustee” and there has been no agreed appropriation of the property, no one of the beneficial owners is strictly entitled to any particular asset. Any assets which are disposed of by the trustees should be treated as having been disposed of by the beneficial owners in accordance with their proportionate shares in the property (Inspector Manual 19.3.3).

Example

01.06.2008 Aged 12 years you inherit absolutely from your father 10,000 debentures in X Ltd., which had a market value at that date of €9,000.

01.12.2009 The debentures are redeemed at par and the proceeds, €10,000, are reinvested in Y Ltd. which appreciate to a market value of €16,000 in May 2014 (when you attain the age of 18 years and the trustee appointed by your father’s will hands over the shares).

The gain (ignoring indexation) of €1,000 should be charged. The gain on the disposal of the shares in Y Ltd is computed by reference to the acquisition price of €10,000.

Source: Inspector Manual 19.3.3 (updated)

How is an exploration licence holder treated?

(3) the holder of an exploration licence or lease is regarded the agent of the person who carries out exploration activity.

What rules apply to exploration licence holders?

(4) The detailed rules in Schedule 1 apply to such licence holders and subcontractors.

Section 568 Liability of trustees, etc

Is a trustee subject to CGT?

(1) Chargeable gains accruing to a trust may be assessed on all or any of the trustees.

Is a gain accruing to trustees chargeable on any other person?

(2) A gain accruing to a trust is not to be treated as accruing to any other person.

For CGT purposes, a trustee is not regarded as an individual.

A trustee does not get the annual exemption (section 601).

Section 569 Assets of insolvent person

What is an “arranging debtor”?

(1) An arranging debtor is a debtor who has made an arrangement with his creditors in the form of a deed of arrangement under the Deeds of Arrangements Act, 1887.

How is the trustee of an insolvent person treated?

(2) Acts of a trustee or assignee in bankruptcy or a personal insolvency practitioner in relation to the assets of a bankrupt, or arranging debtor, are regarded as the acts of the bankrupt, or arranging debtor.

Chargeable gains accruing on the disposal of such assets are to be assessed on the trustee, assignee or personal insolvency practitioner.

The trustee must, as part of the bankruptcy administration costs, pay CGT on any disposals in priority to all debts: Re McMeekin (a bankrupt), [1974] STC 429, 48 TC 725.

How is the trustee of a deceased bankrupt treated?

(3) Assets held by a deceased bankrupt or arranging debtor are treated as held by his personal representative.

Post-death chargeable gains are not assessed on the trustee.

Assets held by the trustee at the date of death are treated as held by the personal representative.

How are post-death collections by a bankrupt’s trustee treated?

(4) Assets collected after the deceased’s death are treated as held by a deceased’s personal representative.

Section 570 Company in liquidation

How are disposals by a company in liquidation treated?

A liquidator’s acts are regarded as the acts of the company in liquidation.

Section 571 Chargeable gains accruing on disposals by liquidators and certain other persons

These provisions were introduced to reverse a Supreme Court ruling (in relation to Rules of the Superior Courts, rule 129) to the effect that CGT was not a necessary disbursement of a company liquidator: Re Van Hool McArdle Ltd (in liquidation), Revenue Commissioners v Donnelly, [1983] ILRM 329.

Is a liquidator accountable for tax on a disposal?

(1) An accountable person (a liquidator, or a person holding a security on a debtor’s asset), may be assessed in respect of referable capital gains tax (the debtor’s CGT on a disposal of that asset) or referable corporation tax (the debtor’s CT on a disposal of that asset, or if less, the debtor’s overall corporation tax liability).

The liquidator must pay the referable CGT (or CT) from the disposal proceeds.

Example

01.06.2010 An accountable person sells X’s property for €50,000. X bought the property on 1 January 2003 for €10,000.

Assuming that X had no other gains in the tax year 2010, the referable CGT is:

Proceeds 50,000
Cost €10,000
Gain 40,000
Less personal exemption 1,270
38,830
CGT at 25% 9,707

How is referrable CGT calculated where there are several disposals in that tax year?

(2) Where a debtor has made several disposals in the tax year, the referable CGT is calculated as:

A  x  C
B

where:

A is the debtor’s CGT liability on the disposal of the asset by the accountable person,

B is his/her CGT liability (including A) on all chargeable gains in that year assuming no reliefs are given, and

C is his/her CGT liability (including A) on all chargeable gains in that year.

Example

Assume that X (in Example 1 above) had one more chargeable gain (liable at 25%) in the tax year 2010:

1 September 2010 9,000
The overall CGT computation now becomes:
Gain (40,000 9,000) 49,000
Less personal exemption 1,270
47,730
CGT at 25% 11,932

A, the gross CGT liability on the latest disposal, is €2,250 (€9,000 x 25%).

B, X’s gross CGT liability for the year, is €12,250 (€49,000 x 25%). This breaks down into €49,000 x 25% = €10,000 and €9,000 x 25% = €2,250.

C, X’s net CGT liability for the year, is €11,042. This breaks down into:

(a) CGT “referable” to the €40,000 gain: (10,000/12,250) x 11,932 = €9,740, and

(b) CGT “referable” to the €9,000 gain: (2,250/12,250) x 11,932 = €1,789.

How is referrable CT calculated where there are several disposals?

(3) Where a debtor company has made several disposals in the accounting period the referable CT is calculated as:

D  x  F
E

where-

D is the debtor’s notional CT liability on the disposal of the asset,

E is its notional CT liability (including A) on all chargeable gains in that year assuming no reliefs are given, and

F is its notional CT liability (including A) on all chargeable gains.

What if gains are chargeable at different rates?

(4) Where gains are chargeable at more than one CGT rate, deductions are to be apportioned rateably between different gains chargeable at the same rate.

How is referable CGT assessed?

(5)-(7) Referable CGT (or CT) is assessed on an accountable person under Case IV for the tax year or accounting period in which the disposal arose.

Can overpaid referable CGT be repaid?

(8) An accountable person who has overpaid tax must be repaid that tax.

Can referable CGT be assessed on the debtor?

(9) Referable CGT (or CT) may be collected from the debtr if not paid by the accountable person.

Section 572 Funds in court

What are “funds in court”?

(1) Funds in court means money or securities to be placed in the account with the Bank of Ireland of the accountantattached to the High Court (or Circuit Court).

How are “funds in court” treated for tax purposes?

(2) Such funds are treated as held by the accountant as nominee for the owner of the funds.

How are gains on assets represented by Funds in Court treated?

(3) Gains on investments held by a court accountant are charged on the beneficial owner. This applies even where the accountant has not disposed of an investment, but merely made an internal transfer of the investment within his own books.

An asset represented by funds in court is treated as disposed of notwithstanding that the disposal and acquisition are internal transactions.

Section 573 Death

What assets is a person “competent to dispose of” at death?

(1) Assets of which a deceased person was “competent to dispose” are assets located in the State which the deceased, if aged 18 or over and not incapacitated, could have included in his/her will.

Such assets include the deceased’s share of property held under joint tenancy.

What happens to a person’s assets on death?

(2) A deceased person’s assets are treated as acquired by his/her personal representatives at market value at the date of death.

Such assets are not regarded as disposed of by the deceased.

Can year of death losses be relieved?

(3) Allowable losses incurred by the deceased in the year of death, may, if not capable of being absorbed by gains in that year, be set off against gains accruing in the three years immediately preceding the year of death.

Example

01.06.2010 X, a single person, died. In the tax year 2010, she had an allowable loss of €5,000.

Her gains for the three immediately preceding tax years were:

2007 2,000
2008 4,000
2009 2,000

Her terminal loss may be set against these gains as follows:

set off revised gain
2007 2,000
2008 4,000 (3,000) 1,000
2009 2,000 (2,000) nil
(5,000)

Any CGT already paid for 2008 and 2009 will be repaid, as the 2008 gain is covered by her annual exemption of €1,270.

Where are personal representatives resident?

(4) Personal representatives are regarded, in relation to the deceased’s property, as a single and continuing body of persons having the same residence, ordinary residence and domicile of the deceased at the time of death.

Is a transfer by personal representatives chargeable?

(5) Any gain made by the personal representatives on assets passed to a legatee is not chargeable.

The legatee is treated as having acquired the assets from the date the personal representatives acquired the assets.

The legatee takes the assets he inherits at market value at the date of death. See Bentley v Pike, [1981] STC 360.

A legatee, upon inheriting the residue of his mother’s estate (worth £3,600) arranged with the executor that he would pay the debts of the estate in return for a house worth £6,000. When he later sold the house, he claimed he was entitled to deduct the market value of the house at the date of death, in addition to the sum paid to the executor as an amount paid to defend his title to the property. The court held he was only entitled to deduct the market value of his inheritance at the date of death (the £3,600 residue) plus the costs of acquiring the house, but not the market value of the house at the date of death. This was because he had no legal interest in the property at that time: Passant vJackson, [1986] STC 164.

Is a disposition under a deed of family arrangement chargeable?

(6) A deed of family arrangement, if made within two years of the date of death (or such a longer period as may be agreed with Revenue), is regarded as having been made by the deceased.

Any variations included in such a deed are regarded as having been made by the deceased, and any disposition made by the deed is not a disposal for CGT purposes.

A deed of family arrangement under which a legatee settled her interest in the residue on a trust administered by a Jersey company was held invalid on the basis that it did not relate to “assets of which the deceased was competent to dispose”. At the time of the settlement, the settlor had no right to any assets until the residue was ascertained: Marshallv Kerr, [1991] STC 686.

A deed of variation to rectify an earlier deed is not a variation of the deceased’s dispositions: Russell v IRC, [1988] STC 195. A court order may be obtained to rectify the earlier deed: Lake v Lake and others, [1989] STC 865.

If words have clearly been omitted from a deed of family arrangement, the court may order that the missing words be read into the deed: Schneider v Mills, [1993] STC 430.

Section 574 Trustees of settlement

Where are trustees resident?

(1) The trustees of a settlement are regarded, for capital gains tax purposes, as a single and continuing body of persons.

That body is regarded as resident and ordinarily resident in the State unless a majority of the trustees are non-resident, and the trust is administered outside the State.

A professional trust manager is treated as non-resident in relation to a trust the property in which is provided by a person who is neither resident, ordinarily resident, or domiciled in the State.

Can CGT be assessed on a beneficiary?

(2) CGT owed six months after the due date by trustees on a disposal of a trust asset may be assessed in the name of the trustees on a trust beneficiary absolutely entitled to that asset, within two years of the due date.

Can trusts be treated as combined?

(3) Two sets of trustees vested with separate parts of settlement property are treated as a single and continuing body of persons.

This rule applies in particular where land is vested in a life tenant and capital money is vested in trustees.

Two separate settlements were held to comprise a single settlement, and the trustees were held to comprise a single body of persons in: Roome v Edwards, [1981] STC 96.

Section 575 Gifts in settlement

Is a gift into trust chargeable?

A gift of property into trust is treated as a disposal, even where the donor is a beneficiary or trustee of the trust.

Section 576 Person becoming absolutely entitled to settled property

When is a trustee deemed to have disposed of trust property?

(1) A trustee is deemed to have disposed of, and immediately reacquired, trust property when a beneficiary becomes “absolutely entitled as against the trustee” to trust property.

For cases on beneficiary becoming absolutely entitled to trust property, see Crowe v Appleby, [1976] STC 301; Pexton v Bell and another, [1976] STC 301; Stephenson v Barclays Bank Trust Co Ltd, (1975) STC 151; Hart v Briscoe, [1978] STC 89; Hoare Trustees v Gardner, [1978] STC 89; Chinn v Collins, [1981] STC 1, Roome v Edwards, [1981] STC 96.

Time of becoming absolutely entitled: In Figg v Clarke, [1997] STC 247, children became absolutely entitled as against the trustees when their father died and not when he became paralysed and incapable of having more children.

In Begg-MacBrearty v Stilwell (Trustee of the Coke Settlement), [1996] STC 413, the beneficiaries became entitled to interests in possession at the age of 18 (not 21) because the appointment was after the passing of the UK Trustee Act 1925.

An allocation of part of a discretionary trust does not create a new settlement in Bond v Pickford, [1983] STC 517. An appointment of trust property did not create a new settlement in Swires v Renton, [1991] STC 490.

See also: Inspector Manual 19.3.5.

Example

Under a trust’s terms,X is entitled to the trust investment income, but not until 21 years of age.

On X’s 21st birthday, X becomes absolutely entitled to the trust investments.

The trustees are treated as having disposed of and immediately re-acquired the assets at market value, as X’s nominee.

Can losses on a deemed disposal and reacquisition be used by a beneficiary?

(2) Allowable losses arising on a deemed disposal and reacquisition are treated as accruing to the beneficiary .

Section 577 Termination of life interest on death of person entitled

What is a “life interest”?

(1) A life interest includes a right to trust income for life, but not any such right which is at the discretion of another person.

A life interest does not include an annuity, even where payable from trust funds, unless the trustees irrevocably appropriate trust funds to pay that annuity. Such a life annuity, payable from irrevocably appropriated trust funds, is treated as a separate settlement.

Example

An interest which is primarily defined by reference to a life although it may terminate on the happening of an event during that life should be regarded as a life interest. An example of such an interest is where property is held in trust to pay income to a widow during her life or until she remarries.

A trust to pay income to X for ten years and then for Y absolutely does not create a life interest; if X should die after five years, his/her interest will not cease but will pass to his/her estate. Similarly, a trust to pay income to X until Y attains the age of twenty-five if X lives until then, does not create a life interest, as X’s interest is not primarily defined by reference to a life.

Where a will or trust deed provides for the income to be paid to X for the life of Y, X has a life interest which will terminate on the death of Y.

Where a will or trust deed provides for the application in such manner and amount as the trustees may decide, of the income of settled property for the benefit of X for his/her life with remainder to Y absolutely, the interest of X is not a “life interest” in the property.

Source: Inspector Manual 19.3.3

Example

Where property in trust is specifically appropriated to the payment of an annuity for life to X with remainder to Y absolutely, the interest of X in the property is a “life interest”.

Source: Inspector Manual 19.3.3

Is there a charge when a beneficiary becomes entitled on the death of a life tenant?

(2) Where a beneficiary becomes absolutely entitled to trust assets on the death of a life interest holder :

(a) no chargeable gain arises on the deemed disposal and reacquisition, and

(b) the property is treated as having been reacquired at market value at the date of death.

Example

X, who has a life interest in a farm, dies.

Under the same settlement which gave X his life interest in the property, you, as X’s son/daughter, take an absolute interest in the farm from that date.

The trustees are treated as having disposed of and immediately re-acquired the farm at market value on the date of death as nominee for you, and no chargeable gain (or allowable loss) arises.

Is there a charge where a life interest in trust property ceases?

(3) Where a life interest in trust property ceases, any part of that trust property that remains trust property is deemed to have been disposed of, and immediately re-acquired by, the trustee at market value.

On the death of a holder of a life interest in one quarter of a trust fund, only that quarter (not the entire fund) was deemed to be sold and reacquired: Pexton v Bell and another, [1976] STC 301

How is a life interest in a part of trust income treated?

(4) A life interest in a part of trust income is treated as a life interest in the corresponding part of the underlying trust fund capital.

A life interest in a separate part of trust fund, if there is no recourse to the remaining income from trust fund income, is treated as a property in a separate trust.

Is there a charge when a life interest in heritage property ends, what are the CGT consequences?

(5) Where a life interest in a heritage house or items (exempt from inheritance tax under Capital Acquisitions Tax Consolidation Act 2003 section 77) ends, the heritage property is not treated as having been disposed of, and immediately re-acquired by, the trustee at market value. In other words, any gain is deferred.

The deferred gain is deemed to accrue in the tax year, if any, in which the heritage items no longer qualify for exemption from inheritance tax.

Section 577A Relinquishing of a life interest by the person entitled

Is the relinquishing of a life interest a disposal?

The relinquishing of a life interest in property by the life interest holder is a deemed disposal.

Where the relinquishing of the life interest results in another beneficiary becoming absolutely entitled as against the trustees (section 576(1)) to the life interest, the trustees are regarded as having disposed of and immediately reacquired that property at market value, as the new beneficiary’s nominee.

The deemed chargeable gain, if any, arising to the new beneficiary over the life interest period of the former life interest holder is charged on the trustees. The trustees are entitled to relief for any enhancement expenditure (section 552(1)(b)) during that period.

The deemed disposal by the trustees qualifies for retirement relief (section 598) and the relief given for disposals within the family of a business or farm (section 599).

Section 579 Non-resident trusts

What is a non-resident trust?

(1) A foreign trust (a non-resident trust) is a trust with foreign trustees and an Irish settlor.

More specifically, it is a trust with non-resident, non-ordinarily resident trustees and an Irish domiciled and resident (or ordinarily resident) settlor.

Gains accruing to a foreign trust are deemed to accrue to the Irish resident beneficiaries, to the extent of their interest in the trust.

Are gains accruing to a foreign trust chargeable?

(2) Gains accruing to a foreign trust are apportioned among the trust’s beneficiaries who are Irish domiciled and resident (or ordinarily resident).

The apportionment must be made justly and reasonably in accordance with the values of the beneficiaries’ interests, taking account of whether a beneficiary has a life or future interest.

Paragraphs (b)-(e) are anti-avoidance. A beneficiary could avoid trust CGT by becoming temporarily non-resident and non-ordinarily resident. If he does so, the gain is charged on him in the first tax year he becomes resident or ordinarily resident again after being abroad.

It would also have been possible for the trustees to exclude certain beneficiaries from the benefits of the trust. If a beneficiary is excluded in this way, the gain is charged on him in the first tax year after the exclusion ends.

In the absence of any other rules, gains and capital payments are apportioned equally among the beneficiaries.

Beneficiaries includes all potential beneficiaries with an “interest” in discretionary trust property: Leedale v Lewis,[1982] STC 835; Bayley v Garrod, [1983] STC 287.

In Jones v Lincoln-Lewis, [1991] STC 307, beneficiaries who assigned their interest in the settlement prior to the sale of trust property by the trustees, were not assessed on the gain arising to the trustees.

The attribution of gains to resident beneficiaries does not make the non-resident trustees chargeable: de Rothschild v Lawrenson, [1995] STC 623.

Example

X who is both domiciled and resident in the Republic of Ireland settles €5,000,000 worth of quoted shares on the trustees of the XYZ Trust, established in Jersey, for the benefit of Y and Z, who are both Irish resident.

The trustees are neither resident nor ordinarily resident in ROI.

They are resident in Jersey and the trust is administered in Jersey.

In 2011, the trust disposes of shares and realises gains of €200,000.

The gains are deemed to have accrued to Y and Z.

Y and Z must return the gains in their self-assessment return.

Who is deemed to have an interest in trust property?

(3)A person who receives discretionary income payments from a non-resident trust in the five years immediately preceding the year in which the gain arose, is treated as having an interest in the trust property of the value of an annuity equal to 20% of the total payments received in those five years.

Subs (3) is subsidiary to (2) and is confined to particular cases: Leedale v Lewis, [1982] STC 835.

Gains are to be attributed in the tax year in which they accrue, and tax should be assessed for those years, not for later years when payments are received: Ewart v Taylor, [1983] STC 721.

What rules apply to trusts made before 28 February 1974?

(4) For trusts made before 28 February 1974:

(a) The apportionment of gains to Irish beneficiaries does not apply if the beneficiary’s sole interest is in trust income, and he cannot obtain any of the trust fund’s capital.

(b) Payment of CGT apportioned to a beneficiary with a future interest in property may be postponed until the beneficiary becomes absolutely entitled to the property, or you dispose of your future interest.

Does the payment of CGT count as a trust benefit?

(5) The payment by the trustees of a beneficiary’s CGT does not count, for income tax or CGT purposes, as a payment to the beneficiary.

Are losses accruing to a foreign trust allowable?

(6) Losses accruing to a foreign trust are not apportioned among the trust’s Irish beneficiaries, and therefore are not allowable.

Section 579A Attribution of gains to beneficiaries

Section 579 attributes gains accruing to a foreign trust with an Irish settlor to its Irish resident beneficiaries.

Section 579A attributes gains accruing to a foreign trust with a foreign settlor to its Irish resident beneficiaries.

The rules in section 579, which attribute gains of a foreign trust with an Irish settlor to its Irish beneficiaries, do not apply to a settlement which is caught by section 579A. This is to prevent double taxation.

For 2002 and later tax years, gains caught by section 579 are treated as accruing to the settlor (and not to the beneficiaries) if the settlor is resident or ordinarily resident in the State.

What is a “capital payment”?

(1) A capital payment is a payment which is not chargeable to income tax in the hands of the recipient. In the case of a foreign resident recipient it means a payment received other than as income but does not include a payment under a non-arm’s length transaction.

A payment includes the transfer of an asset, the comparing of any benefit, and an occasion on which settled property becomes held under a bare trust (section 567(2)).

The value of a capital payment made by loan, or in non-cash form, is taken as the value of the benefit conferred by the payment.

A beneficiary, is treated as receiving a capital payment from the trustees if:

(a) he receives such a payment directly or indirectly from the trustees,

(b) the payment is paid for his benefit, or applied directly or indirectly in paying his debt,

(c) the payment is received by a third party at his direction.

To what type of trusts do these attribution of gains to beneficiaries rules apply?

(2)This section applies to a foreign trust, i.e., a trust with foreign trustees and a settlor-

(a) who has no interest in the trust , or

(b) was foreign resident when he made the settlement.

A settlor is regarded as having interest in a settlement if:

(a) property originating from him (relevant property) which is, or which may become, comprised in the settlement, becomes (or may become) applicable for the benefit of a relevant beneficiary ( i.e., his spouse/civil partner, a company controlled by him, or a company associated with such company),

(b) income originating from him (relevant income) is or may become applicable for the benefit of a relevant beneficiary, or

(c) a relevant beneficiary enjoys the benefit of any relevant property or relevant income.

Property is regarded as originating from a person if he provided that property, or property represented by such property (i.e., new property substituted for such property).

Income is regarded as originating from a person if he provided that income, or the property which produced the income.

The rules in section 432 (but not subs (6)) are not used to decide whether a company is controlled by, or associated with, another company.

A loan provided by a settlor to the trustees of a settlement, on terms that it would be repaid, is not regarded as relevant property comprised in settlement.

How are foreign trust gains calculated?

(3) The gains of a foreignt trust are to be computed for each tax year as if the trustees were Irish resident for that tax year. Such gains, together with corresponding gains for any earlier tax years not already attributed to beneficiaries (see (4) and 579F(2)), i.e., the trust gains for the year of assessment, are treated as accruing to the beneficiaries.

When are foreign trust gains attributed to the beneficiaries?

(4) The trust gains mentioned in (3) are attributed to beneficiaries who have received capital payments from the trustees.

How are gains apportioned to each beneficiary?

(5) The attribution of gains mentioned in (3) is to be made in proportion to, but must not exceed, the capital payments received by each beneficiary.

Are capital payments excluded from the attribution of gains?

(6) The attribution of trust gains mentioned in (4)-(5) must exclude capital payments already treated as accruing to a beneficiary.

Can gains be attributed to a foreign beneficiary?

Foreign trust gains are attributable to the trust’s Irish domiciled beneficiaries provided such beneficiaries are also Irish resident or ordinarily resident.

When is a will trust made?

(8) A settlement made under a will is treated as made at the time of death.

Does the payment of CGT count as a trust benefit?

(9) The payment by the trustees of a beneficiary’s CGT does not count, for income tax or CGT purposes, as a payment to the beneficiary.

Section 579B Trustees ceasing to be resident in the State

Can a trust become non-resident?

(1)-(2) These rules apply where a trust becomes non-resident. The time at which the trust becomes non-resident is referred to as the relevant time.

Is there a deemed disposal when a trust becomes non-resident?

(3) The trustees of a trust that becomes non-resident are deemed to have disposed of the defined assets (see (4)) and to have immediately re-acquired said assets at market value at the relevant time (see (2)).

What are “defined assets”?

(4) The defined assets are all trust assets up to the relevant time.

Do “defined assets” include assets of an Irish branch ?

(5) The defined assets do not include assets of a trade carried on through an Irish branch after the relevant time.

Do “defined assets” include treaty protected assets?

(6) The defined assets do not include assets if, under the terms of a tax treaty, the trustees would not be chargeable to Irish tax on a disposal of such assets immediately before the relevant time.

Section 579C Death of trustee: special rules

Do the deemed disposal rules apply to temporarily non-resident trusts?

(1) If a trust becomes non-resident (section 579B(2)) as a result of the death of a trustee, and within six months of the death, the trust becomes resident again, the rule in (2) applies.

How do the deemed disposal rules apply to a temporarily non-resident trust?

(2)-(3) In such a case, the deemed disposal and re-acquisition rule (section 579B(3)) applies only to defined assets disposed of by the trustees during the non-residence period, i.e. in the period from the date of death to the date the trust becomes resident again.

Example

X and Y, who are partners in a law firm, are trustees of an Irish resident trust.

X is partner in the Dublin office of the law firm, and Y is partner in the Jersey office.

X is killed in a plane crash, and the trust thereby becomes non-resident.

X’s successor is appointed within six months, so the deemed disposal and re-acquisition rules do not apply to the trust.

How do the deemed disposal rules apply to a temporarily resident trust?

(4) Where a trust becomes temporarily resident as a result of the death of a trustee the deemed disposal rule (section 579B(3)) applies only to defined assets acquired by the trustees during the temporary residence period.

Section 579D Past trustees: liability for tax

What is the “specified period”?

(1) The specified period means the period beginning on the self-assessment return filing date for a tax year and ending three years after the self-assessment return for that tax year has been filed.

What the “relevant period”?

(2) The relevant period is the 12 month period ending on the date the trust becomes non-resident.

What rules apply to past trustees?

(3) These rules apply where:

(a) a trust becomes non-resident and the migrating trustees are deemed to have disposed of and immediately reacquired the trust assets, and

(b) tax payable by the migrating trustees on a chargeable gain that is treated as accruing to the settlement beneficiaries (section 579B(3)) is not paid within six months of the due date.

Can Revenue assess migrating trustees?

(4) Revenue may, before the end of the specified period for a tax year (see (1)), serve notice of unpaid tax on a trustee and demand payment of such tax within 30 days.

Can Revenue assess ceased trustees?

(5) Revenue may not serve notice within (4) on a trustee who:

(a) ceased to be a trustee before the end of the relevant period (see (2)), and

(b) shows that at the time of cessation there was no proposal for the trust to become non-resident.

Can a past trustee recover tax payable?

(6) Tax payable by a past trustee is not a tax-deductible expense but may be recovered from the migrating trustees.

Section 579E Trustees ceasing to be liable to Irish tax

Trusts dealt with in this section are referred to as “dual resident trusts”.

What is a dual resident trust?

(1) These rules apply where,the Irish resident trustees become foreign resident and are not subject to Irish CGT on the disposal of trust assets (relevant assets) as a result of a tax treaty’s provisions.

What happens when a trust migrates to a treaty country?

(2) The trustees are deemed to have disposed of the trust assets and to have immediately reacquired them at market value.

Section 579F Migrant settlements

What rules apply to migrant settlements?

(1) Where a trust is foreign resident for two or more tax years (a non-resident period) immediately following a period in which it was resident (a resident period) for two or more tax years: the attribution of trust gains to beneficiaries (section 579A) is not to apply where a capital payment was received by a beneficiary in the resident period if that payment was not made in anticipation of a disposal by the trustees in the non-resident period.

What if a trust becomes resident after a period of non-residence?

(2) Trust gains for the last tax year of the non-resident period which have not been attributed to the beneficiaries are attributed to beneficiaries in the first tax year of the resident period insofar as those beneficiaries received capital payments from the trustees in that tax year.

This treatment applies for the second and subsequent tax years of the resident period until the trust gains of the last tax year of the non–resident period have been attributed to the beneficiaries.

How are gains apportioned to the beneficiaries?

(3) The attribution of trust gains mentioned in (2) is to be made in proportion to, but must not exceed, the capital payments received by each beneficiary.

A beneficiary is not chargeable on trust gains attributed to him/her for a tax year unless he/she is domiciled in the State at some time in that tax year.

Section 580 Shares, securities, etc: identification

A share is a collection of rights between the shareholders themselves and between the shareholders and the company:Borland’s Trustee v Steel Bros and Co Ltd, (1901) 1 Ch 279.

What is the FIFO rule?

(1) When shares sold from a block of shares were acquired at different times the latest disposal is matched to the earliest possible acquisition. This is also known as the First In First Out (FIFO) rule.

Bonus shares and rights issues are deemed to have been acquired at the time the shares giving rise to the bonus or rights issue were acquired.

The effect of the above on a bonus issue is that the original cost is diluted between the original shares and the new shares acquired.

See: Tax Briefing 40 for examples on bonus issue/rights issue.

Capital sums derived from shares, with or without any actual disposal of the shares taking place, represent a part disposal of the shares.

Example

You own 500 shares in a quoted company.

01.12.2010 You sell 300 shares for €3,000 (€10 each).

The shares were acquired as follows:
01.05.2000: 200 at €5 each: 1,000
01.05.2002: 300 at €6 each: 1,800
2,800

In computing your gain, 300 shares are identified with the 200 shares acquired in 2000 and 100 of the shares acquired in 2002:

Sale proceeds (tax year 2013) 3,000
Less acquisition cost
200 x €5 = €1,000 at 1.212 (2000) 1,212
100 x €6 = €600 at 1.144 (2002) 686 1,898
Chargeable gain 1,102

Example

2006: You acquired 100 ordinary €1 shares in X Ltd. for say €300 (or €3 per share).

2008: You acquired 50 ordinary €1 shares in X Ltd. for no cost (bonus issue 2 for 1).

All 150 shares are deemed to have been acquired in 2006 for a total cost of €300.

The revised cost per share is €2 (i.e. all 150 shares are deemed to have been acquired in 2006 for a total cost of €300, which “dilutes” the allowable cost per share to €2, €300 allowable cost 150 shares).

Example

You own 1,000 shares in X Ltd., which you acquired for €2,500.

Some time later, there was a rights offer of 1 new share for every 4 held, at a discount of market value. You did not take up the additional shares and instead sold your rights to acquire the new shares for €1,200 to a third party.

The market value of the shares after the issue was €4 each. You are treated as having made a part disposal out of the holding of 1,000 shares.

You have 1,000 shares in a company which cost you €2,500. You have received a capital payment out of these shares of €1,200. The capital gain is computed by reference to the capital sum of €1,200 less a proportion of the cost of the shares.

The proportion is calculated by reference to the capital sum received and the value of the shares after the payment (i.e. 1,000 x €4 or €4,000) as follows:

€2,500 x [1,200/ (1,200 + 4,000)] = €577

The CGT is therefore on €623 (€1,200 – €577, before indexation, if due). In the event of a future disposal of the shares, the balance of the cost to be allowed is €1,923 (€2,500 – €577)

Source: Tax Briefing 42

When are shares of the “same class”?

(2) Shares are only to be regarded as of the same class if they would be so regarded under stock exchange rules.

Does the FIFO rule apply to securities?

(3) The share identification rules apply to securities.

Does the FIFO rule apply to commodities?

(4) The share identification rules apply to commodities.

Does the FIFO rule apply to a holding held on 6 April 1978?

(5) A disposal from a block of shares held on 6 April 1978 must be allocated to its constituent parts.

On each pre-6 April 1978 disposal, the number of shares in each distinguishable part, and the allowable expenditure, is treated as reduced in the proportion of the number of shares in the holding before and after the disposal.

The number of shares held in each distinguishable part on 6 April 1978 is to be based on the preceding calculation. Disposals of those shares after 6 April 1978 must also be based on the distinguishable parts at 6 April 1978.

This section is not to disturb CGT liabilities on disposals made before 6 April 1978.

Example

You owned 500 shares in X Ltd. on 6 April 1978. These were the last remaining shares of a block of 760 shares of a similar class, 200 of which had been disposed of before 6 April 1978.

You sold 100 of these for £10,000 on 1 June 2001.

The shares were acquired as follows: £
Shares Price
500 2,000

The cost of the disposal is computed by breaking the 100 sold shares into its distinguishable parts:

£
Shares Price
1 April 1976 40 120
1 August 1977 20 80
1 February 1978 40 200
100 320

The gain on the disposal of the 100 shares is therefore:

£ £
Proceeds (short tax year 2001) 10,000
Cost:
40 shares acquired 1975-76, £120, indexed at 5.597 671
60 shares acquired 1977-78, £280, indexed at 4.133 1,157 1,828
Gain 8,172

Are there exceptions to the FIFO rule?

(6) The FIFO rule does not apply to a disposal made within four weeks of acquisition (section 581).

Section 581 Disposals of shares or securities within 4 weeks of acquisition

This anti-avoidance provision is intended to discourage “bed and breakfast” activity particularly in the first four weeks of the tax year. In its absence, a shareholder could sell shares whose price has dropped on 1 January, and re-acquire the same shares at the same price a week later. If the shares had dropped substantially in value, he/she could crystallise a CGT loss for use against other chargeable gains.

When does the LIFO rule apply?

(1) The FIFO rule (section 580) does not apply in the case of shares which are sold and reacquired within the same four week period. In such case, the shares disposed of are identified with the shares of a similar class acquired within that four week period.

Does the LIFO rule apply to excess shares?

(2) An excess of shares disposed of in the four week period over shares acquired within the same period is to be identified with shares of the same class acquired outside the four week period.

Can a LIFO loss be used against other gains?

(3) A loss generated by a disposal and acquisition within the same four week period may not be off set against other gains, but may be set off against any chargeable gain arising on the disposal of the reacquired shares.

If the number of shares reacquired is less than the number disposed of, only the equivalent part of the loss may be set off.

Example

15.03.2010 You bought 1000 shares for €5,000.

06.04.2010 You sold the shares for €4,000.

08.12.2010 You bought 1000 shares in the same company for €4,200.

Computation:
Sale proceeds (tax year 2010) 4,000
Cost (no indexation) 5,000
Loss 1,000

The loss of €1,000 may only be used against a gain arising on a disposal of the shares acquired on 8 December 2010.

Source: Revenue Notes for Guidance (updated)

Example

Continuing from the previous example, if you had re-acquired only 500 shares on 8 December, half of the €1,000 loss, i.e., €500, would be available for set-off as normal; the other €500 would be available only for set-off-against a gain arising on the disposal of the 500 shares acquired on 8 December.

Source: Revenue Notes for Guidance (updated)

Does the LIFO rule apply to spouse transactions?

(4) The LIFO rules apply where the reacquisition is by the disponer’s spouse/civil partner.

Does the LIFO rule apply to securities?

(5) The LIFO share identification rules also apply to transactions in securities (bonds).

Section 582 Calls on shares

Is post-allotment expenditure on shares deductible?

Expenditure on shares, or debentures, made more than 12 months after the allotment date, is treated as made at that later date.

Example

06.04.2007 You applied for 1000 €5 shares in a company.

The payment on application for the shares was €1 per share, i.e., €1,000, and on allotment on 1 July 2007, €3 per share, i.e., €3,000. The shares were thus issued as €5 shares (€4 paid up), i.e., the base cost is €4,000.

06.04.2008 There was a call on the shares of €1 per share and you paid over €1,000.

01.12.2009 You sell the shares for €8 each, i.e. €8,000.

Computation:
Sale proceeds (2009) 8,000
Less deductible expenditure
€4,000 (paid in 2007) = 4,000
€1,000 (paid in 2008) = 1,000 5,000
Chargeable gain 3,000

Source: Revenue Notes for Guidance (updated)

Section 583 Capital distributions by companies

What is a “capital distribution”?

(1) A capital distribution is any distribution other than a distribution which is taxable as income in the hands of the recipient.

How is a capital distribution taxed?

(2) A capital distribution is treated the same as a disposal of shares in the company.

Example

You have 1000 €1 shares in a company which cost you €2,000.

The company (which is being wound up) makes a capital distribution of 25c per share. The chargeable gain is computed by reference to the sum of €250 less a proportion of the cost of the shares .

That proportion is calculated by reference to the value of the distribution and the current value of the shares (say €2,750) thus:

2,000 x ___250___ = €167
250 + 2,750

The chargeable gain on the part disposal is €83 (€250 less €167) and, in the event of a future disposal of the shares (including a further capital distribution), the balance of the cost to be allowed will be €1,833 (€2,000 less €167).

Source: Revenue Notes for Guidance (updated)

No charge applies where a capital distribution is generated purely by an internal group restructuring undertaken for bona fide purposes.

Section 584 Reorganisation or reduction of share capital

What is a reorganisation of share capital?

(1) A company may reorganise its share capital, for example by treating each existing share as worth two new shares.

A company may reduce its share capital, for example, by treating every two existing shares as worth one new share.

When a company reorganises or reduces its share capital, each shareholder will have a new holding of shares (or debentures) that stands in place of his original shares.

The new holdings are generally held by the shareholders in the same proportion as their old holdings. The company has the same amount of capital, but its ownership is spread over a larger or smaller number of shares (or debentures).

The new holdings may have different rights attaching to them than the old holdings.

A reduction of share capital does not include the redemption of redeemable shares. Where a company redeems its shares without issuing new shares in their place, the shareholder is treated as having disposed of the redeemed shares.

Other increases in share capital may qualify as a “reorganisation”, though not specifically included in this section, for example, the issue of further shares on a pro-rata basis to the existing shareholders: Young Austen and Young Ltd v Dunstan, [1989] STC 69.

For an attempt to convert a bad debt to an allowable loss using these rules, see IRC v Burmah Oil Co Ltd, [1982] STC 30.

Allocation of consideration between shares and loan: Aberdeen Construction Group Ltd v IRC, [1978] STC 127, and E V Booth (Holdings) Ltd v Buckwell, [1980] STC 578.

Where a company buys its own debentures (or debenture stock) at less than the nominal value and thereafter cancels them, the benefit is not chargeable because, in law, a person cannot be the assignee of the person’s own debt. (Inspector Manual 19.4.8).

What rules apply to reorganisation relief??

(2) The following share-for-share identification rules on a reorganisation or reduction of a company’s share capital.

On a reorganisation, the new shares take the cost and acquisition date of the original shares: Floor v Davis, [1979] STC 379.

How are shares treated on a reorganisation?

(3) On a reorganisation or reduction of share capital the new shares stand in place of the old shares and the shareholder is treated as having acquired the new shares when he acquired the old shares.

In other words, any gain is deferred until he disposes of the new holding.

Is extra consideration payable for replacement shares deductible?

(4) Any additional net consideration paid for replacement shares is deductible.

The following are not treated as consideration paid for the new shares:

(a) The surrender, cancellation or alteration of rights attaching to the old shares.

(b) Consideration that consists of an application of the company’s assets, or of unpaid distributions from those assets.

However, where shares issued in lieu of cash dividends have been taxed accordingly (section 816), the cash may be treated as consideration paid for the shares.

Is additional consideration receivable on a reorganisation taxed?

(5) Consideration other than new shares received in return for old shares, for example:

(a) on a disposal of shares in return for a capital distribution (section 583), or

(b) for surrendering rights attached to the original shares,

is are treated as part of the overall consideration received for the old shares.

Nevertheless, because the new shares stand in place of the old shares the shareholder is treated as having acquired the new shares at the time he acquired the old shares.

What is the base cost of replacement shares?

(6) Where some (but not all) new shares are disposed of, their acquisition cost must be apportioned on the basis of market value at the disposal date of the new shares disposed of and those retained.

How is the base cost ascertained if there are different share classes?

(7) If, within three months of the reorganisation, or such longer period as Revenue allow, the new holding (see (6)) contains:

(a) several share classes, including quoted shares or debentures, or

(b) several classes of unitholder rights, the prices of which are published regularly by the scheme managers,

its acquisition cost must be apportioned between new shares disposed of and those retained, on the basis of market value on the first day the shares were quoted (or prices were published).

A reorganisation that involves newly allotted shares, debentures or unitholder rights is deemed to take place on the day after the right to renounce the allotment expires.

How is a disposal of rights taxed?

(8) Consideration received for a disposal of a right to newly allotted shares or debentures is treated as a capital distribution (section 583) received from the company.

Does reorganisation relief apply to debt for shares?

(9) The relief does not apply where the new holding consists of debt capital (i.e., debentures, loan stock or similar securities).

Does reorganisation relief apply to units for shares?

(10) The relief does not apply where the new holding consists of units in an investment undertaking.

Section 585 Conversion of securities

Do the share-for-share rules apply to convertible securities?

(1) The share-for-share identification rules (section 584) apply to:

(a) Conversion of securities, including shares and government and other bonds, of a company into shares.

(b) Conversion, at the holder’s option, of redeemable securities in place of a cash payment. This only applies where the conversion takes place before 4 December 2002 or under a written binding agreement made before that date.

(c) Securities exchanged for compulsorily acquired shares or securities.

Does share-for-share relief apply where a conversion results in a holding of units on an investment undertaking?

(1A) The relief mentioned in (3) does not apply where a conversion results in a holding of units on an investment undertaking.

How do the share-for-share rules apply to convertible securities?

(2) The new shares stand in place of the old securities, and the shareholder is treated as having acquired the new shares when the old securities were acquired.

Conversion usually involves the conversion of convertible securities (debt or loan notes with an option to convert to equity) into shares (equity).

The security being converted must be documented and marketable: W T Ramsay Ltd v IRC, [1981] STC 174;Aberdeen Construction Group Ltd v IRC, [1978] STC 127. An ordinary loan did not qualify in Tarmac Roadstone Holdings Ltd v Williams SpC 95, [1996] SWTI 1489. A promissory note did not qualify in Taylor Clark International Ltd v Lewis, [1998] STC 1259 (see section 541).

Section 586 Company amalgamations by exchange of shares

Does relief apply to an exchange of shares?

(1) When shares in one company are given in exchange for shares in another, the share-for-share identification rules (section 584) apply so that the new shares stand in place of the old shares, and the shareholder is treated as having acquired the new shares when you acquired the old shares.

What conditions apply to the relief on exchange of shares?

(2) This relief only applies where:

(a) as a result of the share exchange, the new company acquires control of the old company, or

(b) as a result of a share offer to members of the new company by which, if satisfied, the old company would control the new company, the old company issues shares in exchange for shares in the new company.

What anti-avoidance rules apply to exchange relief?

(3) Only genuine share-for-share exchange schemes qualify for relief. The shares must be issued for bona fide commercial reasons, and not for tax avoidance purposes.

“Shares” in this context includes stocks, debentures and “interests” of the members in a company with no share capital (section 587(3)) and share options.

The relief in this section does not apply where shares are exchanged for debt capital (i.e., debentures, loan stock or similar securities).

This relief does not apply if the issuing company is an investment undertaking (section 739B).

Section 587 Company reconstructions and amalgamations

What is reconstruction relief?

(1) This section applies where, in connection with a scheme of reconstruction or amalgamation (i.e., a scheme for the reconstruction of a company, or the amalgamation of two or more companies), the company arranges with its shareholders (or debenture holders) that another company will issue shares (or debentures) to those shareholders in proportion to their existing shareholdings.

Does share-for-share relief apply to a reconstruction scheme?

(2) The share-for-share rules (section 584) apply to a reconstruction or amalgamation.

A reconstruction takes place where “an undertaking” carried on by a company is in substance preserved and transferred to another company consisting substantially of the same shareholders (“substantial identity of shareholding”). It is only required that substantial identity of shareholding exists immediately after the transfer. It is not necessarily significant that as a next step the shares in the new company are sold. However, it is essential that the reconstruction must not be in any way contingent on the subsequent sale or transfer of shares. Furthermore, the contract for the sale of shares must not be in existence prior to the issue of shares by the new company.

Revenue accept that the transfer of a 100% shareholding constitutes the transfer of an undertaking.

An amalgamation is the blending of two or more existing undertakings into one undertaking, the shareholders of each blending company becoming substantially the shareholders in the company which carries on the blended undertaking.

A reconstruction or amalgamation would also take place on the transfer of part of a business, provided that the part can exist as a business in its own right. However, there must be a segregation of trades or businesses and not merely the segregation of assets. The basic philosophy behind schemes of reconstruction and amalgamation is that the original shareholders keep an interest in the original business.

The partition (breaking up) of a single family company (or group) into separate companies qualifies for reconstruction relief provided the value of each individual’s holding in the company or group remains strictly unaltered and certain other conditions are met (Revenue Precedent G12, 12 June 1980).

These share-for-share rules apply to the shareholder acquiring the new holding, not the company which is being reorganised: Westcott v Woolcombers Ltd, [1987] STC 600; Nap Holdings UK Ltd v Whittles, [1994] STC 979.

Example

Reconstruction

X Ltd, owned 50:50 by A and B, carries on two businesses (Business 1 and Business 2).

Y Ltd a new company, issues shares (50:50) to A and B, in exchange for the transfer of Business 2 to Y Ltd.

This constitutes a reconstruction, since Business 2 is carried on by Y Ltd which has the same shareholders as X Ltd.

Example

Amalgamation

X Ltd, owned 50:50 by A and B, carries on two businesses (Business 1 and Business 2).

Z Ltd, owned 50:50 C and D, issues shares to A and B in exchange for the transfer of Business 2 to Z. This constitutes an amalgamation, as Business 2 is carried on by a company whose shareholders are an amalgamation of the participating companies.

Example

Under Companies Act 1963 section 201, the existing shares in X Ltd are cancelled, new shares in X Ltd are issued to Y Ltd, and Y Ltd issues its own shares to the former shareholders of X Ltd.

The former shareholders of X Ltd should be treated as if Y Ltd had issued to them their new shares in Y Ltd in exchange for their old shares in X Ltd.

Source: Inspector Manual 19.4.11

Can reconstruction relief apply to a company with no share capital?

(3) Reconstruction relief applies to a company with not share capital (for example, a company limited by guarantee) as if the references to shares/debentures in the company were a reference to the members’ interests in the company.

What anti-avoidance rules apply to reconstruction relief?

(4) Only genuine company reconstructions and amalgamations qualify for relief. The shares must be issued for bona fide commercial reasons, and not for tax avoidance purposes.

“Shares” in this context includes stocks, debentures and share options. It also includes “interests” of the members in a company with no share capital.

The relief in this section does not apply where shares are exchanged for debt capital (i.e., debentures, loan stock or similar securities).

This relief does not apply if the issuing company is an investment undertaking (section 739B).

Section 588 Demutualisation of assurance companies

How are rights received on a reconstruction of a mutual company taxed?

(1)-(3) Under a mutual life business, the members of the scheme mutually cover each other’s liability so that members’ premiums are used to cover payouts in respect of deceased members. If a mutual life assurance company agrees with its members that on a reconstruction or amalgamation, they will have rights:

(a) in priority to the rights of other individuals,

(b) to acquire shares in the successor at less than market value, or

(c) to free shares in the successor,

those rights are treated as an option acquired by the member.

In this context, free shares means shares issued by the successor other than for new consideration, i.e., consideration:

(a) which has been provided out of the assets of the company or its successor, or

(b) derived from shares or other rights in the company or its successor.

This option is treated as having no value at the time it is acquired.

Do the share for share rules apply on a demutualisation?

(4) Where a member receives shares in a successor in exchange for shares in the mutual company, the share-for-share rules (section 584) apply to treat the shares as acquired for the new consideration, if any, paid.

Can shares issued to trustees qualify for share for share treatment?

(5)-(6) Where shares are issued to trustees :

(a) The shares are treated as acquired by the trustees for no consideration.

(b) The member’s interest in the trust property is treated as acquired for no consideration.

(c) When a member becomes absolutely entitled as against the trustees, the trustees are treated as having disposed of and immediately reacquired the trust property as the member’s nominee (section 567(2)), for a consideration that ensures the transaction gives rise to no gain/no loss.

What information must a mutual company provide to Revenue ?

(7) A mutual company must make a return to Revenue detailing, for each member:

(a) the member’s name,

(b) the member’s address,

(c) the number of shares the member is entitled to acquire in the successor company,

(d) the amount the member must pay to acquire such shares,

(e) the value of any assets of the assurance company to which the member has a right, and

(f) any other information that Revenue may require.

Section 589 Shares in close company transferring assets at undervalue

What happens when a company transfers an asset at undervalue?

(1) If a close company transfers an asset other than at arm’s length, for less than market value, the shortfall is apportioned among the company’s share holders.

Is the apportioned shortfall deductible?

(2) In a CGT computation on a later disposal, the apportioned shortfall is not deductible.

Is the shortfall further apportioned where the shareholder is a close company?

(3) If the company’s shares are owned by a close company, the appropriate shortfall apportionment is to be made among that company’s issued shares (and so on if that company’s issued shares are owned by another close company).

Example

You buy 200 ordinary shares in a close company for €5,000 (issued share capital is 1,000 ordinary shares). Some time later, the company sells a chargeable asset worth €25,000 to a connected person for €10,000.

The sale is treated as being made for €25,000 and the company is charged accordingly. When you later sell your shares for €12,000, your chargeable gain is computed as follows:

Sale proceeds 12,000
Deduct: Cost of shares 5,000
Less undervalue of shares (200/1,000) x €15,000 = 3,000
Adjusted cost 2,000
Chargeable gain 10,000

Source: Revenue Notes for Guidance

Do the shortfall apportionment rules apply to a foreign company?

(4) These rules also apply where a foreign company transfers an asset other than at arm’s length.

On a later disposal of any such shares, the apportioned amount is not deductible.

If the company’s issued shares are owned by a foreign company, the appropriate shortfall apportionment is to be made among that company’s issued shares (and so on if that company’s issued shares are owned by another non-resident company).

Section 590 Attribution to participators of chargeable gains accruing to non-resident company

What is a “participator”?

(1)A participator is a shareholder or loan creditor of a company.

A participator also includes a potential participator, i.e., a person who holds present or future rights to company shares, voting rights, loan capital and premium on redemption of loan capital, and profits.

The term also includes any person who can direct that the company income or assets be applied for his benefit (section 433(1)).

Participator’s interest is his just and reasonable share of the interests of all participators in the company (including those of foreign participators).

Can a trust beneficiary be a participator?

(2) If a participator’s interest is held through a trust, that interest is deemed to be held by the trustees (not the beneficiary).

What foreign companies are subject to gain attribution?

(3) The gain attribution rules only apply to a foreign company that would be (section 433) a close company if resident in the State.

Does the gain attribution apply to all participators?

(4) A chargeable gain accruing to a non-resident company is to be apportioned among the company’s participators who are domiciled and resident (or ordinarily resident) in the State.

How is the gain attributed to participators?

(5) The gain is to be apportioned in proportion to the participators’ interests in the company.

Are there exceptions for small participators?

(6) Attribution does not apply where the part to be apportioned to that participator is less than one twentieth of the gain.

What gains are not attributed?

(7) The attribution rules do not apply to:

(a) A gain on the disposal of tangible assets used only for a foreign trade.

(aa) A gain where it is shown to the satisfaction of Revenue that the disposal was for commercial purposes and not for tax avoidance reasons.

(b) A gain on the disposal of foreign currency that was used only for a foreign trade (section 541(6)).

(c) A gain on land, mineral assets or rights, or branch trade assets located in the State (sections 25(2)(b), 29).

Can CGT on an attributed gains be credited against income tax?

(8) If a gain of a foreign company has been attributed to its participators and the gain is distributed within two years of its accruing, CGT may be credited against the participator’s income tax. Such a credit may not be used to create a repayment of tax.

Is CGT on an attributed gain deductible?

(9) CGT attributed to a participator may be deducted (not credited) against CGT on a later disposal of the shares.

Can attributed CGT be credited against higher rate income tax?

(10) Attributed CGT may be credited against the highest part of the participator’s income for the tax year.

Can a foreign company loss be attributed to the participators?

(11) A foreign company loss may be attributed to the company’s participators who are domiciled and resident (or ordinarily resident) in the State, but only to absorb gains that have been similarly apportioned.

Does attribution of gain apply to a participator that is a foreign company?

(12) If the participator in a foreign company is itself a foreign company, the apportionment is to be made among its participators and so on.

Can foreign company gains be attributed to trustees?

(13)Foreign company gains can be attributed to trustees who are participators.

Can a foreign company pay CGT owed by its participator’s?

(14) The payment by a foreign company of CGT owed by its participator’s is not to be regarded as a “payment” for tax purposes.

How is the gain accruing to a foreign company computed?

(15) A chargeable gain accruing to a foreign company is to be computed as if the company were Irish (and within the charge to corporation tax in respect of the gain).

What is a “non-resident group”?

(16) A group means a company and its 75% subsidiaries. A non-resident group is a group of two or more foreign companies.

Foreign group companies are subject to the same rules as resident group companies regarding:

(a) transfer of assets within a group (section 617),

(b) transfer of trading stock within a group (section 618),

(c) disposals or acquisitions outside a group (section 619),

(d) company leaving the group (section 623),

(e) disposal of shares in a subsidiary (section 625).

Section 591 Relief for individuals on certain reinvestment

Amendments

This section is now spent from 4 December 2002

Section 591A Dividends paid in connection with disposals of shares or securities

What is an “abnormal” dividend?

(1) A dividend is regarded as abnormal if its value exceeds the amount that could reasonably be expected to be paid if there were no disposal.

What are the consequences of receiving an abnormally high dividend in connection with a share disposal?

(2) An abnormally high dividend received by an Irish resident company from another such company is to be treated as subject to capital gains tax (20%), and is therefore not exempt.

Do any exceptions apply?

(3) The rule in (2) does not apply if it can be shown that the scheme is for bona fide commercial reasons and not for tax avoidance.

Section 592 Reduced rate of capital gains tax on certain disposals of shares by individuals

Amendments

Section 592 repealed by Finance Act 1998 section 70(1) as respects disposals made on or after 3 December 1997.

Section 593 Life assurance and deferred annuities

Is the disposal of a life policy subject to CGT?

(1)-(2) A chargeable gain arises on the disposal of a life policy or deferred annuity contract (or the rights to such policy or contract) only where the disposal is made by a person other than the original beneficial owner. That person must have given valuable consideration for the rights to the policy (or contract).

Example

Where a partner effects a life assurance on the partner’s own life and, without consideration in money or money’s worth:

(a) assigns the policy to another partner, or

(b) declares the policy to be in trust for another partner,

the policy is at that stage exempt.

Where, under a policy on your life, the proceeds are payable either to X or to the trustees of a fund for the benefit of X absolutely, the policy is exempt, because X is the original beneficial owner. The existence of a reciprocal arrangement on these lines between partners does not affect this treatment.

Where, under a policy on your life, the proceeds are payable to trustees for the benefit of X if X survives you, but otherwise to your spouse, neither X nor your spouse are absolutely entitled to the benefit of the policy.

The policy should, however, be regarded as exempt because on the disposal it will be known who will benefit and the person who does benefit is in these circumstances regarded as the original beneficial owner. The existence of a reciprocal arrangement on these lines between partners does not affect this treatment.

Source: Inspector Manual 19.5.1

What is the time of disposal for an insurance policy?

(3) An insurance policy is treated as disposed of when the sum assured under the policy is paid.

A deferred annuity contract is regarded as disposed of when the first instalment under the contract is paid.

The rights to an insurance policy or deferred annuity contract are regarded as disposed of when the rights are surrendered.

The consideration for the disposal of a deferred annuity is deemed to be its market value at the time of disposal.

Does a transfer of investments count as payment?

(4) The payment of a sum assured under a policy includes payment by transfer of investments under the terms of the policy.

Section 594 Foreign life assurance and deferred annuities: taxation and returns

See also section 710(3), which deals with life policies issued by IFSC companies to non-residents who subsequently become resident in the State.

How are foreign life assurance and deferred annuities treated for chargeable gains?

(1) A life assurance policy or deferred annuity contract made before 20 May 1993 is treated as made after 20 May 1993 if after that date the policy or contract is varied to increase the benefits, or extend the terms, of the policy or contract.

An option to have another policy or contract substituted in place of the first policy contract is treated as a variation of the terms of the first policy or contract.

These rules apply to life assurance policies issued, or deferred annuity contracts made, on or after 20 May 1993 other than by an assurance company which is chargeable to tax under Schedule D Case III on its life fund investment income (i.e., a relevant company).

The rules also apply to excluded policies, i.e., life assurance policies or contracts provided by a foreign life assurance company based in the International Financial Services Centre (section 710(2)) to a person who resided outside the State for less than six months from the date the policy or contract was written.

A gain which arises on the death of the holder of a foreign policy mentioned in (2) is not exempt (section 573(2)). In other words, the investment gain is liable to CGT.

A disposal of a foreign life policy, or rights under such a policy, occurs when benefits become payable under the policy.

The value of the policy benefits arising on death or disability is calculated by taking the value of the benefits after death or disability, and subtracting the value of the benefits before death or disability.

The value of a policy, or of an interest in a policy, is:

(a) its surrender value, or

(b) if it has no surrender value, its market value

In Ireland, growth in life assurance investments is taxed by taxing the profits of the life company. The proceeds of the life policy are not taxed in the hands of the policyholder (or his successors).

This section addresses the potentially different tax treatment of Irish based and foreign life companies writing life assurance. Under the 2nd and 3rd EU Life Directives, EU based foreign life assurance companies may sell to Irish customers without having a taxable presence in the State.

In Safir v Skattemyndigheten I Dalarnas Lan, [1998] STC 1043, ECJ C118/96, it was held that article 59 of the EEC Founding Treaty prevented a Member State from imposing different tax regimes on insurance providers according to the place of establishment of the insurance provider (such as the Swedish premium tax law) if such a law acted as a restriction on the freedom to provide services.

What CGT rules apply to a gain on the disposal of rights under a foreign life assurance policy or deferred annuity contract?

(2) The following rules apply to a chargeable gain on the disposal of rights under a foreign life assurance policy or foreign deferred annuity contract, including a disposal by a person who is not the beneficial owner of those rights but who paid for such rights (i.e., a relevant gain):

(a) The exemption under section 593(2) does not apply.

(b) The gain does not qualify for indexation relief (section 556).

(c) Allowable losses from other capital transactions for a tax year may only be set against non-relevant gains.

(d) An individual’s annual exemption (section 601) or that of his or her spouse, in the case of a jointly assessed couple (section 1028(4)) may not be set against the relevant gains accruing to him/her in a tax year, i.e., he/she is fully chargeable on such gains.

(e) The gain is chargeable at 40%, and not at the 20% rate mentioned in section 28(3) which generally applies to disposals made on or after 12 February 1998.

(f) In the case of a policy written before 20 May 1993, only the part of the gain accruing on or after 20 March 2001 is chargeable.

The CGT exemption on the disposal of life policies does not apply to a disposal by an Irish resident of a life policy written, on or after 20 May 1993, by a foreign life business with no presence in the State. The disposal of a tax free policy issued before 20 May 1993 is also taxed if the policy is extended.

In other words, Irish residents are liable to CGT on the disposal proceeds of such foreign policies.

Furthermore, the individual policyholder’s acquisition costs may not be indexed; only foreign life policy losses may be set against gains from foreign life policies, and the annual exemption does not apply.

What CGT rules apply to reinsurance contracts?

(4)(a)-(b) A reinsurance contract in respect of a life assurance policy is deemed to be such a policy for capital gains tax purposes. If the gain arising on disposal of a reinsurance contract is not taxed under Case I as new basis business (section 730A), it remains liable to capital gains tax.

(c) The capital gains tax charge on disposals of foreign life policies (see (2)-(3)) does not apply to reinsurance contracts. This withdraws an inadvertent potential capital gains tax charge on disposals of reinsurance contracts agreed on or after 20 May 1993 and before 1 January 1995.

(d) This reinstates the capital gains tax charge on disposals of reinsurance contracts agreed on or after 1 January 1995, i.e., the withdrawal of exemption for foreign life policies does not apply to disposals of such reinsurance contracts where:

(i) the reinsurance rights refer to the life policy, and

(ii) the insured company could dispose of the rights for more than it paid for such rights.

A reinsurance contract made before 1 January 1995 is treated as made after 1 January 1995 if after that date the contract is varied to increase the benefits, or extend the terms, of the contract.

(e) The charge (i.e., withdrawal of exemption) on disposals of reinsurance contracts does not apply to disposals resulting from death or injury of a person covered by the reinsurance contract.

In a CGT computation on the disposal of rights under a reinsurance contract:

(i) premiums for risk reinsurance are not an allowable deduction, and

(ii) the market value of the entitlement to such a payment is to be treated as consideration.

Example

You own a life company which reinsures:

(a) a €10,000 single premium investment bond with a 5% return, and

(b) a pure risk policy with an annual premium of €500

with a UK insurer. You could “net off” the two by providing free reinsurance on the risk policy, instead of the 5% return on the bond.

This would reduce your tax charge, as your investment income would be reduced.

To counteract such arrangements, the entitlement to the “net off” is taxed as consideration.

This anti-avoidance provision ensures that a disposal of a foreign reinsurance contract for life assurance agreed on or after 1 January 1995 is also liable to CGT.

Under the UK Finance Act 1995, UK life companies are not taxed on reinsurance premium income they receive. Irish CGT is not avoided where an Irish life company reinsures with a foreign (UK) life company to avail of the UK exemption.

Section 595 Life assurance policy or deferred annuity contract entered into or acquired by company

What definitions apply regarding life assurance policies or deferred annuity contracts entered into or acquired by a company?

(1) A relevant policy is a life policy or deferred annuity contract, agreed on or after 11 April 1994, which is not:

(a) a policy within section 594(2), i.e., is not written by a foreign life business with no presence in the State, or

(b) new basis business (section 730A).

A relevant gain is a chargeable gain arising on a relevant disposal, i.e., a disposal of a relevant policy by the beneficial owner of the rights under the policy, or as a result of the death or disability of the assured.

A life assurance policy or deferred annuity contract made before 11 April 1994 is treated as made on or after 11 April 1994 if on or after that date the policy or contract is varied to increase the benefits, or extend the terms, of the policy or contract.

An option to have another policy or contract substituted in place of the first policy contract is treated as a variation of the terms of the first policy or contract.

In general, in respect of such life assurance policies or deferred annuity contracts entered into on or after 1 January 2001, the profit on disposal will suffer an exit tax equal to the standard rate of income tax plus three percentage points.

Under the new regime there is an exit tax on redemption of a policy. Companies suffer a similar exit tax as individuals on redemption of such policies: Tax Briefing 41.

Does the exemption in life assurance/deferred annuity exemption apply to a relevant disposal?

(2) No. The exemption in section 593 does not apply (see (1)).

How is a relevant gain treated?

(3) A relevant gain is treated as net of corporation tax (applied at the standard rate of income tax). The gross amount of your relevant gain is then taxed as a chargeable gain, and the deemed corporation tax “deducted” (at the standard rate of income tax) may be set against the corporation tax for the accounting period in which your gain arises.

A loss on the disposal of a life policy is not treated as net of corporation tax.

When is a life policy or deferred annuity treated as agreed before 11 April 1994?

(4) A life policy or deferred annuity contract is to be treated as agreed before 11 April 1994 if:

(a) the contract documents were served on a company before 11 April 1994 and it agreed the contract before 22 April 1994, or

(b) the contract was agreed before 30 June 1994, and before 11 April 1994:

(i) the company made a binding agreement to acquire land,

(ii) the company had made a preliminary commitment or agreement to borrow using that land as security, and enter into the contract to repay that loan,

and the loan agreement’s terms oblige it to apply any policy or contract proceeds towards repaying the loan in priority to any other payment.

This section counteracts a growing trend among companies to buy life policies to make investment gains, rather than protect against risk.

The disposal of a life policy by anyone other than the original beneficial owner who gave valuable consideration for the policy gives rise to a chargeable gain. The disposal by the original beneficial owner (the assured) is exempt (section 593).

This exemption does not apply to companies. In other words, gains arising to you as a company that invests in life policies are taxed at the corporate tax rate. Gains arising from the death or disability of the assured remain exempt.

Section 596 Appropriations to and from stock in trade

Are there tax consequences where a fixed asset is appropriated to trading stock?

(1) An appropriation of a fixed asset (the disposal of which would give rise to a chargeable gain or allowable loss) to trading stock is treated as a disposal at market value.

Trading stock refers to assets normally dealt in by the company, and acquired for resale at a profit: Reed v Nova Securities Ltd, [1984] STC 124, Coates v Arndale Properties Ltd, [1984] STC 637.

What are the consequences of appropriating a trading asset for another purpose?

(2) A trading stock asset appropriated for another purpose is treated as having been acquired by the appropriating trader at book value.

Are there any exceptions to the rule that the appropriation of a fixed asset to trading stock is a disposal at market value?

(3) The appropriation of a fixed asset to trading stock is not treated as a disposal at market value where the trader is chargeable to income tax and elects to have the market value of the asset for income tax purposes reduced by the amount of the chargeable gain (or increased by the amount of the allowable loss).

In a partnership trade, this option must be agreed by all partners.

This election cannot be used to create an allowable loss.

This prevents a group company converting a capital loss into a trading loss by transferring a depreciated asset to another group member.

Section 597 Replacement of business and other assets

What is “rollover relief”?

(1) Rollover relief (which has ceased since 4 December 2002) allowed a gain on the disposal of an asset used for the purposes of a trade (the old asset) to be deferred until the new asset (which replaced it) was disposed of.

As in the case of income tax, “trade” includes a profession, an adventure in the nature of trade, a farming trade, and a trade of dealing in land. Income tax rules that treat a trade as permanently discontinued do not apply for the purposes of rollover relief.

Where the acquired asset is used only partly for business purposes: Tod v Mudd, [1987] STC 141.

Who is rollover relief available to?

(2) Rollover relief was also available to:

(a) A public authority (in relation to the discharge of its functions).

(b) Commercial forestry growers.

(c) Professional persons and employees.

(d) Non-profit-making trade or professional bodies.

(e) Non-profit-making charitable bodies (but in relation to land and buildings, only to the extent occupied and used by the body, and in relation to other assets, to the extent used by the body).

(f) Amateur athletic bodies.

(g) Farmers.

What assets does rollover relief apply to?

(3) Rollover relief applied to trade assets:

(a) Plant and machinery.

(b) Land and buildings occupied and used for the trade (but not as trading stock of a trade of dealing in land).

(c) Goodwill.

(d) Shares and bonds (financial assets) owned by an amateur athletic body, disposed of on or after 27 March 1998 (date of passing of Finance Act 1998).

Note

(b) The land must have been occupied for the purposes of trade: Anderton v Lamb, [1981] STC 43. Visits to a potential building site, for which planning permission is sought, do not constitute “occupation” or “use” of land: Temperley v Visibell, [1974] STC 64, 49 TC 129. Land let on conacre was not occupied by the disponer (lessor) in carrying on a trade: O’Coindealbháin v Price, 4 ITR 1.

Rollover relief was denied on a transfer of land in France from a sole trader to a French company (of which a UK company was the sole shareholder): Joseph Carter and Sons Ltd v Baird, [1999] STC 120.

The disposal of a taxi plate does not qualify for rollover relief, as a taxi plate is not a qualifying asset. Revenue do not accept that a taxi plate is “goodwill” or “plant” (Revenue Precedent G63, 614/74).

When can the gain on the disposal of an old trade asset be deferred?

(4) Where the disposal proceeds for an old asset (received before 4 December 2002) used for the trade are used to acquire a new asset for use in the trade, you may defer the gain until the new asset ceases to be used for the trade.

The gain may be continue to be deferred each time the disposal proceeds for an old asset are used to acquire a new asset to replace the old asset.

There must be no delay in using the new asset, i.e., it must be taken into use “on its acquisition”: Campbell Connolly and Co Ltd v Barnett, [1994] STC 50.

In the case of a married couple, where the old assets were solely owned by you but the new assets are acquired jointly by you and your spouse, full roll-over relief would not be clearly due. However, if both of you had been actively engaged in the trade and so continue after the acquisition of the new assets, roll-over relief may be allowed provided the other requirements are satisfied.

Where you are a partner in a partnership, you must have an interest in both the old and the new assets in order to qualify for relief. Thus, you are not entitled to relief if you have retired from the partnership between the sale of the old asset and the purchase of the new one (Inspector Manual 19.6.2).

Could rollover relief be claimed if only part of the disposal proceeds were used to acquire a new asset?

(5) Rollover relief was not generally available where only part of the disposal proceeds for the old asset are used to acquire a new asset.

However, if all of the proceeds (apart from an amount that is less than the arithmetical gain on the disposal of the old asset) are reinvested in a new asset, the arithmetical gain may be reduced to the amount not reinvested. If the arithmetical gain is not all chargeable gain, the same percentage reduction is applied to proportionately reduce the chargeable gain.

As such a reinvestor, you may claim to have the proceeds treated as reduced to the amount not reinvested, and the balance of the gain may be deferred until the new asset ceases to be used.

Does indexation relief apply for the deferral period where rollover relief is given and then claimed back?

(6) Where rollover relief within (4) or (5) is given, and is subsequently clawed back, indexation relief (section 556) does not apply for the deferral period.

What time limits applied for claiming rollover relief?

(7) Rollover relief only applies where the replacement asset is acquired within the four year replacement period beginning 12 months before, and ending three years after, the disposal of the old asset.

However, relief may be provisionally claimed if an unconditional contract to acquire the new asset has been agreed.

The four year replacement period may be varied by written notice from the Revenue Commissioners.

An asset should be treated as acquired within the statutory time limit if an unconditional contract to acquire it has been made within that period. Where an unconditional contract has been made, provisional relief may be given subject to appropriate adjustment when all the facts are available. The adjustment may be made by assessment or repayment or discharge of tax, and assessments may be made without regard to time limits (Inspector Manual 19.6.2).

In Steibelt v Paling, [1999] STC 594, the UK Chancery Division upheld the inspector’s refusal of relief to a publican who sold his pub in 1986, and in 1995 began trading as a wine bar and restaurant from a barge which he had improved during 1989-1994.

Do I have to use the replacement asset in a trade for rollover relief to apply?

(8) For rollover relief to apply, the replacement asset must be acquired for use in the trade, not to realise a gain on its disposal.

How does rollover relief apply where a building is partly used for trade purposes?

(9) In the case of a building used partly for trade purposes during the ownership period, the trade part of the building is treated as a separate asset, and the proceeds and acquisition cost are apportioned between the trade and non-trade part.

How does rollover relief apply where the assets were not in trade use for the full owenership period?

(10) In the case of an asset not in trade use throughout the ownership period, the non-trade part of the ownership period is treated as a separate asset, and the proceeds and acquisition cost are apportioned between the trade and non-trade parts of the ownership period.

Non-trade use before the introduction of CGT (6 April 1974) is ignored: Richart v J Lyons and Co Ltd, [1989] STC 8.

Does rollover relief apply where I carry on more than one trade?

(11) You may trade in similar goods or services at two or more different locations. In such a case, the assets used for one such trade can be treated the trades were a single trade.

Where within two years of ceasing an old trade you carried on for at least 10 years, you begin to carry on a new trade, rollover relief applies if the disposal proceeds for the old trade assets are used to acquire new trade assets.

Strictly, relief is not due on the cessation of a trade carried on for less than 10 years and the commencement of a similar trade. Revenue accept, however, that the trades in different locations mentioned in the first paragraph may be regarded as carried on either simultaneously or successively. The first trade is not therefore treated as ceasing as it is regarded as continuous with the similar replacement trade (Revenue Precedent G10(e), 15 December 1997).

How do I apportion consideration paid for a group of assets where rollover relief is only claimed for part?

(12) Consideration paid for a group of assets (that includes some assets on the disposal of which, rollover relief is sought) is to be justly apportioned between the rollover-relieved assets and the other assets.

A gain accruing on a part disposal arising from a single asset consisting of land and buildings could not be deferred (using rollover relief) until the remaining part of the asset was sold: Walton v Tippett, [1996] STC 101.

Section 597A Entrepreneur relief

What definitions apply to Entrpreneur Relief?

(1) Chargeable business assets are assets used for the purpose of a business or shares in a company controlled by the individual that cost not less than €10,000 and were acquired between ! January 2014 and 31 December 2018. Shares held as investments are not included. A company must be one in which the individual is a full-time working director and it must carry on a new business.

Full-time working director has been held by the UK Courts to be one who spends a normal working day in the management of the company.

Initial risk finance investment means the funding of the new business to a maximum of €15 million. It must be provided in full within 6 months if commencement of the business and can be equity or an investment (including a loan investment) or both.

New business means relevant trading activities that were not carried on by the qualifying enterprise or any person connected with it before 1 January 2014. Products, goods or services similar to ones previously provided by the claimant or any connected person are excluded form relief.

Relevant trading activities are trading activities that would qualify for BES relief.

What relief is available to entrepreneurs?

(2) The relief is given to individual who has, since 1 January 2010, sold assets and paid capital gains tax and who reinvests at least €10,000 and between 1 January 2014 and 31 December 2018 in chargeable business assets. If the new assets are held for at least 3 years and then sold relief from CGT on the subsequent disposal will be given in an amount equal to the lower of the CGT on the original disposal and 50% of the CGT due on the subsequent disposal.

Where the full amount of the after tax consideration from the original disposal is not reinvested only the proportion of the original CGT equivalent to the amount reinvested will be available for relief.

Can relief be obtained on a second reinvestment?

(3) Yes. If an individual reinvests again after a subsequent disposal then if the reinvestment was before 31 December 2018 similar relief is available.

Can assets be “hived out” before disposal?

(4) Often before disposal of a business the undertaking is hived out to a new company owned by the same shareholders and the shares in that company are sold. Where this is done for bona fide commercial reasons the relief provided by this section will apply to the sale of the shares in the new company.

Can relief be denied?

(5) Relief under subsection (4) is not given if the hive out is part of an arrangement the purpose of which is the gain a tax advantage as defined by section 546A.

Is this relief available after 31 December 2015?

(6) Where section 597AA applies the reliefs in subsections 2 and 3 will not apply on or after 1 January 2016 unless the relief that would be provided under this section is greater.

Section 597AA Revised entrepreneur relief

What definitions apply to this section?

(1)(a) A holding company .is one whose business is the holding of share in companies that are its 51% subsidiaries;

qualifying business excludes holding securities or assets as investments, holding development land ans developing or letting land or buildings;

qualifying group is one in which all the members except the holding company carry on qualifying businesses;

qualifying person is an individual who is or was a director or empolyee required to devote at least 50% of his or her working time to the service of a company and who has served in that capacity for at least 3 continuous years in the 5 years preceding the disposal;

relevant company the disposal of whose shares forms the whole or part of the disposal of chargeable assets;

relevant individual is one who has owned the chargeable business assets for a continuous period of 3 years in the 5 years preceding the disposal of those assets;

 (b) Where there has been an amalgamation or reconstruction that qualified for CGT relief the time an individual spent as a director or employee of the predecessor company will be taken into account for the purpose of the 3 year rules.

What are “chargeable business assets” for the purpose of this section

(2) Chargeable business asset excludes shares (other than shares in trading companies held by a holding company) held as investments, development land and assets whose disposal would not give rise to a chargeable gain. It is an asset or an interest in an asset used for a qualifying business or shares in a company carrying on a qualifying business or a holding company of a qualifying group. To qualify shares must be held by a qualifying individual who must own at least 5% of the ordinary share capital of the company or holding company.

What rate of CGT applies to a disposal by a relevant individual?

(3) A rate of 20% will apply to gains on the disposal of the whole or part of chargeable assets.

What limitations apply to the availability of the 20% rate?

(4) There is a lifetime limit on the aggregate value of gains on qualifying disposals after 1 January 2016. of €1,000,000. Any gains in excess of that amount are charged at the standard rate of VAT.

When does this section not apply?

(5) This section will not apply if the relief under section 597A is greater than the relief under this section.

Section 598 Disposals of business or farm on “retirement”

What are qualifying assets for the purposes of retirement relief?

(1) Qualifying assets include:

(a) Chargeable business assets i.e., assets (including goodwill, but not shares or investments) used in the trade (including farming), profession, office or employment carried on by:

(i) an individual,

(ii) an individual’s family company,

(iii) a member of the family company’s trading group.

The term includes land, machinery or plant owned personally by an individual for not less than 10 years ending on the disposal date, provided it was used throughout that period by the company, and is disposed of at the same time and to the same person who is acquiring the company shares.

The term also includes compulsorily acquired farmland let during the five year period ending on the disposal date, provided it was used by the person disposing of it for his/her farming trade during the 10 year period preceding the first letting.

The term excludes assets the disposal of which would not give rise to a chargeable gain, for example, assets listed in section 607.

The assets must have been owned throughout the 10 year period ending on the disposal date.

(b) Shares in a family company (which is a trading company, farming company or holding company). These shares must have been held for not less than 10 years ending on the disposal date.

When calculating the 10 year ownership period the following may be included:

(i) the ownership period of a spouse,

(ii) the ownership period of replaced assets that qualified for rollover relief (section 597),

(iii) the ownership period of replaced shares or securities that qualified for “share-for-share” relief as part of a company amalgamation (section 586), or reconstruction (section 587),

(iv) the period of use by the spouse of a partner in a milk production partnership, provided that spouse:

(I) co-owns the land,

(II) used it before the milk production partnership began,

(III) received a certificate from the Minister for Agriculture and Food exempting him/her from becoming a member of the partnership,

(e) the pre-corporate ownership period of assets that qualified for relief on transfer of a business to a company (section 600), and this period also counts as time being a full-time director,.

A family company is a company in which an individual has at least 25% of the voting rights. Alternatively the individual must have at least 10% of the voting rights and, together with her/his family, have at least 75% of the voting rights. A family member in this context means a spouse, a relative (brother, sister, ancestor or lineal descendant), and a relative of a spouse.

A company is a trading company if its business consists mainly of carrying on a trade or profession. A company is a holding company if its business consists mainly of holding shares in trading companies that are its 75% subsidiaries. A trading group is a holding company together with one or more trading companies that are its 75% subsidiaries.

The relief also applies in the case of shares held in a trading group company that is a 75% subsidiary of a family company that is a holding company.

In the case of a family company, an individial must have been a working director for the 10 year ownership period, and a full-time working director for not less than five years of those 10 years. This allows a family director who has been ill for some time to qualify.

In this context, a full-time working director is one required to devote normal working time to the company in a managerial or a technical capacity.

A deceased spouse’s pre-death period as a full-time working director can be counted as a period for which an individual was a full-time working director.

In Palmer v Moloney, [1999] STC 890, a taxpayer who worked 42.5 hours per week for a company and 7.5 hours per week as a sole trader was held to be a “full-time” employee of the company.

(c) An EU Single Farm Payment Entitlement qualifies, provided the 10 year rule in relation to the land is met and the payment entitlement is disposed of at the same time as the land.

(d) Farm land owned and used by an individual for not less than 10 years ending on the date the land was transferred to comply with the EU Early Retirement From Farming Scheme.

(e) Land let by an individual at any time in the 25 years ending on the disposal date, provided:

(i) the disposal is to his/her child, and

(ii) prior to the first letting in that 25 year period, she/he owned the land and used it for her/his farming trade for not less than 10 years, or

(iii) the disposal is to an individual other than a child, and on or before 31 December 2016, provided the land was let during the period of 25 years and each letting was for not less than 5 consecutive years.

(iv) entitlement to relief under this section is not affected where land was let under one or more conacre agreements and a letting for not less than 5 years commences before 31 December 2016.

Is there a limit on retirement relief?

(2) To qualify for retirement relief an individual must be aged 55 or over and must dispose of qualifying assets. If he/she is aged:

(a) 55-66, and the disposal proceeds are €750,000 or less, no CGT arises. But if the disposal proceeds exceed €750,000, the CGT may not exceed half the difference between the proceeds and €750,000 (marginal relief).

(b) 66 or over, the disposal takes place before 1 January 2014, and the disposal proceeds are €750,000 or less, no CGT arises. But if the disposal proceeds exceed €750,000, the CGT may not exceed half the difference between the proceeds and €750,000.

(c) 66 or over, the disposal takes place on or after 1 January 2014, and the disposal proceeds are €500,000 or less, no CGT arises. But if the disposal proceeds exceed €500,000, the CGT may not exceed half the difference between the proceeds and €500,000.

Example

01.05.2012 You and your spouse are aged 66 and 67 respectively and you are thinking of selling the shares in your business (owned 50:50). You have received and offer of €1,200,000 for your shares.

If you sell today, no CGT arises, as each of you is below the €750,000 threshold.

If you sell on or after 01.01.2014, CGT will arise:

30% x €1,200,000 = €400,000, but marginal relief reduces the CGT to €100,000 (being 50% of {€1,200,000 – (2 x €500,000)}).

Are disposals aggregated for the purposes of the €750,000 limit?

(3) The €750,000 limit applies to the aggregate proceeds received for disposal of business assets.

There is not a separate €750,000 limit for each asset.

Does compensation from the decommissioning of a fishing vessel qualify for retirement relief?

(3A) Retirement relief applies to compensation proceeds from the decommissioning of fishing vessels, provided that the owner owned and used the vessel for six years before the payment date and was 45 years of age at the time.

What happens if the proceeds derive from a combination of chargeable business assets and other assets?

(4) if the disposal proceeds for a trading company derive from both chargeable business assets and other assets, only the proportion relating to chargeable business assets qualifies for retirement relief.

If the shares are in a holding company, the same adjustment is made, so that relief is only given in respect of the proportion that relates to of chargeable business assets of the trading group.

What chargeable assets are treated as chargeable business assets?

(5) Every asset counts as a chargeable business assets except assets the disposal of which would not give rise to a chargeable gain.

Disposal proceeds in respect of shares in a holding company are to be adjusted on the basis of the proportion of chargeable business assets of the trading group to chargeable assets (excluding intra-group holdings).

Example

You are aged 58. You intend to sell your shares in X Ltd., a family company which you have managed for the past 20 years, for €975,000. You have been a full-time director for the last 15 years.

The combined value of the chargeable assets (land and buildings, plant and machinery and goodwill) is €880,000.

Assume the chargeable business assets are worth €760,000.

Therefore, the part of the proceeds relating to chargeable business assets is:

€975,000 x (760,000/880,000) = €842,045

As this exceeds €750,000, the gain is chargeable, but the tax is limited to:

€842,045 – €750,000 = €292,045 x 50% = €18,409

Can the €750,000 limit be availed of more than once?

(6) The €750,000 limit is a lifetime limit for each individual.

If a recent disposal brings the aggregate of previous “retirement” disposals over the limit, any earlier relief may be withdrawn, by means of an assessment.

Disposals of business assets between spouses married to each other are treated as giving rise to no gain/no loss, but are taken into account at market value when calculating the €750,000 limit.

Is retirement relief available on the liquidation of a company?

(7) Retirement relief can also apply to the proceeds of liquidation of a company. It is does not apply to a distribution in specie of business assets.

If the distribution is partly in chargeable business assets and partly in cash, the relief is restricted to that proportion of the gain which non-chargeable business assets bear to the total capital distribution. A corresponding fraction of the capital distribution is to be included in aggregate consideration for the purposes of thresholds.

Example

A family company is liquidated, and the liquidator pays the proceeds to the shareholders by way of a capital distribution (in the form of business assets). No relief is due under section 598 or 599.

If the distribution consisted as to €130,000 in fixed assets, and €245,000 in cash, the cash part of the distribution would qualify.

Does a share buyback payment count toward the retirement relief limit?

(7A) A payment received in respect of a share buyback is taken into account for the purposes of the €750,000 lifetime limit.

Are there anti-avoidance rules in relation to retirement relief?

(8) Yes. Retirement relief is subject to a “bona fide commercial reasons” anti-avoidance test.

Section 598A Relief on dissolution of farming partnerships

What is farming partnership relief?

(1)-(2) This relief applies where a partnership consisting of individuals farming together (farming partnership) makes a (relevant disposal), i.e., disposes of an asset jointly owned by the farming partners (a relevant asset).

When does ownership of a farming partnership asset commence?

(3) The ownership period for an asset inherited by a farming partner dates from the time he joined the partnership (not the date of the inheritance).

How does farming partnership relief work?

(4) When a farming partnership dissolves, the partners are not subject to CGT on disposal of a partnership asset owned and used by the partnership for 10 years prior to the dissolution.

Does farming partnership relief apply to trading stock?

(5) This relief does not apply to partnership assets held as trading stock.

Section 599 Disposals within family of business or farm

What retirement relief applies on passing a farm or business to a child?

(1) To qualify for retirement relief an individual must be aged 55 or over and must dispose of qualifying assets, i.e.,chargeable business assets or shares in a family company (which is a trading company, farming company orholding company) he/she have owned for at least 10 years ending on the disposal date to his/her child.

If he/she is aged:

(a) 55-66, no CGT arises.

(b) 66 or over, the disposal takes place before 1 January 2014, no CGT arises.

(c) 66 or over, the disposal takes place on or after 1 January 2014, and the disposal proceeds are greater than €3,000,000, CGT arises as if the disposal proceeds were €3,000,000. Retirement relief only applies to qualifying assets.

Child in this context includes:

(a) a child of a deceased child.

(b) A “favourite” nephew or niece who has worked full-time in the business for the five years ending on the disposal date.

(c) A foster child, i.e., a child who resided with and was maintained by the disponer for five years (or periods which together comprise five years) before reaching his eighteenth birthday. The child’s claim to have resided with the disponer may not be based on the uncorroborated testimony of one witness.

If an individual disposes of land to his/her child and receives land from that child in exchange, he/she takes the child’s time and cost of acquisition for the exchanged land. No gain arises to the child on the disposal of the land to the parent; the gain is effectively postponed until the parent disposes of the exchanged land.

Example

01.05.2012 You are aged 66 and you are thinking of passing your farm worth €5,000,000 to your son aged 34. You meet all of the conditions for retirement relief.

If you pass the farm today, no CGT arises.

If you pass it on or after 01.01.2014, CGT will arise:

30% x €3,000,000 = €900,000.

Note: This example ignores acquisition costs.

How does aggregation apply?

(2) The consideration on disposals on or after 1 January 2014 is aggregated for the purposes of the €3,000,000 lifetime limit.

What happens if the proceeds derive from a combination of chargeable business assets and other assets?

(3) if the disposal proceeds for a trading company derive from both chargeable business assets and other assets, only the proportion relating to chargeable business assets qualifies for retirement relief.

If the shares are in a holding company, the same adjustment is made, so that relief is only given in respect of the proportion that relates to of chargeable business assets of the trading group.

Is there a clawback if a child disposes of assets that have qualified for retirement relief?

(4) If the relieved assets are disposed of by the transferee child within six years of the disposal date, the deferred capital gains tax (which would have been charged on the parent) is to be assessed and charged on the child, in addition to the tax on the gain (if any) made by him/her.

An assessment under (4) may be made up to four years after the end of the tax year in which the child disposes of the asset.

Relief is not clawed back where the child disposes of the shares within six years in a “share for share” transaction within section 584 (Revenue Precedent G6(H), 10 August 1994).

Do disposals to a child affect the €750,000 lifetime limit?

(5) Disposals to a child are not to be aggregated when calculating whether the €750,000 lifetime limit is exceeded (section 598(3)).

Does a disposal to a civil partner’s child qualify for retirement relief?

(6) If all of the conditions are met, a disposal to any of the following persons can qualify for retirement relief:

(a) a civil partner’s child,

(b) a deceased civil partner’s child,

(c) a child of a deceased child’s civil partner, or

(d) a child of the civil partner of a deceased child of the individual’s civil partner.

Section 600 Transfer of business to company

Is the transfer of a business to a company in exchange for shares subject to CGT?

(1)-(3) This relief applies when a business and all its (non-cash) assets are transferred as a going concern to a company in exchange for shares (new assets) in that company.

The cost of the new assets (see (5)) is deductible from the gain on the old assets, i.e., is deductible from the aggregate of the net chargeable gains (chargeable gains less allowable losses).

In other words, the base cost of the shares (new assets) is reduced to match the cost of the assets.

The shares will have a reduced acquisition cost (thus giving rise to a higher gain on their subsequent disposal).

Whether a business is a going concern is decided by reference to the transfer date: Gordon v IRC, [1991] STC 174.

Liabilities of the company taken over represent consideration for the transfer because their discharge is equivalent to the payment of cash. (Revenue Precedent G5(1), 23 August 1988).

What is the deductible cost on a later disposal of shares?

(4) The allowable cost on a particular disposal of shares is arrived at by apportioning the “cost of the new assets” (the allowable deduction if the assets were disposed of as a whole) among all the new assets.

If the shares are not all of the same class, the apportionment is to be based on the shares’ market value on acquisition.

How is the cost of the shares calculated?

(5) The deductible amount is the same proportion of the gain on the old assets as the cost of the new assets bears to the total consideration received for the transfer.

In Butler v Evans, [1980] STC 613, it was held that the lease and goodwill of a lock-up shop business were separate assets.In Butler v Evans, [1980] STC 613, it was held that the lease and goodwill of a lock-up shop business were separate assets.

Example

You transfer your business with all its assets except the cash to a company, and you get 3000 shares and €20,000 in cash.

The balance sheet of the business is:

Stock in trade 10,000
Goodwill 2,000
Premises 7,000
Cash 6,000
Total assets 25,000
Less:
Creditors 5,000
Capital and reserves 20,000

During the negotiations, the following were agreed market values:

Stock in trade 12,000
Goodwill 5,000
Premises 13,000
30,000
Creditors 5,000
Net value of assets transferred 25,000

The 3000 shares and €20,000 cash which you receive are together equal in value to €25,000 so that the value of the shares in €5,000.

The gains are:

Stock (not chargeable) Nil
Goodwill 3,000
Premises 6,000
Total 9,000
The consideration received was:
Value of shares (as mentioned already) 5,000
Cash 20,000
Creditors (a liability taken over) 5,000
Total consideration 30,000

The cost of the new assets (the shares) is €5,000 and the fraction to be applied under section 600(5) is:

(5,000 / 30,000) =   (1/6)

The chargeable gains as provided in section 600(3) are therefore:

As above 9,000
Deduct 1/6th 1,500
Amount chargeable 7,500

Under the rule in section 600(4), the amount to be taken as the cost of the shares in the event of a future disposal of shares is €3,500 (i.e. the €5,000 less €1,500).

Source: Inspector Manual 19.6.4

Do anti-avoidance rules apply?

(6) Transfer of business to a company relief does not apply unless the transfer is made for bona fide commercial purposes and not as part of a tax avoidance scheme.

Section 600A Replacement of qualifying premises

Amendments

Section 600A inserted by Finance Act 2001 section 92 in relation to disposals on or after 5 January 2001.

See Finance Act 2003 section 67(1)(c). It does NOT apply to a disposal by a person, on or after 4 December 2002 and on or before 31 December 2003, of a qualifying premises where the person claims that, but for the amendment, the person would have been entitled to claim that the chargeable gain accruing on that disposal could not accrue to the person until a replacement premises which were acquired by the person before 4 December 2002, or acquired by the person under an unconditional contract entered into before that date (i) was disposed of by the person, or (ii) ceased to be a replacement premises.

Section 601 Annual exempt amount

What is the CGT annual exemption?

(1)-(2) The first €1,270 of chargeable gains (of an individual) for a tax year is not chargeable to tax, i.e., it is exempt.

This annual exemption is not given to trustees or companies.

A non-resident is entitled to the €1,270 annual exemption: Tax Briefing 41.

Does the annual exemption go against the highest CGT rate?

(3) If a person is subject to CGT at more than one rate for a tax year, the annual exemption is firstly applied against the gains chargeable at the highest rate.

Example

In a given tax year, you have the following chargeable gains:

€500 taxable at 40%

€800 taxable at 33%

The annual exemption of €1,270 is set off as to €500 against the gain taxable at 40%, and €770 against the gain taxable at 33%.

Does a deceased individual get an annual exemption in the year of death?

(4) When an individual dies, his/her personal representatives may claim his/her annual exemption for the year of death.

Does the annual exemption apply when retirement relief is claimed?

(5) The annual exemption is not given in a tax year in which “retirement” relief (sections 598, 599) is given.

Section 603 Wasting chattels

Does CGT arise on the disposal of a wasting chattel asset?

(1) A disposal of a chattel wasting asset is exempt and does not give rise to a chargeable gain.

Does the wasting chattel asset apply where capital allowances were claimable?

(2) The exemption does not apply to trade assets on the purchase or enhancement of which capital allowances were claimable.

Example

01.01.2006 You bought a new machine costing €1,600 for your business. The machine had a predictable useful life of eight years.

For that tax year, you claimed a 12.5% writing down allowance (€200).

2007 You claimed €200.

2008 You claimed €200.

06.04.2009 You sell the machine for €2,000.

The wasting asset chattel exemption (section 603(1)) does not apply to the disposal.

The expenditure “wasting” rules (section 560) do not apply to the disposal.

The €2,000 durable chattel proceeds exemption (section 602) does not apply to the disposal (as it is a wasting asset).

The gain is calculated as:

Proceeds (tax year 2009) 2,000
Cost (2006) 1,600
Gain 400

Assume that the machine had been sold for €1,200 (so you made a loss):

Proceeds 1,200
Cost 1,600
Less capital allowances claimed
2006 200
2007 200
2008 200 1,000
Gain 200

If at the time of the disposal, the capital allowance has been withdrawn, the asset is regarded as not having qualified for capital allowances: Burman v Westminster Press Ltd, [1987] STC 669.

Revenue has agreed with the Irish Finance Houses Association certain procedures (known as LAD – leased asset disposal) to be adopted by leasing companies for end of lease transactions. The procedures are acceptable for income tax, corporation tax and VAT purposes.

The transactions involve the use of a special purpose company set up under the auspices of the Irish Finance Houses Association called the Leased Asset Disposal Company (LADCO). As most leased assets are precluded, by virtue ofsection 603(2), from the section 603(1) exemption, a CGT charge can arise on the disposal of such leased assets. A disposal occurs, where at the end of the lease period the asset is sold by the lessor to LADCO. There is a further disposal where the asset is sold either to the lessee or to a third party.

Where the formerly leased asset is acquired by the lessee, the cost of the asset for CGT purposes is the amount for which the asset is sold to the lessee (i.e., market value), before deducting any amount in respect of rebate of rentals. The lease rentals paid by a lessee for the lease of an asset are not payments to acquire ownership of the asset. They are simply payments for the use of the asset (Inspector Manual 4.6.4).

How is the exemption computed if a chattel was used partly for non-business purposes?

(3) In the case of a chattel used partly for non-business purposes:

(a) The disposal proceeds and the asset’s cost must be apportioned in accordance with the expenditure that qualified for capital allowances.

(b) A separate computation must be made for the part of the asset that qualified for capital allowances and the part that did not qualify.

(c) The wasting chattel exemption does not apply to the part qualifying for capital allowances.

Example

01.05.2007 You bought a light aircraft costing €50,000 for business travel. The aircraft had a predictable useful life of 25 years. You also use the aircraft for pleasure purposes and you agreed with the inspector that the private use was 50%.

For the tax year 2007, you claimed a 15% writing down allowance (€7,500, but when restricted by 50% for private use is reduced to €3,750). For 2008, you claimed the same.

05.04.2009 You sell the aircraft for €60,000.

Total Private Business
Proceeds 60,000 30,000 30,000
Cost €50,000 indexed at 1.087 54,350 27,175 27,175
Gain 2,825 2,825
exempt chargeable

Assume that the aircraft had been sold for €45,000 (loss):

Total Private Business
Proceeds 45,000 22,500 22,500
Cost 50,000 25,000
Loss 2,500
Business part cost 25,000
Less capital allowances claimed
2007 3,750
2008 3,750
7,500 indexed at 1.087 8,152.50
Gain 14,347.50
exempt chargeable

Does the wasting chattel exemption apply to a market dealer?

(4) No.

Examples of wasting chattels: aircraft, cars, bloodstock, livestock, yachts. The expected useful life of such property is less than 50 years.

Section 603A Disposal of site to child

Is a foster child considered a child for the disposal of a site to a child relief?

(1) From 31 March 2006, a child includes a foster child, i.e., a child who resided with and was maintained by the disponer for five years (or periods which together comprise five years) before reaching his/her eighteenth birthday. The child’s claim to have resided with the disponer may not be based on the uncorroborated testimony of one witness.

When does the relief on a disposal of a site to a child apply?

(1A) This relief can only be obtained where:

(a) the market value of the land being passed does not exceed €500,000, and

(b) as regards disposals made on or after 1 February 2007, the site (exclusive of the area on which the house is to be built) does not exceed .4047 hectare (one acre).

Does a CGT liability arise on a transfer of land to a child?

(2) No chargeable gain arises where:

(a) a disponer transfers land to her/his child,

(b) the transfer is to enable the child to build a sole or main residence for him/herself on that land.

Example

You are a farmer who transfers a site worth €90,000 to your daughter to enable her to build a house on the site.

The transfer is exempt from CGT.

What happens if both parents make simultaneous disposals to a child?

(2A) A single threshold applies (effective 6 December 2000) where both parents make simultaneous disposals to a child.

Are there consequences if the child later sells the land?

(3) The chargeable gain exempted under (2) is restored and charged on the child if:

(a) he/she disposes of the land or part of the land at any time to a person other than his/her spouse, and

(b) the land disposed of does not contain a residence which:

(i) was built by the child since acquiring the land, and

(ii) was occupied by the child as his/her main residence for three years.

Example

Continuing from the previous example:

Assume your daughter sells the site for €120,000 without having built a house on it.

She is liable to the CGT arising on the transfer to her from you, and on the transfer itself.

Alternatively, assume she builds a house on the site, and sells the house one year later for €300,000, without having lived in the house as her main residence. The daughter is liable to:

(a) the CGT arising on the transfer to her from you, and

(b) the CGT arising on the disposal of the house, as it is not her principal private residence (section 604).

Is the exemption available again on a subsequent disposal to a child?

(4) Where a transfer of land to a child is exempt under (2), a subsequent disposal of other land to the child is not exempt unless, in accordance with (3), the child is liable for the full CGT that would have been chargeable on transfer to him/her but for subs (2).

Section 604 Disposals of principal private residence

Is there CGT on the sale of a main residence?

(1)-(3) A gain accruing on the disposal of a main residence dwelling is exempt, provided that the vendor occupied or is deemed to have occupied the residence throughout his/her period of ownership, with the exception of the last 12 months of ownership.

If the vendor had different interests in the residence at different times, his/her period of ownership is taken to begin at the time of the first acquisition cost that would be allowable in computing a gain on the disposal of the property.

Up to one acre of adjoining grounds may be included as part of the residence. If part of the grounds are occupied with the residence, and part is not, the part most suitable for enjoyment with the residence is deemed to be part of the residence.

Dwelling

“Dwelling” includes a wheelless caravan (with water, electricity and telephone services) on bricks, that is permanently occupied: Makins v Elson, [1977] STC 46, but not a wheeled caravan (with no water or electricity) that is only periodically visited: Moore v Thompson, [1986] STC 170.

Residence

The word “residence” has its normal meaning and for an individual this is a dwelling in which he/she habitually lives; in other words it is his/her home. It follows that actual physical occupation of the dwelling-house by the individual is necessary before a claim can be accepted that it is or was his/her residence. Whilst each case must depend on its own facts, a dwelling-house should not be regarded as an individual’s residence where the occupation is on a purely temporary basis. For example, an individual may acquire a house and then decide not to make it her/his residence and before disposing of it may arrange to make use a second house as home so that the first house clearly never was the main residence. The owner may stay in the first house for a very short period in an attempt to show that it was his/her main residence. Exemption would not be granted in respect of such a period of nominal occupation. Similarly, a few nights spent in a house whilst repairs and redecoration are carried out prior to its disposal would not be sufficient to establish a claim for exemption.

A “residence” need not be an owner-occupied house, etc. It may be:

(a) rented accommodation, whether a house, flat or a single room, provided that it is a place of abode of some permanence,

(b) a club or hotel room where this is adequate as a “home” and is not merely a temporary arrangement,

(c) a weekend or holiday house or cottage or a house, etc., intended primarily for retirement but actually occupied intermittently,

(d) accommodation provided in connection with employment, etc.

(Inspector Manual 19.7.3).

Garden or grounds

A caretaker’s lodge was regarded as part of the main dwelling in: Batey v Wakefield, [1981] STC 326, and Williams v Merrylees, [1987] STC 445, but a bungalow built some distance from the main residence was not in: Markey v Sanders, [1987] STC 256, and Lewis v Rook, [1992] STC 171.

This relief does not apply to the disposal of an adjoining self-contained flat, even if occupied by children and guests of the family: Honour v Norris, [1992] STC 304.

“Grounds” means grounds disposed of with the dwelling, not sold separately at a later time: Varty v Lynes, [1976] STC 508.

“Required for the reasonable enjoyment” did not include 7.56 hectares for horses: Longson v Baker, [2001] STC 6.

The relief does not apply to land which, immediately before the disposal, was not part of the garden or grounds of the house. An adjoining plot of land which, although in the same ownership, was never incorporated in the garden should not be regarded as qualifying. Land which is physically separated from the house (e.g., land on which a garage stands which is separated from the house by a public road) should, however, be included in the exemption when it is disposed of with the house, if it is “attached” to the house in the general sense and would normally be regarded by a purchaser as being part of the dwelling-house “set-up”.

Where part of the garden or grounds is disposed of but the house is retained, exemption is available if the total area of land occupied with the house is not more than one acre. If the total area of land before the sale was more than one acre, the sale of part of the land should be regarded as prima facie evidence that such land in excess of one acre was not required for the reasonable enjoyment of the residence. Exemption is only to be denied in respect of a gain on the disposal of any land in excess of one acre. For instance, relief should be refused altogether to an individual selling half an acre out of a garden of 2½ acres but only to the extent of one-quarter of an acre to an individual selling half an acre out of a garden of 1¼ acres.

Where a dwelling-house together with its garden or grounds is disposed of but some part of the land which was formerly part of the garden is retained and later sold to a different buyer, the exemption extends to the first disposal only. The second does not comprise the disposal of “a dwelling-house” or land which the person occupies with a residence (Inspector Manual 19.7.3).

Ownership period

The residence must have been occupied throughout the period of ownership: Green v IRC, [1982] STC 485.

In Goodwin v Curtis, [1998] STC 475, relief was denied to a claimant who occupied the farmhouse for only 32 days, as the dwelling had been pre-sold prior to its occupation and the occupation did not have a “sufficient degree of permanence”.

Where the owner has had different interests at different times, for example, where he/she first acquired a lease of the property in consideration of a premium and subsequently acquired the freehold, his/her period of ownership dates from the date of acquisition of the lease, i.e., the first acquisition. If, however, his/her first occupation was by virtue of an annual tenancy (i.e., on which there was no expenditure in connection with the acquisition of an asset), his/her period of occupation would date from his/her acquisition of the freehold (Inspector Manual 19.7.3).

Does the relief apply if the residence was not occupied for the full ownership period?

(4) Where the owner did not occupy the residence throughout the ownership period, only the part of the gain represented by the occupation part of the ownership period is exempt. In apportioning the gain, the last 12 months are taken as part of the total ownership period, and as part of the occupation period.

The balance of the gain is chargeable.

Is a period of absence due to employment treated as aperiod of residence?

(5) Yes. Where the owner lived in the residence before and after a period of absence due to:

(a) employment abroad, or

(b) enforced absence from the residence (up to a maximum of four years) imposed by your place of work or employment conditions,

she/he is treated as having lived in the residence during the period of absence.

An interval which does not exceed 12 months between the acquisition and physical occupation of a house as the only or main residence should be regarded as part of the period during which the house is occupied as the main residence, provided that the reason for the delayed occupation is:

(a) the execution of alterations, redecorations, etc., or

(b) the continuing occupation of the previous residence whilst arrangements are being made to sell it.

In addition to the above, any period of absence during which both of the following circumstances apply:

(a) the owner would normally live alone, but was receiving care in a hospital, nursing home or convalescent home or was resident in a retirement home on a fee paying basis and

(b) the private residence remained unoccupied,

should be treated as a period of occupation and, provided that all the other conditions of section 604 are met, full principal private residence relief should be granted.

Where the residence was occupied rent free, during a period of absence as in (a) above, by a relative of the owner, for the purpose of security or maintaining it in a habitable condition, the claim should be admitted.

When an individual acquires land and has a house built on it, if the house is completed within a year of the date of acquisition and occupied as her/his only or main residence on completion, the period from the date of the acquisition of the land to the physical occupation of the house may be regarded as part of the period of occupation as main residence for exemption purposes. (Inspector Manual 19.7.3).

Example

On 1 January 2001, you (as a single person) bought an apartment in Ballsbridge in Dublin for €40,000.

You lived in the apartment until 1 April 2001, when you took up employment in the USA for one year, and Canada for another year. During your time abroad, the apartment was occupied rent-free by your younger sister.

You returned to the apartment on 5 May 2003, and lived there until 1 June 2004, when you were required by your employer to move to Cork for two years.

You returned to the apartment on 10 June 2006, and lived there until 31 May 2007.

You rented the apartment from 1 June 2007 to 31 May 2009.

You sold the apartment on 1 June 2009 for €200,000.

The potential gain is:
Proceeds (tax year 2009) 200,000
Cost 40,000
Gain 160,000

Even though you only lived in the apartment for less than 14 months, the entire gain is exempt, as you are treated as having occupied the apartment throughout the ownership period.

Note

1. Had you not resided in the apartment before and after each period of absence, tax would arise on the entire gain.

2. If the period of absence from the apartment due to your employment conditions had exceeded four years, relief would be restricted to four years. In this example, the period in Cork (three years) is not therefore restricted.

What happens if part of a dwelling house is used for business?

(6) A gain on a residence used partially (but exclusively as regards that part) for business purposes is to be apportioned between the residential part of the gain and the business part of the gain. Only the residential part is exempt.

Inspector Manual 19.7.3.

How is the exempt part of a gain calculated where there has been a change to the house or a change of use?

(7) The exempt part of a gain on the disposal of a residence may be adjusted by agreement with the inspector to reflect change in ownership or change of use. In the event of a dispute, the Appeal Commissioners may make the adjustment.

Where, at any time during the period of ownership and for whatever reason, there has been a change in the extent of the occupation as a private residence, the gain should be apportioned in any just and reasonable way (having regard to the different extents of residential occupation and the relevant periods) and the relief restricted accordingly (Inspector Manual 19.7.3).

How is the main residence determined?

(8) An owner may only claim exemption on the disposal of one main residence at any one time. His/her main residence (where there is more than one residence) may be decided:

(a) By writing to the inspector within two years of the start of the (ownership) period, stating which is the main residence.

(b) By the inspector, where no agreement has been reached. The inspector’s decision may be appealed within 21 days of receipt of the notice of his/her decision.

The two year period begins with the ownership period of the most recently acquired residence: Griffin v Craig Harvey,[1994] STC 54.

Example

1983 You buy (and use as your only residence,) property A.

1990 You buy a second property, property B, which you also use as a residence but it is agreed with the inspector that property A is your main residence.

01.06.2008 You contemplate selling property B at a substantial gain, and because property A is not appreciating in value at the same rate, you give notice, and it is agreed to have property B treated as your main residence. You should then be treated as if property B became your main residence in June 2006 (i.e., two years before the second notice), and the gain should be apportioned.

If property A is later disposed of, the period of two years from June 2006 should be excluded from your period of occupation of it as a private residence.

Source: Inspector Manual 19.3.7 (updated)

How does the relief apply for a married couple?

(9) A married couple may only have one main residence. If they have more than one residence, they must jointly agree which is the main residence and notify the inspector accordingly.

The ownership period for a main residence acquired from a spouse, including on a death, is treated as beginning when the spouse acquired the residence.

One spouse’s ownership period is treated as the other’s ownership period for the purposes of the ownership test.

Both spouses must be notified of an inspector’s decision as to which is the main residence, and each of them has a right of appeal against that decision.

Can a trust avail of the residence exemption?

(10) A gain on the disposal of a residence which is trust property is exempt if, throughout the ownership period, the residence was occupied by a beneficiary of the trust entitled to occupy it.

Where you are such an occupant, but you have two or more residences, the trustee and you must make a joint statement to the inspector as to which is your main residence.

A beneficiary entitled to occupy a residence under the terms of a discretionary trust was entitled to this relief in:Sansom v Peay, [1976] STC 494.

Does a residence of a dependent relative qualify as a principal private residence?

(11) This relief also applies on the disposal of a residence occupied, as a sole residence, by a dependent relative. The residence must have been provided to the owner gratuitously, i.e., rent-free, and without any consideration being paid.

Dependent relative, in this context, means:

(a) an individual’s relative, or his/her spouse’s relative, who is unable to look after him/herself because of age or infirmity,

(b) the owner’s widowed parent or his/her spouse’s widowed parent,

(c) the owner’s parent or his/her spouse’s parent who is a surviving civil partner.

An owner may only claim exemption on the disposal of one dependent relative’s residence at any one time.

A husband and wife assessed jointly may each qualify for relief in respect of a house provided to a dependent relative: Inspector Manual 19.7.3.

Does the relief apply where part of the gain relates to development land?

(12) To the extent that a gain on the disposal of a residence is due to its development potential, the gain is taxed as a disposal of development land (section 648).

The gain appropriate to the current use value (section 648) of the residence (the gain that would have arisen if the residence had no development potential) remains exempt.

The exempt part of the gain is arrived at by excluding the “development element” from the computation of the gain:

(a) As at the base date (acquisition date or 6 April 1974), the excess of the residence’s base value (acquisition cost or market value at 6 April 1974) over its current use value.

(b) As at the disposal date, the excess of the disposal proceeds over the residence’s current use value.

(c) Where the residence was acquired since 6 April 1974, the appropriate portion of the incidental acquisition costs.

(d) The appropriate portion of the incidental disposal costs.

If the total consideration accruing to you in a tax year from development land disposals does not exceed €19,050, and the gain would otherwise be exempt under (2) or (11), the development land rules mentioned do not apply. This limit is to maintain full relief for small disposals, for example due to road widening.

Example

01.01.2003 You and your spouse bought your home for €30,000.

The home acquired development value.

01.05.2009 You sold it for €750,000.

The incidental disposal costs were €10,000.

Had the house not acquired any development value, its current use value would have been €250,000.

The gains are computed as:
750,000 250,000
Less incidental disposal costs 10,000 3,333*
Net proceeds 740,000 246,667
Cost
€30,000 30,000 30,000
710,000 216,667
Gain (exempt)
Deduct exempt part of gain 216,667
Chargeable gain 493,333

*10,000 x (250,000/750,000)

Can disposal proceeds be apportioned where necessary?

(13) Yes, for example, disposal proceeds of a dwelling only part of which is a main residence, must be apportioned between the residential part of the dwelling and the non-residential part.

Are there circumstances where the relief does not apply?

(14) This relief does not apply where:

(a) the residence was acquired (mainly) to make a gain on its disposal, and

(b) the gain can be attributed to expenditure incurred in the ownership period to make a gain on the disposal.

Section 604B Relief for farm restructuring

What definitions apply to relief for farm restructuring?

(1) Agricultural land is farming land but does not include buildings on the land.

Qualifying land is land in respect of which Teagasc has issued a farm restructuring certificate, that is a certificate confirming that the first purchase or sale occurs in the relevant period (1 January 2013 to 31 December 2016) and the second sale or purchase occurs within 24 months of the first and that the sale and purchase or exchange complies with guidelines relating to farm restructuring.

What relief is given?

(2) Relief from CGT is given if the consideration for the land purchased or exchanged is equal to or greater than the consideration for the land sold or exchanged.

What if the consideration is less?

(3) If the consideration for the land purchased or exchanged is less than the consideration for the land sold or exchanged (i.e. if the full proceeds are not reinvested) the relief from CGT is reduced proportionately.

Example

Land sold 6 June 2013:
Consideration 100,000
Cost 50,000
Gain 50,000
Land purchased 9 September 2013
Cost 80,000
Relief on €50,000 x 8/10 = 40,000

Is there a holding period for the new land?

(4) Yes. If the land in respect of which relief has been given is disposed of within 5 year the relief is clawed back.

What if the land is compulsorily acquired?

(5) There is no claw back of relief if the land is compulsorily acquired.

How is relief given?

(6) It is given by discharge or repayment of tax.

Section 604C Exemption of certain payment entitlements

To what does this section apply?

(1) This section applies to the disposal by farmers of payment entitlements under the Single Payment Scheme. These disposals occurred as a result of a change to Common Agricultural Policy regulations.

What relief is given?

(2) Disposals of such entitlements in the scheme year 2014 will be exempt from CGT where the land giving rise to the entitlements was fully let in the scheme year 2013.

Section 605 Disposals to authority possessing compulsory purchase powers

What rules applied to disposals of property before 4 December 2002 under a CPO to a local authority?

(1) A gain on a disposal of property before 4 December 2002 under a compulsory purchase order to a local authority may be deferred if the disposal proceeds are used to acquire similar property in the State, i.e., replacement assets of a similar class to the original assets. In effect, the replacement assets are treated as if they were the original assets.

Example

01.06.2001 You are a farmer who received €50,000 in respect of land compulsorily acquired by your local authority for road widening.

01.06.2001 You used the proceeds to buy replacement farm land for €50,000.

The replacement land is treated as if it were the original land. If the replacement land is sold, its cost is the cost of the original land, as indexed from the date the original land was acquired.

If more than the disposal proceeds are used to acquire the replacement assets, how is the excess treated?

(2) If more than the disposal proceeds is used to acquire the replacement assets, the excess is to be treated as the acquisition cost of the appropriate part of those assets. The balance of the replacement assets is identified with the original assets.

If less than the disposal proceeds are used to acquire the replacement assets, how do I treat the amount not reinvested?

(3) If less than the full disposal proceeds is used to acquire the replacement assets, the part of the proceeds not reinvested is treated as a part disposal of the original assets. The balance of the original assets is identified with the replacement assets.

Example

01.06.2001 You are a farmer who received €50,000 in respect of land compulsorily acquired by your local authority for road widening. The land in question had been bought in August 2006 for €20,000.

01.08.2001 You bought replacement farm land for €45,000. The other €5,000 was used to pay off a loan.

The €5,000 is treated as a part disposal, and the gain is calculated as:

Proceeds (tax year 2001) 5,000
Cost €20,000 x (5,000/(5,000 45,000)) = 2,000
Gain 3,000

Are there time limits for the acquisition of the replacement asset?

(4) This relief only applies where the replacement asset is acquired within the four year replacement period beginning 12 months before, and ending three years after, the disposal of the old asset.

Nevertheless, relief may be provisionally claimed if an unconditional contract to acquire the new asset has been agreed.

The four year replacement period may be varied by written notice from the Revenue Commissioners.

What rules apply where the original assets compulsorily acquired were let as farm land before disposal?

(4A) This rule applies where the original assets consist of compulsorily acquired land that was let as farm land during the five year period ending on the disposal date, and was first used by the person disposing of it for his farming trade during the 10 year period preceding the first letting.

In such case, the assets may be treated as being within Class I (subs (5)). In other words, rollover relief is given if the proceeds are reinvested in farmland or in fixed assets of a new trade.

What classes of assets are there for compulsory purchase relief?

(5) There are two classes of assets for compulsory purchase relief.

Class 1: Trade assets consisting of:

(a) plant and machinery,

(b) land and buildings (but not as “stock” of a trade of dealing in land, although a disposal of land used as a fixed asset by a dealer in land qualifies for relief),

(c) goodwill.

Class 2: Any other land or buildings (but not a residence for which you as the person making the disposal would be entitled to principal private residence relief under section 604).

Note

(b) A gain arising on a disposal of development land (section 652) to a local authority having compulsory purchase powers qualifies for rollover relief if the land was occupied and used only for farming. There is no requirement that the disponer has to have farmed the land himself; let land can qualify so long as it has been occupied and used by the lessee for farming purposes (Revenue Precedent G85(A)(14), 11 February 1997).

Section 606 Disposals of work of art, etc, loaned for public display

When does relief apply for works of art loaned for public display?

(1) This relief applies to works of art (including books, jewellery, manuscripts, pictures, prints, sculptures) having a value of not less than €31,740 when loaned to:

(a) the Irish Heritage Trust (section 1003A), or

(b) a gallery or museum which is approved by Revenue for this relief.

Revenue may consult with appropriate experts to ensure a work has a value of not less than €31,740.

The public must have reasonable access to the work of art during the loan period (the qualifying period), which must not be less than 10 years.

The work of art need not be on display for the entire loan period. Reasonable access appears to mean that an exhibition admission price should not be excessive, and that the work of art should be displayed at normal admission times.

How is a disposal of art previously lent to a gallery or museum treated?

(2) A disposal of a work of art, if previously lent to a gallery or museum for a qualifying period, is treated for capital gains tax purposes as giving rise to no gain/no loss.

Section 607 Government and certain other securities

What securities are exempt from CGT?

(1) Gains arising on the disposal of the following assets are exempt:

(a) Government securities issued under the authority of the Minister for Finance.

(b) Local authority stocks, and harbour authority stocks.

(c) Land bonds issued under the Land Purchase Acts.

(d) Securities and bonds issued by:

(i) The Electricity Supply Board,

(ii) Bord Gáis Éireann and its gas network company,

(iii) Irish Water,

(iv) Radio Telefís Éireann,

(v) Córas Iompair Éireann,

(vi) Bord na Móna,

(vii) Dublin Airport Authority.

(e) Securities issued by the Housing Finance Agency.

(f) Securities issued by a body designated under the Securities (Proceeds of Certain Mortgages) Act 1995 section 4(1).

(g) Securities issued in the State by EU bodies:

(i) The European Economic Community,

(ii) The European Coal and Steel Community,

(iii) The International Bank for Reconstruction and Development,

(iv) The European Atomic Energy Community,

(v) The European Investment Bank,

(h) Securities issued by An Post (guaranteed by the Minister for Finance).

Is a gain on the disposal of a future contract in respect of securities exempt?

(2) A gain on the disposal of an unconditional future contract in respect of any of the listed securities is also exempt, if the contract terms require delivery of the security deeds.

Nevertheless, in the case of a future contract traded on an exchange, the deeds will be treated as having been delivered if one of the parties enters another future contract, and settles the old contract by cash, through the exchange.

A gain arising on the disposal of foreign currency under a hedging contract linked to “section 44” securities is not exempt under section 607. The section 44 securities and the foreign currency are separate assets.

Section 608 Superannuation funds

What is an investment for the purpose of superannuation funds?

(1) “Investment” in the context of (2) includes a financial futures contract, or a traded option, that is quoted on any futures exchange or stock exchange. This reference appears to be obsolete as “investment” is no longer mentioned in (2).

Is there CGT on the disposal of assets held in a Revenue approved pension of a PRSA?

(2) A gain on the disposal of assets which are held in a Revenue approved pension fund, or as PRSA assets, is exempt.

Is a provider of occupational pension schemes for employers/employees in other EU States exempt from CGT?

(2A) A provider of occupational pension schemes for the benefit of employers/employees located in other EU States is exempt (section 790B).

Does the CGT exemption apply where only part of the pension fund is Revenue approved?

(3) If only part of the pension fund is Revenue approved, the gain is exempt to the extent that it derives from investments held by that part.

Is the Oireachtas pension fund a Revenue approved pension fund for this relief?

(4) The Oireachtas pensions fund is deemed to be a Revenue approved pension fund for this purpose.

See also: Inspector Manual 19.7.5.

Section 609 Charities

Are charities liable to CGT?

(1) A gain accruing to a charity is exempt, provided that it is applied for charitable purposes.

Meaning of charitable purposes: see section 207 (notes).

The gain must accrue to the charity. In Prest v Bettinson, [1980] STC 607, where the estate’s executors were instructed to sell properties and give the proceeds to five charities, the gains accrued to the executors although the proceeds went to the charities.

“Charitable purposes” includes application for the benefit of a different charity: IRC v Helen Slater Charitable Trust Ltd,[1981] STC 471.

Where a charity is a residual legatee of an asset of a deceased person, the charity has no interest in the property prior to the date of ascertainment of the residue: The King v Special Commissioners, ex parte Dr Barnardo’s Homes National Incorporated Association, (1921) 7 TC 646. Consequently, the exemption applies only to gains accruing to the charity on the disposal of an asset after that date. Chargeable gains accruing before that date are gains of the executors and chargeable on them (see also section 573).

What happens where property is held by a trust which ceases to be a charitable trust?

(2) Property held by a trust which ceases to be a charitable trust is treated as having been disposed of and immediately reacquired by the charity, at market value. The gain on such a deemed disposal is not exempt.

Any tax due may be assessed up to 10 years after the property ceases to be held under charitable trust.

Section 610 Other bodies

What bodies are exempt from CGT?

(1) A gain accruing to any of the bodies listed in Schedule 15 Part 1 is exempt.

Are any other bodies exempt from CGT?

(2) A gain accruing on a disposal by a body listed in Schedule 15 Part 2 to the Interim Milk Board is also exempt.

Under Article 49 of the Convention on Consular Relations, diplomatic exemption is given to the head of a consular post and his/her staff: Inspector Manual 19.7.7.

Section 610A Exemption for proceeds of disposal by sports bodies

How are gains accruing to an amateur sports body treated?

(1) A gain accruing to an approved body (see (6)) is exempt from CGT if

(a) the proceeds are used solely to promote athletic or amateur games or sports, or

(b) for disposals on or after 1 January 2005, part of the proceeds is paid to a charity.

The proceeds of a disposal by an approved sports body must be applied for sporting purposes within five years.

How does a sports body get exemption for donations to charity?

(2) A gain accruing to an approved body (see (6)) is exempt from CGT if the proceeds are donated for charitable purposes within five years of receipt, and

(a) the sports body has applied to the Minister for Finance for approval to make the donation and has specified the charity concerned,

(b) there is a deed which states that the donation can only be applied for the purposes of the charity, and

(c) neither the donor nor any person connected with the donor receives a benefit, in consequence of making the donation.

Can the Minister refuse to approve a donation by a sports body?

(3) The Minister for Finance may refuse to approve a donation if he believes the donation would not serve the public good.

Can Revenue extend the five year limit for sports bodies?

(4) The five year limit mentioned in (1) may be extended if the body can show that it is in the process of using the proceeds for sporting purposes.

Can Revenue extend the five year limit for charities?

(5) The five year limit mentioned in (1) may be extended if the charity can show that it is in the process o making a donation for charitable purposes.

What is an approved body?

(6) An approved body means a body established to promote amateur or athletic games or sports.

Section 611 Disposals to State, public bodies and charities

How is a disposal of an asset to the State, a charity or another public body treated?

(1) The disposal of an asset, other than at arm’s length, to the State, a charity, or a listed national cultural institution is not to be treated as made at market value.

Where such a disposal is a gift, or would give rise to an allowable loss, it is treated as giving rise to no gain/no loss.

A charity (or national institution) that makes a chargeable gain on a later disposal of such a gift received is also to be charged with the tax due on the earlier disposal to itself.

This rule, which was originally introduced from 20 December 1978, also applies where the earlier disposal was made to a charity before, and the later disposal was made after, that date.

The tax to be assessed relating to the earlier disposal is the tax “saved” as a result of this exemption.

Example

01.01.2003 You bought a country estate for €200,000.

01.01.2006 You made a gift of the estate (when it was worth €1.6m) to a Revenue approved charity. The disposal is treated as giving rise to no gain/no loss.

01.06.2009 The charity sold the estate for €2m.

The gains are:

First disposal (1 January 1996)
Proceeds 1,600,000
Cost 200,000
Gain 1,400,000
Potential CGT at 20% 350,000
Second disposal (1 June 2009)
Proceeds 2,000,000
Cost 1,600,000
Gain 400,000
CGT at 25% 100,000
Total CGT 450,000

What rules apply to a trustee who is regarded as having disposed of and re-acquired property under this section?

(2) Where a trustee is regarded as having disposed of, and immediately re-acquired:

(a) trust property at market value as the nominee of a beneficiary (being the State, a charity, or a national cultural institution that has become “absolutely entitled as against the trustee” to that property,

(b) any part of that trust property that remains trust property held by the State, a charity, or a national cultural institution where a life interest in trust property ceases,

the deemed disposal is treated as giving rise to no gain/no loss.

Section 611A Treatment of certain disposals made by The Pharmaceutical Society of Ireland

What is the tax treatment of assets disposed of by the Old Pharmaceutical Society to the New Pharmaceutical Society?

(1)-(2) No gain or loss arises. The assets are treated as having been acquired by the New Society at the time they were acquired by the Old Society.

Section 612 Scheme for retirement of farmers

Is money received under the EU Farmer’s Retirement Scheme taxed?

No.

Section 613 Miscellaneous exemptions for certain kinds of property

What types of gains are exempt?

(1) The following gains are exempt:

(a) Instalment Savings Scheme bonuses.

(b) Prize bond winnings.

(c) Compensation for damages or personal injury.

(d) Magdalen laundry payments.

Is there tax on lottery or betting winnings?

(2) No – lottery and betting winnings are also exempt.

What other types of gains are exempt?

(3) The following gains are also exempt:

(a) A gain on the disposal of pension rights.

(b) A gain on the disposal of an annuity (but not a deferred life annuity).

(c) A gain on the disposal of rights to payments under a covenant (where such rights are not secured on any property).

Note

(c) Covenant, in this context, means “a unilateral … enforceable promise” (i.e., a gratuitous promise) as distinguished from an “agreement” supported by consideration: Rank Xerox Ltd v Lane, [1979] STC 740. In that case, Rank Xerox were held not to be entitled to the exemption.

Am I liable for tax when I dispose of an interest in settled property as beneficiary?

(4) The disposal of an interest in settled property (for example, an annuity, a life interest or a future interest), by you as the beneficiary entitled thereto, is exempt.

A disposal made by any other person who acquired the interest is also exempt, provided you as the acquirer did not pay for the acquired interest, except by way of an interest under that settlement.

As a beneficiary who has become “absolutely entitled as against the trustee” to trust property, you are treated as having disposed of your interest in that property. The disposal by you is exempt. It is the deemed disposal by the trustee which is charged to tax (section 576(1)).

Are there circumstances where a disposal of an interest in settled property is not exempt?

(5) Where you dispose of an interest in settled property as the beneficiary who is entitled to that interest, the disposal is not exempt if:

(a) the trustees are neither resident nor ordinarily resident in the State,

(b) there has been a time when the trustees of the settlement were neither resident nor ordinarily resident in the State, or were regarded as resident for tax purposes in a country with which Ireland has tax treaty arrangements, or

(c) the settlement property includes property that derives directly or indirectly from a settlement within (b).

Is compensation received by turf-cutters subject to CGT?

(7) Compensation received by turf cutters under the Turf Cutting Compensation Scheme is not chargeable.

Section 613A Supplementary provisions

When does section 613 not apply?

(1) The rule in (2) applies where:

(a) the disposal of an interest in a trust after that trust has become non-resident (section 579B) is not exempt (section 613(5)(a)) because the trustees are neither resident nor ordinarily resident in the State, and

(b) the interest was created for the benefit of (or otherwise acquired by) the disponer, before the trust became non-resident (the relevant time).

Does the exemption apply where a trust is or was non-resident?

(2) The disponer is deemed to have disposed of the interest in the trust and to have immediately re-acquired it at market value immediately before the trust became non-resident (the relevant time).

This removes the section 613 exemption in the case of a trust that is or ever was “offshore”, i.e., non-resident.

Are there exceptions to these deemed disposal and re-acquistion rules?

(3) The deemed disposal and re-acquisition rule in (2) does not apply if:

(a) on ceasing to be resident in the State, the trustees became resident in a tax treaty country (section 579E), and

(b) the trustees ceased to be resident in the State before the interest was created for the benefit of (or otherwise acquired by) you as the disponer.

How is a disponer taxed where subs (6) applies?

(4)-(6) The disponer is deemed to have disposed of the interest in the trust and to have re-acquired it at market value immediately before the trustees became resident in a tax treaty country (the time concerned), or if there is more than one such time, the earliest such time.

This rule applies where:

(a) the disposal of an interest in a trust after that trust has become non-resident (section 579B) is not exempt (section 613(5)(a)) because the trustees are neither resident nor ordinarily resident in the State,

(b) the interest was created for the benefit of (or otherwise acquired by) the disponer before the trust became non-resident, and

(c) the trustees became resident in a tax treaty country (section 579E) within the relevant period, i.e., between the date the interest was created for the benefit of (or otherwise acquired by) the disponer and the date the trust became non-resident.

This removes the section 613 exemption in the case of a trust that is or ever was outside the charge to Irish tax by virtue of the terms of a tax treaty.

(7)-(8) If the rule in (2) applies, the rule in (6) does not apply.

Section 614 Capital distribution derived from chargeable gain of company: recovery of tax from shareholder

What is meant by a “capital distribution”?

(1) A capital distribution means a company distribution (including a distribution on a winding up) other than a distribution which is taxed as income of you as the recipient.

When do the capital distribution rules apply?

(2) These rules apply where a capital distribution that derives from, or consists of, a disposal on which a chargeable gain arose to the company, is paid to a person connected with the company.

The capital distribution must not represent a reduction of capital of the company.

Can the person receiving a capital distribution be made liable if the company fails to pay tax on its gain?

(3) If the corporation tax payable by the company in respect of the gain remains unpaid six months after the due date, the company gain may be charged within two years of the due date on the person who received the capital distribution.

The tax charged the connected person may not exceed:

(a) the capital distribution you received, and

(b) his/her proportionate share of the tax on the gain, at the tax rate applied to the company.

 Can this tax be recovered from the company?

(4) Tax paid by a connected person may be recovered from the company.

Is a connected person’s own liability affected by this section?

(5) These rules do not affect a connected person’s own liability to tax in respect of the capital distribution (section 583) to the extent that it represents a disposal of shares.

Section 615 Company reconstruction or amalgamation: transfer of assets

How are assets transferred as part of a scheme of reconstruction or amalgamation treated for tax?

(1)-(2) If, as part of a scheme of reconstruction or amalgamation involving the transfer of all or part of a company’s business to another company:

(a) at the time of the transfer, either

(i) the acquiring company is resident in the State, or the transferred assets are chargeable assets in relation to that company, and

(ii) the transferring company is resident in the State, or the transferred assets are chargeable assets in relation to the transferring company, and

(b) the transferring company receives no consideration for transferring its business to the other company, other than takeover of liabilities,

then any assets involved in the transfer are to be treated as having been disposed of at no gain/no loss, and the acquiring company is treated as having acquired those assets at the same time, and for the same value, that the transferring company acquired them.

An asset is a chargeable asset in relation to a company if a chargeable gain would arise to the company on its disposal.

A company means a company which is resident for tax purposes in an EU Member State or a State in the European Economic Area (EEA) according to the law of that State.

Transfer of business assets

Section 615 operates where, on a reconstruction or amalgamation, a company takes over the whole or part of the business of another company and that other company receives no consideration for the transfer of the business other than the taking over of its liabilities. The section provides that no corporation tax is to be charged in respect of chargeable gains accruing to the transferor company, but the transferee company is to be treated as if it had acquired the assets at the time and the price at which they were acquired by the transferor company.

Where a bona fide reconstruction takes place to which the provisions of 615 apply, it is not the practice of Revenue to invoke a distribution charge under Section 130: Tax Briefing 48.

From 18 February 2008:

Normally CGT may be deferred where an asset is transferred within a CGT-group.

The deferral is denied where the transferee is an authorised investment company within the gross roll-up regime or an ICAV.

Do the no gain/no loss rules apply to transfers of trading stock?

(3) These rules do not apply to trading stock (section 89) of the transferring company, or assets which become trading stock of the acquiring company.

Can market value apply to the transfer of an intangible asset?

(4) Yes. The transferor and the transferee of an intangible asset (section 291A) may jointly elect that the “no gain no loss” treatment under this section does not apply to the transfer. The election must be given within 12 months of the end of the accounting period in which the transferee acquired the asset.

Once the election is made, the transfer is treated as having been made at the asset’s market value on the transfer date.

Is there an anti-avoidance provision?

(4A) The deferral will not apply unless the reconstruction or amalgamation that transferred assets to another company is shown to be for bona fide commercial reasons and not part of an arrangement for the purpose of tax avoidance.

Section 616 Groups of companies: interpretation

What is a chargeable gains group?

(1) From 1 July 1998, a chargeable gains group (CG group) consists of a company which is resident for tax purposes in an EU State or an EEA State according to the laws of that State, i.e., a principal company and its (EU-resident)effective 75% subsidiaries. (This definition of a group is referred to in section 623A and section 625A as the new definition).

Before 1 July 1998, a chargeable gains group consisted of an Irish resident principal company and its Irish resident75% subsidiaries. (This definition of a group is referred to in section 623A and section 625A as the old definition).

A company is an effective 75% subsidiary of a parent company if:

(a) the parent owns, directly or indirectly, 75% or more of the first company’s ordinary share capital (section 9),

(b) the parent is entitled to at least 75% of the subsidiary’s profits (section 414) available for its equity holders(section 413), and

(c) at least 75% of the assets available for its equity holders on a notional winding up (section 415).

An asset is a chargeable asset in relation to a company if a chargeable gain would arise to the company on its disposal.

What is regarded as a “company” in the context of groups of companies?

(2) In this context, a company means:

(a) a company formed under Irish company law,

(b) a company formed under foreign company law,

(c) a registered industrial and provident society,

(d) a building society.

Does a company cease to be a member of a capital gains group where the principal company becomes an effective 75% subsidiary of another company?

(3) No. A company does not cease to be a member of a capital gains tax group merely because the principal company becomes an effective 75% subsidiary of another company.

What happens where a CG group’s principal company becomes an SE or SCE?

(3A) This subsection deals with the situation where a chargeable gains group’s principal company becomes an SE or an SCE. In such a case, any “old” group of which the principal company was a member is treated as identical with the “new” group of which the SE/SCE is a member

Does a company cease to be a CG group member when it is being liquidated?

(4) No. A company (or any of its effective 75% subsidiaries) does not cease to be a member of a capital gains tax group merely because it is being liquidated.

Do these group provisions apply to industrial bodies under national ownership?

(5) Yes.

What apportionment rules apply for transfers between companies in a CG group?

(6) As regards transfers between companies in a chargeable gains group:

(a) On a part disposal of an asset, deductible expenditure is apportioned between the part of the asset disposed of, and the remaining part, before the transfer is treated as giving rise to no gain/no loss.

(b) Where a close company transfers an asset to another group member, other than at arm’s length, for less than market value, the shortfall is not to be apportioned among the transferor’s issued shares.

Note

(a) This is to prevent the transferee acquiring a minus cost for the part asset.

What is a “relevant Member State”?

(7) A relevant Member State means an EU State or State other than EU State which is a contracting party to the European Economic Area agreement (i.e., an EEA State).

Section 617 Transfers of assets, other than trading stock, within group

What chargeable gains rules apply to a transfer of assets to another group member?

(1) This rule applies where:

(a) a member of a chargeable gains group transfers an asset to another member,

(b) at the time of the transfer the company is resident in the State, or the transferred assets are chargeable assets in relation to the company, and

(c) the acquiring company is resident in the State, or the transferred assets are chargeable assets in relation to that company, provided the company is not an authorised investment company (section 739B), a REIT or an ICAV.

In such a case, subject to the rules in (2), (3) and (4), any assets involved in the transfer are to be treated as having been disposed of at no gain/no loss, and the acquiring company is treated as having acquired those assets at the same time, and for the same value as the transferor. However, where a group member is deemed to have disposed of an asset, the deemed disposal is treated as made to a non-member, i.e., it is chargeable.

An asset is a chargeable asset in relation to a company if a chargeable gain would arise to the company on its disposal.

This relief allows certain assets to be transferred within a chargeable gains group without any chargeable gain arising. Instead the transferee takes the asset at the same time and cost at which it was originally acquired by the transferor (or first group company).

Example

Your company and X Ltd. are both members of the same group. You buy an asset for €10,000 and incur allowable expenditure in respect of it of €2,000.

You sell the asset to X Ltd. for €17,000 and incur transfer expenses of €500. X Ltd. sells the asset for €22,000 to a person who is not a member of the group.

You are treated as having disposed of the asset to X Ltd. at neither gain nor loss, i.e., for a consideration of €12,500 (€10,000 plus €2,000 plus €500).

The disposal by X Ltd. gives rise to a chargeable gain of €9,500 (€22,000 minus €12,500) before any indexation relief. The actual consideration of €17,000 for the transfer from your company to X Ltd. is disregarded.

Source: Inspector Manual 20.1.2

The subsection also covers share-for-share exchanges between two group companies: Westcott v Woolcombers Ltd, [1987] STC 600; Nap Holdings UK Ltd v Whittles, [1994] STC 979.

The relief used to be confined to chargeable gains groups all the members of which are resident and was only extended by concession where the group had non resident members provided:

(a) The transferred assets were used for the purposes of a trade that is chargeable to corporation tax.

(b) The transferee continued to carry on the trade.

(c) The transfer was for bona fide commercial reasons and not to avoid tax.

Formal undertakings were required from the transferee and the group parent in relation to the transferred asset (Revenue Precedent, G60 1 January 1978, Inspector Manual 37.0.2).

Does the exemption for intra-group asset transfers apply to group financial transactions?

(2) This exemption for intra-group asset transfers does not apply to group financial transactions, i.e.:

(a) a disposal that consists of paying off a debt,

(b) a disposal that consists of redeeming shares,

(c) a disposal in consideration of a capital distribution.

Example

1. Your company and X Ltd. are members of the same chargeable gains group.

You pay off a debt of €10,000 owed by X Ltd. to Y Ltd. (a non-group company).

You have made a disposal of €10,000.

2. Your company and X Ltd. are members of the same chargeable gains group.

You own 1,000 €5 redeemable preference shares in X Ltd. (your wholly owned subsidiary).

The shares were issued at €1 per share.

X Ltd. is wound up, and the shares are redeemed at €5 per share.

The gain on the shares (€5,000 – €1,000) accruing to you is not exempt under the chargeable gains group provisions.

3. Your company and X Ltd. are members of the same chargeable gains group. You own all the shares in X Ltd.

X Ltd. is wound up, and the net proceeds are distributed to you.

Any gain on the shares accruing to you is not exempt under the Chargeable gains group provisions.

This did not apply where, on liquidation of its subsidiary, a parent company acquired quoted shares in satisfaction of its interest in the subsidiary: Innocent v Whaddon Estates Ltd, [1982] STC 115.

How is an intra-group disposal that consists of compensation monies treated?

(3) An intra-group disposal that consists of compensation moneys is treated as having been made to the insurer or other person who must ultimately provide the consideration.

Example

Your company and X Ltd. are members of the same chargeable gains group.

You rent an asset to X Ltd. on terms that X Ltd. assumes responsibility for loss or damage to the asset.

If the asset is destroyed while insured by X Ltd., the compensation payment to you from X Ltd. is treated as a disposal of the asset by you to the insurer, not an intra-group disposal from you to X Ltd.

Is an election that the no gain/no loss rules do not apply to the transfer of an intangible asset possible?

(4) Yes. The transferor and the transferee of an intangible asset (section 291A) may jointly elect that the “no gain no loss” treatment under this section does not apply to the transfer. The election must be made, to the Collector-General, within 12 months of the end of the accounting period in which the transferee acquired the asset.

Section 618 Transfers of trading stock within group

(1) Where a group member acquires as trading stock a fixed (non-trading stock) asset of another group member, it are treated as acquiring the asset as a fixed (non-trading stock) asset, and immediately appropriating it to trading stock.

Example

Your company and X Ltd. are members of the same chargeable gains group.

You own all the shares in X Ltd.

01.01.2006 X Ltd. acquired a fixed asset for €35,000.

01.06.2009 You paid €60,000 (market value) to acquire the asset as trading stock from X Ltd.

You are treated as having acquired the asset at the cost incurred by X Ltd. (€30,000) and having immediately disposed of the asset at market value (€60,000), giving rise to a chargeable gain:

Proceeds (tax year 2009) 60,000
Deemed cost 35,000
Gain 25,000

Under the rules of section 596, if you opt to bring the trading stock asset into account at cost, assuming the asset was sold for €65,000, the adjusted gain is treated as a trading profit:

Payment 65,000
Cost 35,000
less gain not charged 25,000 10,000
Trading profit 55,000

As the company making the disposal, you are treated as having made no gain/no loss on the transaction. The acquiring company is treated as having acquired the asset at the cost incurred by the transferring company, and having immediately disposed of the asset at market value, giving rise to a chargeable gain.

However, by bringing the asset (now trading stock) into account at cost, the gain (if any) on the deemed disposal is taxed as income.

To qualify as trading stock, an asset should be of a kind normally dealt in by the company and be acquired with a view to resale at a profit: Coates v Arndale Properties Ltd, [1984] STC 637, Reed v Nova Securities Ltd, [1985] STC 124.

What happens if a trading asset in one group company is transferred to be used as a capital asset in another?

(2) Where a group member disposes of an asset which was trading stock, but is a capital asset for the transferee (another group member), the transferor is treated as having immediately before the disposal appropriated the asset other than as trading stock.

Example

Your company and X Ltd. are members of the same chargeable gains group.

You own all the shares in X Ltd.

01.01.2005 X Ltd. acquired a trading stock asset for €30,000.

01.01.2006 X Ltd. transferred the asset to you at cost, as a fixed (non-trading stock) asset, when the asset was worth €50,000.

01.06.2009 You sold the asset for €55,000, giving rise to a chargeable gain:

Proceeds 55,000
Deemed cost 50,000
Gain 5,000

The appropriated trading stock asset is treated as having been acquired by the company making the disposal at book value. The asset is treated as transferred as a fixed (non-trading stock) asset.

See also section 596.

Who can obtain relief on the transfer of trading stock within a group?

(3) The relief provided by this section applies to:

(a) a trade carried on by a company resident in the State, and

(b) a trade carried on through a branch or agency in the State by a non-resident company.

Section 619 Disposals or acquisitions outside group

(1) Where an asset acquired at no gain/no loss (section 617) by a group member from another group member is disposed of outside the group at a loss, all previous group members’ capital allowances claimed on the asset are to be taken into account in restricting the loss (section 555).

How do the indexation rules apply to a disposal outside the group of an asset acquired from another group member?

(2) This rule applies where a group member makes a disposal outside the group of an asset acquired from another group member at no gain/no loss (section 617). The member making the disposal is regarded as acting for the entire group, and is treated as having acquired the asset when it was first acquired by the group (i.e., another group member).

However, development land transferred within the group before 24 April 1992 is treated, on a subsequent disposal outside the group, as having been acquired at the time of transfer to the disposing member (not when first acquired by the group).

Section 620 Replacement of business assets by members of group

(1) Rollover relief allows a gain on the disposal of an asset used for the purposes of a trade (the old asset) to be deferred until the new asset (which replaces it) is disposed of.

How does rollover relief apply within a group?

(2) For the purposes of rollover relief (section 597), all trades carried on by a capital gains tax group are treated as a single trade. Other group members may therefore be treated as having reinvested the disposal proceeds in new assets (to the extent that the assets are not transferred by a member to another member).

Example

Your company and X Ltd. are members of the same chargeable gains group.

You own all the shares in X Ltd.

01.01.2006 You acquired an asset for €30,000.

01.01.2009 You sold the asset for €100,000. You therefore have a potential gain of €70,000 (€100,000 – €30,000).

01.05.2009 X Ltd. bought a replacement asset for €150,000.

X Ltd.’s expenditure is treated as a reinvestment of the proceeds of sale of the asset sold by you. The gain on your disposal is therefore deferred until the asset bought by X Ltd. is disposed of.

When does the rollover relief within a group apply?

(3) The relief provided by this section applies to:

(a) a trade carried on by a company resident in the State, and

(b) a trade carried on through a branch or agency in the State by a non-resident company.

When does rollover relief not apply?

(4) The rollover relief provided by this section does not apply unless:

(a) as the transferring company is resident in the State, or the transferred assets are chargeable assets in relation to the company, or

(b) the acquiring company is resident in the State, or the transferred assets are chargeable assets in relation to that company.

An asset is a chargeable asset in relation to a company if a chargeable gain would arise to the company on its disposal.

Section 620A Deemed disposal in certain circumstances

In what circumstances is there a deemed disposal and a reacquisition?

(1)-(2) An asset is a chargeable asset in relation to a company if a chargeable gain would arise to it on its disposal.

A company is deemed to have disposed of an asset, and immediately re-acquired it at market value, where:

(a) the asset ceases to be a chargeable asset in relation to the company, because:

(i) it consists of shares that when acquired derived, but no longer derive, the greater part of their value from land or buildings or mineral or exploration assets in the State, or

(ii) the asset is no longer situated in the State, and

(b) the company acquired the asset at no gain/no loss in the course of:

(i) a group reconstruction or amalgamation (section 615),

(ii) a transfer of fixed assets within the group (section 617), or

(iii) as replacement assets which qualify for group rollover relief (section 620).

Section 621 Depreciatory transactions in group

These anti-avoidance rules are aimed at “asset stripping” which creates artificial capital losses within a group.

For example, as a member, after your assets are transferred to another member for nominal consideration (giving rise to no gain/no loss), a disposal of shares in your (liquidated) company could give rise to a capital loss (even though no assets had left the group as a whole).

What definitions apply in the case of depreciatory transactions?

(1) In the context of these rules:

Securities includes any loan stock.

A disposal of assets includes any method by which one group member appropriates the good will of another member.

A group of companies may include one or more companies which are not resident for tax purposes in an EU Member State or an EEA Member State.

Do these rules apply to a deemed disposal under negligible value claims?

(2) A disposal of shares includes a deemed disposal where the owner claims the shares have become worthless (section 538(2)).

In what circumstances do the depreciatory transactions in group rules apply?

(3)-(4) These rules apply to an ultimate disposal of shares the value of which has been materially reduced by adepreciatory transaction, that is a transaction whereby:

(a) assets are disposed of, other than at market value, by one group member to another, and

(b) the parties to the transaction included the company whose shares are ultimately disposed of (or its effective 75% subsidiary) and, at the time of the transaction, at least two group members.

Example

Your company and X Ltd. are members of the same chargeable gains group.

01.01.2007 You bought all the shares in X Ltd. for €500,000.

The only asset of X Ltd. is land worth €500,000. The company has no debts.

01.01.2009 X Ltd. sells the land to you for €10.

This is a group transaction, and gives rise to no gain/no loss.

01.02.2009 You sell the shares in X Ltd. to Y Ltd. (an unrelated company) for €10.

Although, the group as a whole (you and X Ltd.) has made no loss (the land is still owned by Y Ltd.) in the absence of anti-avoidance rules, you would have an allowable loss of €499,990 (€500,000 – €10).

Because the transaction is a depreciatory transaction, the loss is not allowed.

Is a cancellation of shares considered to be a depreciatory transaction?

(5) Yes.

Example

Your company and X Ltd. are members of the same chargeable gains group.

X Ltd. is a subsidiary of yours, because you own 75% of X Ltd.

Using borrowed funds, X Ltd. buys all the shares in your company. You are now a subsidiary of X Ltd.

Because a subsidiary is not permitted to own shares in its parent (Companies Act 1963 section 72), you must apply to the court to have the shares you hold in X Ltd. cancelled.

The cancellation is treated as a depreciatory transaction and the loss is not allowed.

What is the treatment of a loss on the disposal of shares after a depreciatory transaction?

(6) A loss (on a disposal of shares) created by a depreciatory transaction is to be reduced to an amount that appears “just and reasonable” to the inspector. The inspector’s decision may, on appeal, be amended by the Appeal Commissioners or a Circuit Court Judge.

No restriction of loss relief is to be made where a company which has left the group makes a disposal if the depreciatory transaction took place while it was not a group member.

Is it relevant that other transactions may have increased the company’s asset values?

(7) The reduction in the loss by the inspector (or Appeal Commissioner, or Circuit Court Judge) must be made on the basis that the allowable loss ought not to reflect a diminution in the value of the company’s assets which is due to a depreciatory transaction.

In other words, the loss must be reduced, in so far as it has been artificially created by a depreciatory transaction.

However, the reduction in the loss may reflect other transactions that have enhanced the value of the disposing company’s assets but diminished those of other group members.

What happens if a gain is made on a later share disposal involving one of the companies?

(8) If a loss on a disposal of shares is reduced because of a depreciatory transaction, a later gain on a disposal of the shares of another company which was a party to the transaction, if made within 10 years of that transaction, is to be reduced to an amount that appears “just and reasonable” to the inspector. The inspector’s decision may, on appeal, be amended by the Appeal Commissioners or a Circuit Court Judge.

In other words, a later gain may be reduced to the extent attributable to the effect of the depreciatory transaction.

The reduction in the later gain(s) cannot exceed the reduction in the earlier loss.

Tax overpaid as a result of this adjustment must be repaid.

Section 622 Dividend stripping

When do the dividend stripping rules apply?

(1) These rules apply where the value of a holding (of up to 10% of all holdings of the same class) held by a company (the first company) which is not a dealing company on another company (the second company) is materially reduced upon the receipt of a distribution from the second company.

Where the value of a holding is reduced, how is a subsequent disposal of shares from the holding treated?

(2)-(3) If the value of a holding is so reduced, a disposal of shares from that holding is to be treated as if the distribution were a depreciatory transaction (section 621).

Example

01.01.2007 Your company bought all the shares in X Ltd. for €500,000.

02.01.07 X Ltd. ceased trading. Its only assets are accumulated profits of €500,000 in cash.

01.01.2009 X Ltd. pays a dividend of €500,000 to your company.

02.01.2009 You sell the shares in X Ltd. for €10.

Although the group as a whole (your company and X Ltd.) has made no loss (the cash is still owned by you), in the absence of anti-avoidance rules, you would have an allowable loss of €499,990 (€500,000 – €10).

Because the transaction is treated as a depreciatory transaction, the loss is not allowed.

A distribution is not to be treated as a depreciatory transaction in so far as it is taken into account in computing the chargeable gain (or allowable loss) of the company making the ultimate disposal.

How is a dealing company defined?

(4) A dealing company is a company for which a profit on the sale of a holding is taxed as a trading profit.

What is meant by a “holding”?

(5) A holding means a holding of shares which entitle the holder to receive a company distribution.

Each holding of shares of a different class (i.e., each holding having different entitlements or obligations to other shares) is treated as a separate holding.

How are separate holdings of shares of the same class treated?

(6) Separate holdings of shares of the same class are to be regarded as a single holding.

A company is treated as having 10% of holdings of the same class, if its holdings in combination with equivalent holdings held by connected persons, amount to 10% of all holdings of that class.

Section 623 Company ceasing to be member of group

These anti-avoidance rules are aimed at artificial manipulation of group rollover relief.

For example, a group company could transfer assets, for which rollover relief was claimed, to a newly formed subsidiary outside the group, and then sell the shares in the subsidiary with no liability, or a reduced gain. To counteract such schemes, the deferred charge is reinstated as at the time the asset was acquired by the departing company: Tax Briefing 48.

What interpretation rules apply regarding companies ceasing to be group members?

(1) Companies that could potentially form a capital gains tax group (section 616) are associated companies.

Where an asset derives from an asset later acquired by the chargeable company (for example, where a leasehold merges with a later acquired freehold), both assets are treated as one asset.

A company that is wound up for bona fide commercial reasons, and not as part of a tax avoidance scheme, is not to be treated as leaving a group.

When do the rules for a company ceasing to be a group member apply?

(2) This rule applies where:

(a) a chargeable company has acquired an asset from another group member,

(b) the company leaves the group within 10 years of acquiring the asset,

(c) the company was resident in the State when it acquired the asset, or the asset was a chargeable asset (i.e., an asset which would give rise to a chargeable gain on its disposal) immediately after the company acquired it, and

(d) the transferring company was resident in the State when it transferred the asset, or the asset was a chargeable asset (i.e., an asset which would give rise to a chargeable gain on its disposal) before it transferred the asset.

Example

Your company has assets costing €1,000 but worth €10,000.

You form a new subsidiary company, X Ltd., and subscribe €10,000 for 10,000 shares. The assets are sold by your company to X Ltd. for €10,000 (the true value), but under section 617, the disposal for capital gains purposes is at the cost of €1,000. You then sell the shares in X Ltd. to an outsider Y Ltd. for €10,000, but as the shares cost you €10,000, no capital gain arises. You have therefore managed to take your gain of €9000 without attracting tax on the gain.

Y Ltd. is left with a company with shares costing €10,000 and an asset worth €10,000, but with a “cost” of €1000 for chargeable gains purposes. If Y Ltd. wishes to dispose of the asset without X Ltd. attracting liability, it merely has to follow the same avoidance device.

Source: Inspector Manual 20.1.5

Example

You and X Ltd. are members of the same chargeable gains group.

01.01.2007 You acquired a property for €50,000.

01.06.2007 You transferred the property to X Ltd. at no gain/no loss.

Had the transfer been chargeable, the following gain would have accrued to you:

Proceeds (market value) 80,000
Cost €50,000 50,000
Gain 30,000

01.01.2009 X Ltd. leaves the group, retaining the property.

The gain that accrued to you on 1 January 2007 now crystallises, and is charged on X Ltd.

A parent is chargeable on ceasing to be member of the group (i.e., if the group ceases to exist). If two or more members leave the group at the same time, the parent is deemed to have sold and reacquired assets: Dunlop International AG v Pardoe, [1999] STC 909.

Does a transfer to NAMA count as a disposal outside the group?

(2A) No.

How are transactions between associated companies that leave a group at the same time treated?

(3) Transactions between associated companies that leave a group at the same time are ignored.

If a company leaves a group on or after 23 April 1996, a distribution paid by it as a subsidiary to its parent company from profits derived from an intra-group transfer of an asset is to be treated as consideration for the disposal of the subsidiary.

If the company leaving the group fails to pay the tax, can another company be held liable?

(4)-(5) Yes. Assessed tax which has not been paid within six months of the due date by a company leaving a group may, within two years of the due date, be charged to the principal company of the group, and the current owner of the asset. The tax becomes due for the accounting period in which the company leaves the group.

Such tax, if paid by the principal company or by the asset’s current owner, may be recovered from the company that left the group.

Are there time limits for assessments when a company leaves a group?

(6) Assessments to collect tax due when a company leaves a group may be made any time up to 10 years after the company has left the group.

If such an assessment is made, previous assessments (if any) must be adjusted, and any tax overpaid must be repaid.

Section 623A Transitional provisions in respect of section 623

When do the transitional chargeable gains group provisions apply?

(1) This section applies where the replacement, from 11 February 1999, of the old definition of a chargeable gains group (as consisting only of Irish resident companies) by the new definition of a chargeable gains group (as capable of including EU resident companies) causes a company to cease to be a member of a group.

How is a company that ceases to be a group member treated?

(2) A company that ceases to be a group member in accordance with (1) is deemed to have disposed of any group assets it holds at the time those assets were acquired by the group (section 623(4)).

What conditions are required for the deemed disposal to be triggered?

(3) The deemed disposal mentioned in (2) is not triggered unless:

(a) the company leaves the group,

(b) at the time of its departure (the relevant time), it holds group assets acquired under group rollover relief, and

(c) the assets were acquired by the group within the 10 year period ending on the date it leaves the group.

This ensures that the substitution of the new group definition does not, of itself, crystallise deferred gains within the group.

Section 624 Exemption from charge under section 623 in case of certain mergers

Does the charge arising on a company leaving a group apply in cases of mergers?

(1) The rules outlined in section 623 do not apply where a company (A) leaves a group (A’s group) as part of a merger made for bona fide commercial reasons (and not merely for tax avoidance).

What is a merger in the context of a company that ceases to be a member of a group?

(2) A merger in this context means an arrangement whereby:

(a) An acquiring company (or companies), which is not a member of the same group as company A, acquires an interest in the business previously carried on by company A.

(b) One or more A group members acquire an interest without a view to its disposal, in the business previously carried on by the acquiring company (or companies or their 90% subsidiary).

(c) The interest so acquired consists, as to not less than 25%, of ordinary shares, with the balance of the interest made up of shares and/or debentures.

(d) The value of the interest obtained by the acquiring company in A’s group, is substantially the same as the value of the interest acquired by A’s group in the acquiring company.

(e) The consideration received by A’s group is used to obtain the A group’s interest in the acquiring company.

Section 624 provides that in order to facilitate company mergers, section 623 is not to apply if all the following conditions are satisfied, when a company leaves the group as part of a merger

(a) There are bona fide commercial reasons for the merger.

(b) Avoidance of tax is not the main or one of the main purposes.

(c) The merger is within the definition in Section 624(2).

Mergers: Tax Briefing 48.

How is a group member treated as carrying on its activities?

(3) A group member is treated as carrying on as one business its group’s activities.

Do these merger provisions apply to a non-EU/EEA resident company?

(4)-(5) In the context of these merger provisions, from 15 February 2001, a company includes a company which is not resident in an EU Member State or an EEA State.

Section 625 Shares in subsidiary member of group

These anti-avoidance rules are aimed at artificial manipulation of share-for-share identification rules (sections 580587).

When do these rules apply?

(1) These rules apply where a group member (the chargeable company) disposes of shares in a subsidiary as part of a reconstruction or amalgamation, and the subsidiary leaves the group within 10 years of that disposal.

A company that is wound up for bona fide commercial reasons, and not as part of a tax avoidance scheme, is not to be treated as leaving a group.

How is the chargeable company treated?

(2) The chargeable company is treated as having, immediately before the earlier disposal, sold and immediately reacquired the shares at market value.

Example

Your company could exchange shares (which, if sold, would give rise to a gain) in its subsidiary X Ltd., for shares in a new subsidiary Y Ltd. Y Ltd. could then sell the shares in X Ltd. (acquired at market value) with no liability. To counteract such schemes, where a company leaves the group after such a share exchange, the deferred charge is reinstated as at the time of the earlier exchange of shares.

Where the chargeable company is liquidated before the subsidiary leaves the group, who can be liable for the tax?

(3) Where a chargeable company is liquidated before the subsidiary leaves the group, tax due as a result of the subsidiary’s departure may be charged to the group’s principal company.

Can tax which is not paid by a chargeable company be recovered from another group member?

(4) Assessed tax which a chargeable company has not paid within six months of the due date, may, within two years of the due date, be charged to the principal company of the group and any company that acquired an interest in the subsidiary that left the group.

Such tax, if paid by the principal company or company that acquired an interest in the subsidiary, may be recovered by them from the chargeable company.

What time limits apply for assessments?

(5) Assessments to collect tax due when a subsidiary leaves a group may be made any time up to 10 years after the company has left the group.

If such an assessment is made, previous assessments made in respect of the property must be adjusted, and any tax overpaid must be repaid.

When is there a disposal of shares as part of a reconstruction or amalgamation?

(6) A disposal of shares as part of a reconstruction or amalgamation means a disposal for which:

(a) When shares in a new company are given in exchange for shares in an old company, the share-for-share identification rules (sections 586, 587) apply so that a holder of the new shares is not to be treated as having disposed of your original shares.

The new shares stand in place of the old shares, and the holder is treated as having acquired the new shares when he/she acquired the old shares.

(b) Both companies are members of the same group, or become members of the same group as a result of the reconstruction or amalgamation.

Does a disposal of shares include the cancellation of shares replaced as part of a reconstruction or amalgamation?

(7) A disposal of shares also includes the cancellation of shares that are replaced by a new issue, as part of a reconstruction or amalgamation (section 587).

Section 625A Transitional provisions in respect of section 625

When do these transitional provisions apply?

(1) This section applies where the replacement, from 11 February 1999, of the old definition of a chargeable gains group (as consisting only of Irish resident companies) by the new definition of a chargeable gains group (as capable of including EU resident companies) causes a subsidiary to cease to be a member of a group.

What happens when a subsidiary ceases to be a group member under this section?

(2) Where a subsidiary ceases to be a group member in accordance with (1), the parent (the chargeable company) is deemed to have disposed its shares in the company at the time those shares were acquired under the share for share exchange rules (section 625(2)).

When can the deemed disposal be avoided?

(3) The deemed disposal mentioned in (2) is not triggered unless:

(a) the subsidiary leaves the group,

(b) the share for share exchange took place within the 10 year period ending on the date the subsidiary leaves the group.

This ensures that the substitution of the new group definition does not, of itself, crystallise deferred gains within the group.

Section 626 Tax on company recoverable from other members of group

Can a company be charged tax which another group company does not pay?

(1) Assessed tax which has not been paid within six months of the due date by a group company may, within two years of the due date, be charged:

(a) to the principal company of the group at the time the gain accrued, and

(b) to any other company that was a group member in the two years ending on the date the gain accrued,

that previously owned or had an interest in the asset, the disposal of which gave rise to the tax charge.

Can a company recover this tax from the company that made the gain?

(2) Such tax, if paid by the principal company or a previous owner of the asset, may be recovered from the company to which the gain accrued.

This allows tax owed by a company leaving a group to be collected from the other group members.

Section 626A Restriction on set-offs of pre-entry losses

If a company joins a group, how are its existing capital losses treated?

The detailed rules in Schedule 18A apply in relation to its pre-entry capital losses where a company becomes a member of a chargeable gains group.

This counteracts “loss-buying”, where the losses bought are capital losses. See section 401 which counteracts buying of losses for the purposes of income tax and corporation tax.

Section 626B Exemption from tax in the case of gains on certain disposals of shares

What definitions apply for tax exemption on gains from certain share disposals?

(1) A company is regarded as the parent company of another company if, for a continuous 12 month period:

(a) it holds not less than 5% of the other company’s ordinary share capital,

(b) it is entitled to not less than 5% of the distributable profits of the other company, and

(c) it is entitled to not less than 5% of assets of the other company if that company were wound up.

The profit and equity entitlement tests are designed to counteract temporary 5% relationships contrived for tax avoidance purposes.

In deciding whether a company meets the 5% holding requirements mentioned in (2)(a), holdings held by group companies (other than as part of a life business fund) count as part of its holding.

In deciding whether a disposal under (2) is exempt, the share-for-share rules that apply on a reorganisation or reduction of share capital (section 584) are ignored. Those rules do not apply to a disposal that is exempted by (2).

Company assets that are vested in a liquidator are deemed to be vested in the company.

Company capital gains group relief does not apply.

Meaning of ‘wholly or mainly’: Tax Briefing Issue 66 – 2007

When is there a CGT exemption on the disposal of shares held in another company?

(2) Normally if an investor company disposes of shares it holds in another company (an investee company), its gain would be liable to capital gains tax.

This section provides an exemption for such disposals, where certain conditions are met:

(a) The investor company is a parent company of the investee company at the time of the disposal, or within two years of the most recent date on which it was a parent of the investee company.

(b) The investee company must be resident for tax purposes in the EU or country with which Ireland has a tax treaty (a relevant territory).

(c) At the time of the disposal, either:

(i) the investee company must carry on a trade, or

(ii) the business of the company together with the business of its 5% investees, and that of the investees’ 5% investees, taken as a whole, consists wholly or mainly of trading.

When does the tax exempt treatment on a gain arising on a share disposal not apply?

(3) The tax exempt treatment of a gain arising on a disposal of shares held by an investor company in an investee company does not apply:

(a) to a disposal which is already treated as giving rise to no gain/no loss,

(b) to a disposal the gain on which would not be a chargeable gain,

(c) to disposals of shares which are part of a life business fund (section 719),

(d) to disposals of shares which derive their value from land, minerals or mineral rights in the State,

(e) to deemed disposals arising where a company ceases to be resident in the Republic of Ireland (section 627).

How is a participator in a non-resident company treated?

(3A) The exemption does not apply to chargeable gains attributed to a participator under section 590 unless the participator is a company.

What other rules are relevant for this section?

(4) Supplementary rules are contained in Schedule 25A.

Section 626C Treatment of assets related to shares

Does the exemption for disposals of shares in investee companies apply to disposals of assets related to shares (e.g. options)?

(1) Section 626B exempts an investor company in relation to disposals of shares in its investee companies, i.e., 10% subsidiaries where the holding is worth €15m, or 5% subsidiaries where the holding is worth €50m.

This section supplements section 626B by providing an equivalent exemption for assets related to shares, i.e., share options and convertibles.

For the purposes of this relief:

(a) An asset is related to shares in a company if it is:

(i) an option to buy or sell shares in that company,

(ii) a convertible security (for example, a convertible debenture) which entitles the holder to convert the security into shares, an option, or another convertible,

(iii) an option to buy or sell a convertible.

(b) In determining whether a security is a convertible no account is to be taken of rights:

(i) attaching to the security other than rights relating to shares in the company,

(ii) which at the time the security was created would have been unlikely ever to be exercised.

When is a gain on the disposal of options in another company exempt?

(2) A gain arising to an investor company (the first-mentioned company) from the disposal of options/convertibles in another company is exempt if:

(a) it also holds shares in the other company, and any gain on the disposal of such shares would be exempt (undersection 626B), or

(b) it does not hold shares in the other company but a fellow 51% group member does, and any gain on the disposal of the shares would be exempt (under section 626B) had the shares been held by the company.

Section 627 Deemed disposal of assets

What definitions apply for deemed disposals of assets?

(1) Exploration or exploitation activities are activities relating to exploration or exploitation of the sea bed and its natural resources either within Irish territorial waters or a designated area, i.e., a block on the Continental Shelf in which the Government has granted offshore exploration rights.

Exploration or exploitation assets are assets for use in connection with exploration or exploitation activities carried on in the State or in a designated area.

An asset’s market value is the price it might reasonably obtain if sold in the open market (section 548).

An Irish resident company does not cease to be resident merely because it ceases to exist.

To what companies do these rules apply?

(2) These rules apply to an Irish resident company where on or after 21 April 1997 it ceases to be resident in the State.

These rules do not apply to an excluded company, i.e., a 90% subsidiary of a foreign company.

A foreign company in this context means a company resident in, and controlled by five or fewer residents of, arelevant territory, i.e., a country with which Ireland has a tax treaty.

What are the tax consequences of a company ceasing to be Irish resident?

(3) Where a company ceases to be Irish resident it is treated as having disposed of, and immediately re-acquired, at market value on the departure date, all of its assets, apart from assets which, after the departure date, are situated in the State, or are used by a branch in the State.

Is rollover relief affected where a company becomes non-resident?

(4) Rollover relief (section 597) is not to apply where a company becomes non-resident, disposes of the old assets before the cessation date and acquires new assets after the date of becoming non-resident.

Is the rollover relief denied if the new assets are situated or used in the State?

(5) This denial of rollover relief does not apply where, after the departure date, the new assets are situated in the State, or are used by a branch in the State.

Assets, in this context, includes exploration or exploitation assets (or rights).

Section 628 Postponement of charge on deemed disposal under section 627

When can the postponement on the charge of deemed disposals rules apply?

(1)-(2) An Irish resident parent company (the principal company) may jointly elect in writing with its 75% subsidiary (the company) within two years of the subsidiary ceasing to be resident in the State, that these rules apply to a gain on a deemed disposal (section 627(3)) of foreign assets by the subsidiary.

Foreign assets, in this context, means assets situated outside the State which are used by the company for a trade carried on outside the State.

How does the postponement operate?

(3) The net chargeable gain, after taking account of allowable losses, on the deemed disposal of the foreign assets may be postponed.

At what time does the postponed gain crystallise?

(4) Any uncharged part of the gain (the appropriate portion of the postponed gain) is to be charged to the parent company only if the relevant assets are actually disposed of within 10 years of the departure date.

When does liability for the postponed gain arise?

(5) If, within 10 years after the departure date, the subsidiary ceases to be a 75% subsidiary of the company, or the company becomes non-resident, any uncharged part of the postponed gain is charged to the company.

What options do the parent and subsidiary have in relation to allowable taxes?

(6) The parent together with the subsidiary, may jointly elect in writing that any unused allowable losses of the subsidiary may be set against a gain charged to the parent. This election must be made within two years of the gain being charged to the parent.

Section 628A Deferral of exit tax

What definitions apply to the deferral of exit tax?

(1)(a) Specified date for corporation tax is the date that is 9 months after the date a company ceases to be resident or the 23rd of the last month if that is earlier than the end of the 9 month period, or

(b) for capital gains tax it is 31 October in the year following the year of migration.

How can a migrating company pay tax?

(2)(a) A migrating company may elect to pay relevant tax in 6 equal instalments commencing on the specified date and continuing on each anniversary of that date, or

(b) Not later than 60 days after the disposal of assets.

What happens if assets are actually disposed of in the 6 year deferral period?

(3)(a) Where a company which elected to pay tax on the deemed disposal on migration in 6 equal annual instalments it must pay on the specified date and its 5 anniversaries.

(b)(i) Where it elects to pay the tax on disposal of assets within 60 days of the disposal the amount of tax to be paid on each disposal is the amount that bears the same proportion to the total tax on the deemed disposal as the sold assets bear to the total assets deemed disposed of on migration of the company.

(ii) Where there is no disposal within 10 years of the migration date relevant tax becomes payable on the 10th anniversary of the migration date.

How is an election for deferral made?

(4)(a) An election to pay relevant tax over 6 years or on disposal of assets is made on the company’s final Irish tax return and must state the date of migration, the country to which the company is migrating and the option for which it is electing. The return must be made by electronic means.

(b)The migrated company is required to deliver, electronically, statements to Revenue. If it has elected to pay in 6 equal instalments it must deliver a statement within 21 days of the end of the year in which each anniversary of the migration date date occurs. Where it has elected to pay on disposal of assets it is required to deliver a statement within 21 days of the end of each of the 9 years following the year of migration.

The statement must state whether the company has been tax resident in an EU or EEA State throhghout the period covered by the return. In the case of a company that has opted to pay on asset disposals it must state whether any taxable event has occurred and, if so, provide a computation of tax and interest due and state whether or not that tax and interest has been paid.

The statement must also provide any other information Revenue may require.

Can events cause tax to become payable immediately?

(4) If a liquidator is appointed or the company ceases to be EU or EEA resident or if it fails to pay relevant tax when it is due any relevant tax and interest thereon that has not been paid becomes due immediately on the happening of the event.

Is interest chargeable on relevant tax?

(6) Yes. Interest calculated from the date of migration to the date of payment is charged at the prevailing rate for interest on late payment. It must be added to the annual instalment or the tax paid on disposals of assets and paid at the same time.

Can Revenue seek security for the payment of tax?

(7) where Revenue belive that a deferral of tax presents a risk to its collection they may require security from a company and it must be provided within 30 days of the company being so notified in writing.

To whom must tax and interest be paid?

(8) All payments of tax and interest must be made to the Collector-General.

Is an assessment required?

(9) No. Tax and interest due is payable without the making oif an assessment.

Can a person other than the migrated company be made liable for its tax?

(10) If a migrated company fails to pay tax and interest due the Collector-General may make another, Irish resident, group company or an Irish resident controlling director liable for the overdue tax. Tax paid by such a person can be recovered from the migrated company.

What provisions apply to collection of deferred tax?

(10) All the provisions relating to collection of corporation tax and capital gains tax apply, with any necessary modifications, to tax due under this section.

Section 629 Tax on non-resident company recoverable from another member of group or from controlling director

In what circumstances do these recovery rules apply?

(1)-(2) These rules apply where on or after 21 April 1997, tax charged under section 627 or 628 is not paid by the chargeable company (the taxpayer company) for the chargeable period concerned paid within six months of the due date for that period.

When can Revenue serve a notice regarding tax due from a defaulting company?

(3)-(4) During the specified period beginning with the due date for a self-assessment return for the chargeable period concerned, and ending three years after the return is filed, Revenue may serve notice on:

(a) a company that was a (51%) member of the defaulting company’s group during the 12 months preceding the gain, and

(b) a company or director which controlled the defaulting company during that period,

stating the amount of unpaid tax, and requesting payment within 30 days.

If the gain accrued before 21 April 1998, the period from 21 April 1997 to the date the gain accrued is taken instead of the 12 month period mentioned in (a).

Can the tax be recovered from the defaulting company?

(5) Such tax, if paid by the group member or the controlling director or company, may be recovered by them from the defaulting company.

Is a payment of such tax deductible for the payer?

(6) A payment of such tax is not tax-deductible by the group member or the controlling director or company.

Section 629A Company ceasing to be resident on formation of SE or SCE

What are the consequences where a company ceases to be resident in the course of forming an SE/SCE?

This rule applies where in the course of the formation of an SE/SCE, a company ceases to be resident in the Republic of Ireland.

In such a case the company is treated, as regards its pre-cessation obligations, as still resident in the Republic of Ireland.

Where the company has ceased to exist, the SE/SCE is treated as if it were the company, i.e., it assumes any outstanding tax obligations.

Section 630 Interpretation (Part 21)

What is the purpose of the Mergers Directive?

EU Council Directive 2009/133/EC of 19 October 2009 (known as the Mergers Directive) aims to establish a common EU system for taxing mergers, divisions, transfers of assets and exchanges of shares between companies based in different EU States.

Section 631 Transfer of assets generally

When do the Mergers Directive rules apply?

(1) These rules apply where a transferring company transfers a trade carried on in the State to a receiving company in return for nothing other than new assets consisting of securities (shares and debentures) in that receiving company.

Both the company and the receiving company must be from an EU State.

If part of a trade is transferred, it is treated as if it were a separate trade.

How are capital allowances dealt with on a transfer?

(2) The transfer is not to be treated as giving rise to a balancing allowance or charge (sections 307, 308), but as the transferring company, any unused capital allowances of the company are to be given by way of balancing adjustment to the receiving company, as if it had always carried on the transferred trade.

These reliefs do not apply where, under section 400, a company which takes over a trade previously carried on by another company takes over the unused losses and capital allowances of the predecessor company.

Is the transfer treated as a disposal?

(3) The transfer is not to be treated as giving rise to a disposal, and the receiving company is to be treated as if it had acquired the transferred assets when the transferring company acquired them, at the same cost.

What are the consequences when the transferring company disposes of the securities?

(4) If, within six years of the transfer date, the transferring company disposes of the securities it received for the transfer, the future allowable cost of each security is to be reduced by that security’s apportioned part of the net deferred gain.

This apportionment is to be based on market value if the securities are not all of the same type.

Example

01.06.2009 You are an Irish resident company and you transfer part of your Irish trade to X GMbH, a German company, and in return receives 5,000 shares worth €100 each in the German company.

The only chargeable asset included in the transfer is a building valued at €500,000. The building cost €200,000 on 1 January 2003. The potential gain is:

Deemed proceeds 500,000
Cost 200,000
Potential gain 300,000

This gain is deferred until the building is sold by X GMbH.

When do these reliefs not apply?

(5) These reliefs do not apply if either (a) or (b) below apply:

(a) Immediately after the transfer, the receiving company:

(i) does not use the transferred assets for a trade in the State,

(ii) would not be chargeable in respect of a gain on the disposal of the transferred assets,

(iii) under the terms of a double tax treaty is not liable on a gain on a disposal of any of the transferred assets.

(b) The transferring company and the receiving company jointly elect in writing to the inspector that they do not wish the reliefs to apply.

This notice must be given by the transferring company with its self assessment return for the accounting period in which the transfer takes place.

Note

(a)(iii) Double tax treaties based on the OECD model provide that profits from the operation of international aircraft and ships are to be taxed where the business is effectively managed.

(b) In such a case, the transferring company is treated as disposing of the assets at market value (based on the value of the shares given in consideration), and the receiving company is treated as having acquired the assets at market value.

Section 632 Transfer of assets by company to its parent company

How is a transfer of an asset by a company to its parent treated for chargeable gains?

(1) A disposal of an asset from a company to its parent may, if the companies would not otherwise qualify for such treatment (i.e., if they are not a chargeable gains group because one of the companies is non-resident), be treated as made for a consideration that gives rise to no gain/no loss (section 617).

In such a case, if:

(a) the acquiring company uses the asset for trade in the State, and

(b) the disposal is not made in return for securities in the other company (section 631),

both the company and the parent company are treated as resident in the State.

A gain on a disposal of a trading asset from a subsidiary to a parent results in no gain/no loss. The gain is effectively deferred until the asset is disposed of by the parent.

When does the relief not apply?

(2) This relief does not apply if either (a) or (b) below apply:

(a) Immediately after the transfer, the receiving company:

(i) does not use the transferred assets for a trade in the State,

(ii) would not be chargeable in respect of a gain on the disposal of the transferred assets,

(iii) under the terms of a double tax treaty is not liable on a gain on a disposal of any of the transferred assets.

(b) The transferring company and the receiving company jointly elect in writing to the inspector that they do not wish the reliefs to apply.

This notice must be given by the transferring company with its self assessment return for the accounting period in which the transfer takes place.

The asset must be put to use by the parent for use in a trade carried on in the State.

Under this section, the deferred gain remains a potential liability for the future. Under section 631, the deferred gain “dies” after six years.

Section 633 Company reconstruction or amalgamation: transfer of development land

Does the relief on disposals in connection with a reconstruction/amalgamation apply to development land?

This extends relief under section 615 to development land assets.

If, as part of a scheme of reconstruction or amalgamation (section 615) of two or more companies:

(a) a company receives no consideration for transferring its business to another company, and

(b) both the company and the other company are resident in the State at the time of the transfer, and

(c) the disposal is not made in return for securities in the other company (section 631),

any development land (section 648) which is part of the transfer is to be treated as having been disposed of at no gain/no loss, and the acquiring company is treated as having acquired such land at the time your company acquired it.

This rule does not apply to any land which is trading stock of the company, or land which becomes trading stock of the acquiring company.

In other words, a gain on a disposal of development land from one group member to another as part of a scheme of reconstruction or amalgamation, results in no gain/no loss. The gain is effectively deferred until the asset is disposed of by the transferee.

Section 633A Formation of SE or SCE by merger – leaving assets in the State

What is a qualifying asset?

(1) An asset is a qualifying transferred asset if:

(a) it is transferred to an SE/SCE as part of the merger process forming the SE/SCE,

(b) the transferor is resident in the Republic of Ireland at the time of the transfer, or would have been chargeable in respect of any capital gain had it disposed of the asset immediately before the transfer, and

(c) the transferee (SE/SCE) is resident in the Republic of Ireland on formation, or would have been chargeable in respect of any capital gain had he/she disposed of the asset immediately after the transfer.

When is a company treated as tax resident in an EU State other than Ireland?

(2) A company is treated as tax resident in an EU Member State other than Ireland if:

(a) it is treated as tax resident in that State under the laws of that State,

(b) it is not treated, under a tax treaty of that State, as resident in a non-EU State for corporation tax purposes.

When do the tax neutrality rules apply?

(3) The rules in (4) and (5), i.e., tax neutrality, apply where:

(a) An SE is formed by the merger of two or more companies, or an SCE is formed by a merger,

(b) each merging company is tax resident in an EU State,

(c) the merging companies are not all resident in the same EU State,

(d) the merger is not already treated as tax neutral (section 615).

How is the disposal of a qualifying transferred asset treated for capital gains?

(4) The disposal of a qualifying transferred asset (see (1)) is treated as tax neutral; its acquisition by an SE/SCE is treated as made for a consideration which gives rise to no gain/no loss for you as the transferor.

When is the treatment of capital allowances tax neutral?

(5) The treatment of capital allowances is tax neutral:

(a) The transfer of assets as part of a merger is treated as not giving rise to a balancing allowance or charge.

(b) The transferee SE/SCE obtains the capital allowances that would have gone to the transferor had it continued to use the asset, as if the SE/SCE had been carryng on the trade since the transferor started to carry on that trade.

Section 633B Formation of SE or SCE by merger – not leaving assets in the State

When does a tax charge apply on the formation of an SE or SCE by merger?

(1) A tax charge applies where:

(a) An SE is formed by the merger of two or more companies, or an SCE is formed by merger,

(b) each merging company is tax resident in an EU State,

(c) the merging companies are not all tax residnt in the same EU State,

(d) as part of a merger, an Irish resident company transfers to a company resident in another EU State, the assets and liabilities of a trade which it carried on through a branch in that EU State, and

(e) the transfer results in a net chargeable gain, i.e., the company’s aggregate chargeable gains exceed it aggregate losses on the transfer.

How is the transfer treated for chargeable gains when this section applies?

(2) The transfer is to be treated as resulting in a single net chargeable gain. In other words, allowable losses are to be offset against gains, and the single chargeable gain is the aggregate gains after deducting allowable losses.

Do the credit for tax rules apply in this case?

(3) The rules in section 634 apply to the single chargeable gain.

In other words, if double taxation arises (in Ireland and the EU State in which the branch is located) on the transfer of assets from a branch to a company, credit is allowed against Irish tax for the foreign tax payable.

Section 633C Treatment of securities on a merger

When do the regulations regarding the treatment of securities on a merger apply?

(1) This section applies where:

(a) An SE is formed by the merger of two or more companies, or an SCE is formed by merger,

(b) each merging company is tax resident in an EU State,

(c) the merging companies are not all tax resident in the same EU State,

(d) the merger is not a scheme of reconstruction or amalgamation (section 587).

How is a merger treated under the regulations?

(2) Where the conditions in (1) are met, the merger is treated as a scheme of reconstruction or amalgamation (section 587).

Section 633D Mergers where a company is dissolved without going into liquidation

Is tax chargeable when a company is dissolved without going into liquidation?

Background: Before 2008 the only way to dissolve an Irish company was through liquidation. Under the cross border mergers regulations in 2008 a transferring company in a merger is dissolved automatically without going into liquidation. This section ensures that such a merger is not taxable.

Where a company transfers all its assets and liabilities to its 100% parent, and is dissolved without going into liquidation, the merger is not treated as a disposal by the parent.

Section 634 Credit for tax

Is a foreign gains tax credit available when a branch trade is transferred to a company resident in another EU country?

(1)-(2) Where a branch trade carried on by an Irish resident company in an EU State is transferred in its entirety to a company resident in an EU State other than Ireland, in return for securities in that company, foreign gains tax on the transfer that has been deferred because of the Mergers Directive, or local rollover relief, may be credited against tax payable of the branch owner.

The transfer must include all of the branch trade’s assets and the consideration for the transfer must consist of the issue to the company of securities in the receiving company.

The tax must be certified by the tax authorities of the EU State in which the branch trade was carried on, as payable under the laws of that State.

Example

You are an Irish resident company that transfers the assets of your branch in Finland to a Finnish company in return for debentures in that company.

You obtain a certificate from the Finnish Revenue stating that domestic tax of €50,000 has been deferred under local rollover relief.

The €50,000 may be credited against your Irish CGT liability on the disposal.

The reduction in tax is allowed even though, because of domestic deferral provisions, no tax may be payable in the State in which the branch trade is carried on.

What rules apply to a tax transparent non-resident company that transfers shares in return for securities in another company?

(3) This subsection applies where:

(i) a non-resident company transfers the whole or part of your shares to another company in return for securities in that other company, and

(ii) the transferor is “tax transparent”, i.e., the income or gains accruing to it in respect of the transfer are treated as accruing to its shareholders/partners.

In such a case, the tax that would have been paid in the other EU State has Mergers relief not been available is allowed as a credit against the Irish tax.

Each partner/shareholder in the transparent entity gets a credit for a proportion of the tax (the appropriate tax).

Section 635 Avoidance of tax

Do specific anti-avoidance rules apply?

Yes. Relief is not given under sections 631634 unless you make the transfer or disposal for bona fide commercial purposes and not as part of a tax avoidance scheme.

Section 636 Returns

Is a transferring company obliged to notify Revenue when merger happens?

(2) A disposal or transfer within sections 631634 must be notified to the appropriate inspector (section 950) by the transferring company, on the appropriate Revenue return form.

Does a transferring company need a certificate for foreign tax paid?

(3) A transferring company must include with its return a certificate from the foreign tax authorities.

What is the time limit for making a return?

(4) The return is to be made within nine months of the end of the accounting period (the self-assessment return deadline) in which the transfer was made.

See also: Tax Briefing 32.

Section 637 Other transactions

Is there relief for transactions covered by the Mergers Directive but not dealt with in sections 630 – 636?

(1) Revenue may give “just and reasonable” relief for transactions covered by the Mergers Directive, but not covered by sections 630636.

How is this relief claimed?

(2) Relief must be claimed on the appropriate Revenue form.

Section 638 Apportionment of amounts

How is a dispute over apportionment of an amount to be determined?

A dispute between two or more companies over apportionment of an amount is to be determined by the Appeal Commissioners in the same manner as an appeal against an income tax assessment.

Either of the interested parties is entitled to appear before and be heard by the Appeal Commissioners.

There is a right, where necessary, to have the case re-heard by a Circuit Court Judge. There is also a right to have a case stated for the opinion of the High Court on a point of law.

Section 639 Interpretation (Chapter 1)

Capital gains on disposals of land and buildings are now taxed under Part 19, and gains on disposals of development land are taxed under Chapter 2 of this Part.

However, it remains in the interest of a taxpayer to accrue a gain as capital rather than income as the current rate of capital gains tax (section 28) is significantly lower than the marginal rate applicable to income (section 15).

Important note: Between 1 December 1999 and 31 December 2008, a special 20% rate of income tax (and corporation tax) applied to profits or gains from disposals of residential development land equalised this discrepancy: see section 644A, and section 644B. Nevertheless, in the case of disposals other than of residential land, it remains in the interest of a taxpayer to accrue a gain as capital rather than income as the current rate of capital gains tax (section 28) is significantly lower than the marginal rate applicable to income (section 15).

To understand the provisions in Part 22 Chapter 1, it is necessary to understand the nature of attempts made in the pre-CGT era to tax gains on disposals of land.

Up to 1968, for technical reasons, profits from dealings in land could not be simply taxed as profits of a “trade” for two reasons:

(a) If the person selling a property retained an interest in the property, he/she could not be said to have sold it, since he/she retained an interest (however small) in the property. Because the person had not sold the property, the profits could not be taxed as trading profits. The interest he/she had disposed of would be taxed as rental income: see Birch v Delaney, 1 ITR 515, [1936] IR 517.

(b) Difficulties in ascertaining whether the profit was a “trading” or “capital” (realisation of investment) profit. These difficulties were illustrated in several cases relating to building land (or property) subsequently sold by a developer:Shadford v H Fairweather and Co Ltd, (1966) 43 TC 291; Bradshaw v Blunden (No 1), (1956) 36 TC 397; andAndrew v Taylor, (1965) 42 TC 557.

In the first case, the profit was held to be a trading profit, as although the builder did not develop the land, he bought it with a commercial intention. In the second case, a builder who retained 206 houses (and the rent from them) and later sold them after he had already sold his building business, was held to be realising an investment, i.e., the houses were not “stock”, and the profits were not trading profits. In the third case, a builder who had “ceased” to trade in 1940 and sold his machinery or plant at that time, sold during 1957-61 houses that had been held as investments. It was held that as he had continued to sell houses each year during 1940-1957, his trade had not ceased, and he was selling off “stock”.

This Chapter deals with these difficulties using the concepts of development and disposal. In essence, the profits on the disposal of land by the developer (of that land) are taxed as trading profits.

While “disposal” is not defined (as the underlying legislation predates Irish CGT law) a disposal generally involves “a transfer … of ownership of an asset … by one person to another”: Kirby v Thorn EMI plc, [1987] STC 625. In other words, the giving up of rights to property.

The following pre-CGT cases remain important, because it is open to Revenue to tax a land dealing transaction, or series of transactions, as income (chargeable at 46%) rather than capital gains (chargeable at 20%). On the other hand, if the taxpayer had made losses on land dealing transactions, it may be in his/her interest to treat the losses as arising from a trade (Case I) in order to set the losses against total income (section 381 and section 396).

Purchase and resale of land:

(a) Held to be trading: Balgownie Land Trust Ltd v IRC, (1929) 14 TC 684; Burrell and Others v Davis, (1948) 38 TC 307; Californian Copper Syndicate Ltd v Harris, (1904) 5 TC 159; Clark v Follett, (1973) 48 TC 677; Eames v Stepnell Properties Ltd, (1966) 43 TC 678; Hudson v Wrightson, (1934) 26 TC 55; Iswera v Ceylon Commissioner of Inland Revenue, (1965) 44 ATC 157; MacMahon v IRC, (1951) 32 TC 311; Mitchell Brothers v Tomlinson, (1957) 37 TC 224; Newbarns Syndicate v Hay, (1939) 22 TC 461; Reeves v Evans, Boyce and Northcott Syndicate, (1971) 48 TC 495; Reynolds Executors v Bennett, (1943) 25 TC 401; Turner v Last, (1965) 42 TC 517.

(b) Held not to be trading: Chu Lip Kong v Director General of Inland Revenue, [1981] STC 653; Dodd and Tanfield v Haddock, (1964) 42 TC 229; IRC v Reinhold, (1953) 34 TC 389; Kirkham v Williams, [1991] STC 342; Leeming v Jones, (1930) 15 TC 333; Pearn v Miller, (1927) 11 TC 610; Taylor v Good, (1974) 49 TC 277; Tebrau, (Johore) Rubber Syndicate Ltd v Farmer, (1910) 5 TC 658; Wrigley v Ward, (1967) 44 TC 491.

Realisation of investment:

(a) Held to be trading: IRC v Toll Property Co Ltd, (1952) 34 TC 13; Emro Investments Ltd v Aller and Lance Webb Estates Ltd v Aller, (1954) 35 TC 305; Jones v Mason Investments, (Luton) Ltd, (1966) 43 TC 321; Parkin v Cattell, (1971) 48 TC 462;

(b) Meaning of investment: Bourne and Hollingsworth v IRC, (1929) 12 TC 483; IRC v Gas Lighting Improvement Co Ltd, (1923) 12 TC 503; IRC v Laurence Phillipps and Co (Insurance) Ltd, (1947) 26 ATC 161; Liberty and Co Ltd v IRC, (1923) 12 TC 630.

(c) Held not to be trading: IRC v Hyndland Investment Co Ltd, (1929) 14 TC 694; Glasgow Heritable Trust Ltd v IRC, (1954) 35 TC 196; Lucy and Sunderland Ltd v Hunt, (1961) 40 TC 132; IRC v Dean Property Co, (1939) 22 TC 706; Cooksey and Bibbey v Rednall, (1949) 30 TC 514; Marshall’s Executors and others v Joly, (1936) 20 TC 256;Royal Mutual Benefit Building Society v Walker, (1968) 45 TC 171; Simmons v IRC, [1980] STC 350.

Sale of land piecemeal:

(a) Held to be trading: Alabama Coal Iron Land and Colonization Co Ltd v Mylam, (1926) 11 TC 232; Rellim Ltd v Vise, (1951) 32 TC 254; Thew v South-West Africa Co Ltd, (1924) 9 TC 141.

(b) Held not to be trading: Hudson’s Bay Company Ltd v Stevens, (1909) 5 TC 424; Rand v Alberni Land Co Ltd, (1920) 7 TC 629.

Sale of development land:

(a) Held to be trading: Tempest Estates Ltd v Walmsley, [1976] STC 10; Pilkington v Randall, (1966) 42 TC 662;Johnston v Heath, (1970) 46 TC 463; Orchard Parks Ltd v Pogson, (1964) 42 TC 442; Cooke v Haddock, (1960) 39 TC 64, St Aubyn Estates Ltd v Strick, (1932) 17 TC 412; Cayzer, Irvine and Co Ltd v IRC, (1942) 24 TC 491;Parkstone Estates Ltd v Blair, (1966) 43 TC 246.

(b) Held not to be trading: Williams v Davies, (1945) 26 TC 371.

Sales by builders:

(a) Held to be trading: Broadbridge v Beattie, (1944) 26 TC 63; Foulds v Clayton, (1953) 34 TC 382; Gladstone Development Co Ltd v Strick, (1948) 30 TC 131; Granville Building Co Ltd v Oxby, (1954) 35 TC 245; Gray and Gillitt v Tiley, (1944) 26 TC 80; Laver and Laver v Wilkinson, (1944) 26 TC 105; Smart v Lowndes, [1978] STC 607;Speck v Morton, (1972) 48 TC 476; Spiers and Son Ltd v Ogden, (1932) 17 TC 117.

(b) Held not to be trading: Harvey v Caulcott, (1952) 33 TC 159; Bradshaw v Blunden (No 1), (1956) 36 TC 397;Andrew v Taylor, (1965) 42 TC 557; West v Phillips, (1958) 38 TC 203.

Sale of second property:

(a) Held to be trading: Bowie v Reg Dunn (Builders) Ltd, (1974) 49 TC 469; Hobson (James) and Sons Ltd v Newall, (1957) 37 TC 609; Oliver (J and C) v Farnsworth, (1956) 37 TC 51; Page v Pogson, (1954) 35 TC 545; Robb W M Ltd v Page, (1971) 47 TC 465; Shadford v H Fairweather and Co Ltd, (1966) 43 TC 291; Sharpless v Rees, (1940) 23 TC 361; Snell v Rosser, Thomas and Co Ltd, (1967) 44 TC 343.

(b) Held not to be trading: Seaward and others v Varty, (1962) 40 TC 523.

Shares connected with property:

(a) Held to be trading: Associated London Properties Ltd v Henriksen, (1944) 26 TC 46.

(b) Held not to be trading: Fundfarms Developments Ltd v Parsons, (1969) 45 TC 707.

Ground rents retained by a builder are valued at the lower of cost or market value: Utting (BG) and Co Ltd v Hughes, (1940) 23 TC 174, Heather v Redfern and Sons, (1944) 26 TC 119. Ground annuals or feu duties are not: IRC v John Emery and Sons, (1936) 20 TC 213 and McMillan v IRC, (1942) 24 TC 417.

What definitions apply in relation to profits from dealing in land?

(1) Development of land means the construction, extension, alteration or reconstruction of any building on the land, or the adaptation of land for materially altered use.

A property’s market value is the price it might reasonably be expected to fetch if sold in the open market.

Trading stock means stock of raw materials, work in progress and finished goods.

Broadly, development means “building” activity. The adaptation of land for materially altered use includes the laying on of electricity, sewerage and water services. The receipt of planning permission does not, of itself, constitute the adaptation of land for materially altered use.

Land includes buildings (Interpretation Act 1937 section 12).

Is it a disposal where property is transferred as a security?

(2) The transfer of property as security (for example for a loan or mortgage) is not a disposal.

An option to acquire or dispose of an interest in land is itself treated as an interest in the land.

Security: This is to prevent a builder claiming, for example, that he/she had only disposed of the net (incumbrance free) value of a mortgaged property, as the secured part of his/her interest had already been disposed of. See also section 537, the equivalent capital gains tax provision.

Option: This is to ensure that where a purchase option is granted at an artificially high price, and a subsequent sale made at an artificially low price, the vendor does not argue that only the lower sale proceeds should be taken into account as income.

How are profits of dealing in or developing land taxed?

(3) Profits of dealing in or developing land, are to be taxed as trading profits (not rental income).

Clarifies that premiums, ground rents, site licences etc created on the disposal of developed property may be taxed as trading income.

Section 640 Extension of charge under Case I of Schedule D to certain profits from dealing in or developing land

When do the dealing in or developing land extension of Case I rules apply?

(1) In the context of (2):

(a) A dealing in land takes place if an interest in the land (or an interest which derives from that interest) is disposed of.

(b) A developer includes a person who uses subcontractors to carry out the development work.

Note

(1)(a) Reverses two Irish court decisions:

(i) In the case of a builder who “sublet” completed houses by way of long lease and minimal ground rent, the transaction was not treated as a trading transaction because only part of the interest was disposed of: Birch v Delaney, 1 ITR 515.

(ii) In the case of a builder who sold houses built on land acquired and intended for farming, the transaction was not treated as a trading transaction because there was no intention to trade: Swaine v VE, 2 ITR 472.

In what circumstances are profits of dealing in land regarded as trading profits under this section?

(2) Profits of dealing in land which might not be regarded as trading profits on the basis that the vendor retained an interest in the property are to be taxed as trading profits (not rental income), if the profits would be so taxed had the vendor sold the full interest in the property (having acquired that interest in the course of business).

By ensuring that a disposal of a full interest may also be taxed as a trading transaction, this reverses the decision inMara v Hummingbird Ltd, 2 ITR 667.

Is a company still treated as trading while it is being wound up?

(3) Even if a company is being wound up and it have ceased to trade, it is treated as continuing to trade until the last disposal of an interest in land has taken place.

The winding up is ignored in deciding whether a land transaction during that period was made in the course of a trade.

Section 641 Computation under Case I of Schedule D of profits or gains from dealing in or developing land

‘Rent-to-Buy’ (and similar) Schemes: Tax Briefing Issue 73 – 2009

Is trading expenditure deductible in computing profits from dealing in or developing land?

(1) In the computation of profits of a business of dealing in or developing land, expenditure which is incurred wholly and exclusively for the purposes of the trade (that is not disallowed by section 81) is deductible.

Do any special computational rules apply?

(2) Additional computational rules are as follows:

(a) Any consideration received for land disposed of (other than rent or a premium taxed under section 98) is treated as a trading receipt for the disposal of trading stock.

(b) Interests in land which held by a dealer in land are treated as trading stock, until the trade ceases.

(c) An interest in land acquired other than for money, or money’s worth, is treated as acquired at market value.

(d) An interest in land that acquired before the trade has commenced, or not yet appropriated as (development land) trading stock, is treated as purchased at market value at the time it is appropriated as trading stock.

(e) Consideration from the granting of any rights over land being disposed of, if not taxed as rental income, is taxed as trading receipts.

Example

1. You build an office block and lease it for 20 years, by way of premium and rent.

Your future interest in the property (the value of which will revert to you after the 20 year lease has expired) is part of your trading stock.

Any profit on the sale of the future interest is taxed as a trading profit, not as the realisation of an investment.

2. You are a farmer who, in January 1995, acquires farm land for €500,000.

On 1 June 2008, you begin to trade as a builder and you appropriate the land to development land trading stock. The land is then worth €800,000.

The land is therefore treated as having an acquisition cost of €800,000.

For €500,000, you grant a “site licence” to X, a builder of new homes, to develop certain lands, and undertakes to grant subleases of sites developed by X to X’s nominees (in effect, home buyers).

The fee for the licence is taxed as a trading receipt.

Note

(a) The profit on the disposal of a lease is to be calculated on the basis of ordinary principles of commercial accounting, i.e., sale proceeds less actual acquisition cost. The acquisition cost of a lease is not to be determined on the basis of the capitalised value of the rent payable under the lease: Cronin v Cork and County Property Co Ltd, 3 ITR 198; see also Belvedere Estates Ltd v O’Connláin, 3 ITR 271.

(b) This counteracts the decision where a builder who retained houses (and the rent from them) and later sold them after he/she had already sold his/her building business, was held to be realising an investment, as the houses were not “stock”, and the profits were not trading profits: Bradshaw v Blunden (No 1), (1956) 36 TC 397.

A company that owned farm land was held to have appropriated that land to trading stock as development land, when the company was put into voluntary liquidation, and the land was sold to a newly formed company: O’hArgáin v B Ltd, 3 ITR 9.

Are ground rents or annuity type payments deductible?

(3) To the extent that consideration payable for land has been artificially increased by encumbering the property with ground rents or an annuity, it is to be reduced. A payment (i.e., the relevant sum) by the trader, to buy out such an artificial ground rent or annuity is not deductible.

However, the following (genuine) ground rent or annuity type payments are deductible:

(a) A payment made under the terms of a will: a payment towards a debt incurred for valuable consideration, which is taxed as income in the hands of the recipient, or incurred for consideration paid to a person who has never dealt in land and is not connected with:

(i) the trader,

(ii) any person so connected, and

(iii) any person having an interest in the land on which the annuity is charged.

(b) A payment that is taxed as a trading receipt in the hands of the recipient.

Example

X Ltd., Y Ltd. and Z Ltd. are connected members of a group of companies.

X Ltd., a non-trader, buys land for €100,000.

In return for receiving a (non-taxable) lump sum of €500,000 from Y Ltd., X Ltd. charges the land with an annuity payable to Y Ltd.

X Ltd. sells the land, encumbered with the annuity, to Z Ltd., a trader, for €100,000.

Z Ltd. pays €500,000 to Y Ltd. to redeem Y Ltd.’s annuity.

X Ltd. sells the land for €1,000,000 and in its profits computation claims a market value deduction of €600,000 (€100,000 + €500,000 being the capitalised value of the annuity).

X Ltd. is denied the deduction for the €500,000, thereby increasing the company’s taxable profits to €900,000.

What anti-avoidance rules apply?

(4) These anti-avoidance rules apply where:

(a) the intermediary (the relevant person) acts on behalf of the trader and buys out a ground rent or annuity (i.e.,pays the relevant sum),

(b) the payment is not taxed in the recipient’s hands as a receipt of a trade of dealing in or developing land,

(c) the trader later buys an interest in the land on which the ground rent or annuity is payable.

In such a case, the payment by the trader to buy out such an artificial ground rent or annuity is not deductible (unless it is genuinely deductible; see (3)). The trader is treated as having paid for an unencumbered interest in the property.

The inspector, or on appeal the Appeal Commissioners, is to make any apportionment or valuation required by this subsection.

This denial of a deduction for buying out an annuity does not apply to a buy out of the annuity, and the buyer is a land dealer, who redeems the annuity in the course of a land dealing trade (such transactions are covered by (3)).

Example

X Ltd., Y Ltd. and Z Ltd. are connected members of a group of companies.

X Ltd., a non-trader, buys land for €100,000.

X Ltd. receives a (non-taxable) lump sum of €500,000 from Y Ltd., and charges the land with an annuity payable to Y Ltd.

X Ltd. sells the land, encumbered with the annuity, to P Ltd., a connected group member which is not a land dealing company, for €100,000.

P Ltd. pays €500,000 to Y to redeem Y’s annuity.

P Ltd. sells the unencumbered land to Z Ltd. (a trading company in the group) for €600,000.

Z Ltd. sells the land, with planning permission, for €1,000,000 and in its profits computation claims a market value deduction of €600,000.

Subs (3) does not apply because the €500,000 sum paid to redeem the annuity was not paid by Z Ltd., the trading company in the group. It was paid by an intermediary, i.e., P Ltd.

Subs (4) effectively splits Z Ltd.’s expenditure into two parts: the €100,000 that would have been payable to P Ltd had Z Ltd. bought the land unencumbered with the annuity, and €500,000 payable for the forfeiture of Y Ltd.’s annuity. Subs (3) then applies to deny Z Ltd. a deduction for the €500,000.

Section 642 Transfers of interests in land between certain associated persons

How is the disposal of an interest in land to a connected person at greater than market value taxed?

(1) A disposal of an interest in land, from a disponer to a connected transferee, for a price (greater than its market value) which is taken into account as the transferee’s cost (but not as the disponer’s consideration) is deemed for tax purposes to have been acquired by the transferee at market value.

How is the disposal of an interest in land to a connected person at less than market value taxed?

(2) A disposal of an interest in land, from a disponer to a connected transferee for a price (less than its market value) which is taken into account as the disponer’s consideration (but not as the transferee’s cost) is deemed for tax purposes to have been disposed of by the disponer at market value.

A gift of land is also treated as having been made a market value.

What sums are included in the price paid for a lease?

(3) The “price” paid for a lease includes a fine, premium or any similar payment.

Section 643 Tax to be charged under Case IV on gains from certain disposals of land

What definitions apply in this section?

(1) A capital amount means an amount which, apart from this section, is not included in an income tax (or corporation tax) computation.

Property deriving its value from land includes a company shareholding, an interest in a partnership or trust, and any option deriving its value from land.

The underlying legislation was introduced in 1981 to ensure that miscellaneous land transaction profits are taxed as “income” rather than “capital” gains (and thus, in general, at a higher effective rate of taxation).

Most transactions caught under this section would probably also be caught under Schedule D Case I as an adventure in the nature of trade, see notes to Part 22, and Kirkham v Williams, [1991] STC 532.

Do these rules apply to a gain which is exempt due to PPR relief?

(2) These rules do not apply to a gain which is exempt from capital gains tax, on the disposal of a principal private residence (section 604).

When do these charging rules apply?

(3) These rules apply to gains of a capital nature realised on a disposal by a land holder, a connected person, or any participant in a scheme (see (7)-(8)) to indirectly realise the gain, of:

(a) land, or property deriving its value from land, acquired with the sole or main intention of realising a gain on its disposal,

(b) land held as trading stock, or

(c) land developed with the sole or main intention of realising a gain on its disposal.

The rules apply whether the gain was obtained on the land holder’s behalf or on behalf of another.

Note

(a), (c) Sole or main intention: a gain on a genuine investment made in a property holding company is not taxed as an income gain.

(b) Taxes a disposal of shares in a company that holds land as trading stock.

(c) Taxes a gain on land, acquired without the intention of developing it, which is later developed.

How is a gain taxed under this section?

(4) A realised gain is taxed as miscellaneous income under Schedule D Case IV for the accounting period or tax year in which it was realised.

In certain circumstances, the gain may be charged on another person (see (11)).

See Sugarwhite v Budd, [1988] STC 533.

When is land disposed of for the purposes of this section?

(5) Land, or property deriving its value from land, is regarded as having been disposed of where the property in, or control over, the land is disposed of through one or more transactions, or by any arrangement or scheme.

Can one person be taxed on gains another obtains from a subsequent sale?

(6) If, by means of a premature sale, a person passes the opportunity of realising a gain to another person who makes that gain, the gain is taxed on the person who passed on the opportunity.

Several transactions, in which a common purpose is discernible, may be treated as constituting a single scheme or arrangement.

What additional factors must be taken into account in deciding if a gain is to be taxed under this section?

(7) In deciding whether a gain is to be taxed under this section, any device by which property passes with an enhanced or diminished value must be taken into account.

Such a transfer may be taxed as a gain under this section.

What can be considered as a scheme or arrangement?

(8) A scheme or arrangement may include:

(a) A transaction made for more or less than full consideration.

(b) Any method by which any property or right (or the control of such property or right) passes from a person to another person by assigning shares, partnership rights, or an interest in trust property.

(c) The creation of an option or right over any property.

(d) A disposal of property as part of the winding up of a company, partnership or trust.

How is the gain computed under this section?

(9) A gain on a disposal of land is to be computed in a just and reasonable manner, taking into account the sales proceeds for, and the expenses attributable to, the disposal.

Even if a reversionary interest is retained in the land disposed of, the gain is taxed as a trading gain (and the Schedule D Case I computation rules apply (section 641(2)), not as rental income (Schedule D Case V rules).

To prevent a double charge to tax, amounts already taxed under section 99(2) (Charge on assignment of lease granted at undervalue) or section 100(4) (Charge on sale of land with right to reconveyance) are ignored.

The computation is similar to a CGT computation (section 545).

Under UK law, the gain is normally calculated on capital gains tax principles: Utting (BG) and Co Ltd v Hughes, (1940) 23 TC 174 and IRC v John Emery and Sons, (1936) 20 TC 213. The gain charged is limited to the benefit received:Winterton v Edwards, Byfield v Edwards, [1980] STC 206

How is a gain calculated if land was not acquired for development but the intention changed later?

(10) A gain on land which was acquired without the intention to develop it is to be calculated only from the time it was intended to develop it.

What tax consequences arise if a gain is realised from value or an opportunity provided by another person?

(11) If a realised gain derives from:

(a) value, or

(b) an opportunity of realising a gain,

provided by another person, the gain is taxed on the person providing the value or opportunity.

Example

If you, having acquired a property with the intention of realising a gain, transfer the property to foreign trustees who realise the gain, the gain is taxed on you and not the foreign trustees.

How is a gain on a disposal of shares by a land-dealing company taxed?

(12) A gain on a disposal of shares by a land-dealing company, or a 90% parent of such a company, is not taxed as income if the land is sold in the normal course of business, and the profit on its disposal accrues to the company.

A gain indirectly realised through a scheme (see (3)) may, however, be charged as income.

Judge 12.412

How can documents be used as evidence of intentions?

(13) No company, partnership or other documents are to be regarded as conclusive evidence of a person’s intentions.

How is the extent to which the value of property is derived from another property or right ascertained?

(14) Property deriving its value from land (see (1)) may be traced through any number of companies, partnerships and trusts, attributing ownership at each stage to the shareholders, partners or beneficiaries, on a just and reasonable basis.

See Chilcott v IRC, [1982] STC 1.

What provisions can be employed to ensure fair tax computations?

(15) To ensure tax computations are fair, sales proceeds and property expenditure are to be apportioned on a just and reasonable basis, and if necessary, property is to be valued.

How are partners, trustees and personal representatives treated?

(16) Partners, trustees and personal representatives are regarded as distinct from the persons who are the partners, trustees or personal representatives.

Do the land disposal rules apply to a non-resident?

(17) These rules also apply to a non-resident if the land in question is located in the State.

See Yuill v Wilson, [1980] STC 460; Yuill v Fletcher, [1984] STC 401.

The UK legislation (Income and Corporation Taxes Act 1988 section 766, previously Income and Corporation Taxes Act 1970 section 488) is not confined to artificial transactions: Page v Lowther, [1983] STC 61.

Section 644 Provisions supplementary to section 643

Can a person assessed on proceeds received by another person recover the tax?

(1) Tax paid by a person assessed to tax in respect of a gain, the proceeds for which were received by another person (section 643(6), (11)), may be recovered from that other person.

Tax unpaid six months after the due date may be recovered by Revenue from the person who received the consideration.

An inspector of taxes must, if requested, provide a certificate of tax paid by a person (on behalf of the person who received the consideration). Such a certificate is evidence, until the contrary is proved, that the stated amount was paid.

Income from land dealing transactions is to be treated as the highest taxed part of the recipient’s income.

Must tax be withheld when paying proceeds of a gain to a non-resident?

(2) Revenue may direct a person paying proceeds of a gain to a non-resident, to withhold tax at the standard rate from the amount of the payment, as if the payment were an annual payment (section 238), and pay the amount so withheld to Revenue immediately.

This does not prejudice the final determination of the non-resident’s tax liability.

In practice the person withholding the tax may pay the tax when making your annual tax return.

How do income tax rules deeming income to be another person’s relate to tax to be charged under Case IV on gains from disposals of land?

(3) Income tax rules deeming income to be another person’s income take precedence to section 643.

What is the disposal value for CGT purposes?

(4) The acquisition cost (market value at the time it is appropriated as trading stock) of developed land acquired without the intention to develop it is also its disposal value for capital gains tax purposes.

What if a person is charged to tax who did not realise the gain?

(5) Where a person is charged to tax under section 643 and is not the person who realised the gain (or obtained the capital amount), for the purposes of excluding revenue type proceeds and expenditure from a capital gains tax computation, the person who realised the gain (or obtained the capital amount) is treated as the person charged to tax.

This prevents a capital gains tax charge on the person who realised the gain (or obtained the capital amount).

Section 644A Relief from income tax in respect of income from dealing in residential development land

Note: This section has no effect for 2009 and later tax years.

Considering the context in which section 644A was enacted and the separation of the source from “total income” for tax purposes, Revenue will not charge PRSI or health contribution on profits or gains chargeable under section 644A(Tax Briefing 45, October 2001).

What definitions apply in relation to profits from dealing in residential development land?

(1) This section applies to profits or gains from dealing in, or developing, residential development land, i.e., land:

(a) which is disposed of to a housing authority, the National Building Agency Ltd (NBA), or an approved voluntary housing body, and which has been certified by a housing authority or the NBA as required for social housing,

(b) for which planning permission for residential development has been granted, or

(c) which is zoned for residential development in the relevant planning authority’s development plan.

In this regard, residential development includes any ancillary development which is necessary for the proper development of the area in question.

Profits from construction operations (section 530(1)) do not qualify as profits from dealing in or developing, residential development land unless such profits derive from:

(a) demolition of any building or structure on the land,

(b) construction or demolition of roadworks, water mains, wells, sewers, or installations for land drainage, or

(c) any other preparatory operations (other than laying of foundations).

What type of profits or gains does this section apply to?

(2) The type of profits or gains dealt with are:

(a) trading profits that arise from dealing in, or developing, residential development land (section 641), and

(b) capital profits that arise from disposal of residential development land which would be taxable as income under Schedule D Case IV (section 643).

What income tax rate applies to gains in this section?

(3) A special income tax rate of 20% applies to the profits or gains, arising on or after 1 December 1999, described in (2).

Such profits are not to be included in computing total income for the tax year in question.

The small incomes exemption (section 187188) or standard rated tax credits (section 458, Table Part 2) cannot be claimed in respect of such income.

Example

You are a farmer who is assessed to tax as a single individual, had the following profits for the year ended 31 December 2008 (basis period for 2008):

Farming trade 25,000

On 20 December 2008, you sold some land, for which you had obtained planning permission for residential development, for €675,000.

In the absence of this section, the €675,000 profits would probably have been taxed as an “adventure in the nature of trade” at your marginal tax rate (41%), producing a tax bill of €276,750.

With the 20% tax rate, the tax bill is €135,000 (a saving of €162,000). If you opt (see (5) below) for the 20% rate, you must not include the €675,000 as part of your total income for tax purposes.

What computation rules apply where a trade is partly dealing in residential land and partly other operations?

(4) Where a trade consists partly of dealing in residential development land, and partly of other activities, the sales and expenses are to be apportioned to the “residential development land” part of the trade, and the other part of the trade. Each part is then treated as a separate trade.

Profits or gains from construction operations must not be apportioned to the “residential development land” separate trade, unless they derive from the demolition or preparatory work activities mentioned in (1).

Example

You have been dealing in and developing land for a number of years. The following are your trading results for the tax year 2008:

Case I trading income 280,000
Expenses 65,000
Case V income chargeable 5,000
Case III income chargeable 3,000

€100,000 of the trading income arises from dealing in and developing residential land, and the expenses relating to this income amount to €25,000. You are single.

The position for the tax year 2008 is:

Income from dealing in and developing residential land
Trading income 100,000
Less expenses 25,000
75,000
Tax
75,000 at 20% 15,000
Other income
Trading income 180,000
Less expenses 40,000
140,000
Case V 5,000
Case III 3,000
148,000
Tax
35,400 at 20% 7,080
112,600 at 41% 46,166
68,246
Less basic personal tax credit (section 461) 1,830
Liability 66,416
Source: Tax Briefing 40 (updated)

Profits from construction operations do not qualify for the 20% rate unless they derive from demolition or preparatory type work

Can a taxpayer elect that the rules in this section do not apply?

(5) A taxpayer may elect in writing, on or before the self-assessment return filing date (section 950), that this section should not apply to her/his profits or gains from dealing in or developing residential land.

In other words, a taxpayer can opt:

(a) to have your profits or gains taxed as income at his/her marginal rate of tax, with the availability of the small incomes exemption and the standard rate tax credits (which are denied by (3) when the 20% rate applies), or

(b) to have “once-off” profits or gains, which are in the nature of a realisation of an investment, taxed as capital gains (with indexation relief, etc).

When do the regulations regarding tax relief in respect of income from dealing in residential development land cease to apply?

(6) This section ceases to have effect for the tax year 2009 and for later years.

Section 644AA Treatment of losses from dealing in residential development land

Can a loss be claimed in a 20%-taxed trade against fully taxed profits?

(1) If a relevant loss arises in a 20%-taxed trade of dealing in residential development land (a specified trade), then the loss will only be allowed at 20%. See (4).

What if I part of a trade is taxed at 20% and part at full tax rates?

(2) If a trade is a combined trade, consisting partly of a specified trade, and partly of a non-specified trade, the two “trades” are treated separately for tax purposes.

How are accumulated 20% trade losses treated?

(3) If a loss in a 20%-taxed trade has not been claimed before 7 April 2009,it may not be offset against 41%-taxed profits. Instead, the taxpayer will get a credit for the loss, as set out in (4).

How is a credit for a loss in a 20%-taxed trade given?

(4) From 7 April 2009 tax relief in respect of a relevant loss, is given, not for the full amount of the loss, but by way of a tax credit against the interim amount of tax payable.

How much is the tax credit?

(5) The tax credit is equivalent to 20% of the relevant loss.

What happens if the tax credit exceeds the interim tax payable?

(6) If the tax credit exceeds the interim tax payable, the excess tax credit can be carried forward for use against tax payable of the combined trade in later tax years.

(7) When an excess tax credit is carried forward due to the fact that the tax credit in respect of a person’s 20%-taxed trade exceeds his/her interim tax payable, the combined trade tax against which the remaining credit can be offset must be calculated.

This is calculated as:

B  x  C
D

where-

B is the interim tax payable for the year,

C is the profits or gains from the combined trade for the year, and

D is the adjusted income for the year.

If there is an excess tax credit carried forward to a tax year before 2009, it must firstly be used against 20%-taxed profits (profits of the specified trade), with any remaining excess being used against 41%-taxed profits (profits of thenon-specified trade). “C” in the formula “B x (C/D)” then becomes the adjusted profits of the non-specified trade for the year.

What if there is a carried forward tax loss?

(8) It may be the case that a person entitled to “carry forward” relief in respect of a relevant loss incurred in a 20%-taxed trade (section 382). If such a claim was not received by Revenue before 7 April 2009, she/he is only allowed carry forward a tax credit in respect of the loss.

The tax amount of carried forward tax credit is determined by the formula E x (20/100), where E is the relevant loss.

What if there is a terminal loss?

(9) It may be the case that a person entitled to relief in respect of a “terminal loss” incurred in a combined trade(section 385). If such a claim was not received by Revenue before 7 April 2009, he/she is only allowed carry back the loss to periods before 1 January 2009, as the combined trade consisted of two separate trades: a 20%-taxed trade (specified trade) and a 41%-taxed trade (a non-specified trade). In effect, she/he will only get relief for the 20%-trade loss against 20% trade profits.

Section 644AB Treatment of profits or gains from land rezonings

What definitions apply in relation to profits arising from land rezonings?

(1) “Windfall” profits or gains may arise from a rezoning decision (a relevant planning decision), i.e. a decision to rezone land from non-development land use to development land use

What profits relating to land rezonings are taxed under section 644AB?

(2) This section taxes “windfall” profits or gains (i.e. land-dealing profits, or capital gains) which arise as a result of a relevant planning decision.

Are rezoning profits chargeable to corporation tax?

(3) No. Rezoning profits which arise to a company are not caught for corporation tax.

Are rezoning profits chargeable to income tax?

(4) Yes. Rezoning profits are taxed at a special rate of 80%. Such profits are disregarded for income tax and corporation tax, except in relation to collection of tax, interest and penalties. In other words, such profits do not qualify for any reduction or relief against tax.

What happens if a rezoning decision gives rise to a loss?

(5) A non-rezoning loss is ring-fenced, i.e. it may only be used against non-rezoning profits. The only loss that can be used against rezoning profits is a rezoning loss.

Are rezoning profits subject to PRSI and the health levy?

(6) No. Rezoning profits are not regarded as reckonable income for the purposes of PRSI and the health levy.

Do rezoning profits include construction profits?

(7) Rezoning profits do not include profits arising from:

(a) construction operations, or

(b) qualifying land, i.e.

(i) land disposed of under a compulsory purchase order,

(ii) land disposed of by a NAMA subsidiary,

(iii) land consisting of a site of not more than 0.4047 hectares, with a market value not exceeding €250,000.

How are profits or expenses attributable to several activities to be apportioned?

(8) Profits or expenses attributable to several activities (for example, mixed profits derived from construction activities and rezoning activities) are to be apportioned on a “just and reasonable” basis.

How is a distribution from mixed profits to be treated?

(9) A distribution from mixed profits (i.e. profits derived from a mixture of rezoning activities and other activities) is to be treated as two separate distributions – the first from the rezoning activities and the second from the other activity.

Are distributions from rezoning profits subject to PRSI and the health levy?

(10) No. Distributions from rezoning profits are not subject to PRSI or the health levy.

When do rezoning profits become subject to this tax?

(11) Rezoning profits are taxed at the special rate (80%) in the years 2010 to 2014.

Section 644B Relief from corporation tax in respect of income from dealing in residential development land

Note: This section has no effect for 2009 and later tax years.

What is an “excepted trade”?

(1) This relief applies to you where you are a company that carries on an excepted trade, i.e., a trade of dealing in or developing land (this excludes construction operations, and dealing or developing in “fully developed” land), and that trade includes dealing in residential development land (section 644A(1)).

An excepted trade also includes mining activities and petroleum activities.

What corporation tax is payable by an excepted trade company?

(2) The corporation tax payable by an “excepted trade” company, in so far as it refers to trading income from dealing in residential development land, may be reduced by one-fifth.

The 25% higher rate of corporation tax (section 21A) applies to income chargeable under Case III, IV, or V, and income from an excepted trade, i.e., income from dealing in or developing land, income from mining activities, and income from petroleum activities.

The relief effectively reduces the 25% rate (which would otherwise apply to income from dealing in residential land) by one-fifth to 20%.

The corporation tax referable to income from the excepted trade is calculated by applying the fraction:

income from “excepted trade” chargeable at 25% (section 21A)
total profits chargeable at 25% (section 21A)

to the amount of corporation tax chargeable at 25% (section 21A).

Example

You are a construction company that had the following taxable profits for the year ended 31 December 2008:

Trading income (Case I) 1,250,000
Investment income (Case III) 230,000
Miscellaneous royalties (Case IV) 15,000
Rental income (Case V) 47,000
Profits 1,542,000
Corporation tax at 25% 385,500

Your entire trading income derives from developing land, and is therefore “income from an excepted trade” which is chargeable at 25%.

The corporation tax referable to income from the excepted trade is €312,500, which is calculated by applying the fraction

1,250,000
1,542,000

to 385,500, the corporation tax chargeable at 25%.

How is the corporation tax referable to trading income from dealing in residential development land calculated?

The corporation tax referable to trading income from dealing in residential development land is calculated by applying the fraction:

A
B

where―

A is “excepted trade” turnover from disposal of residential development land (exclusive of turnover from construction operations carried out on that land), and

B is total “excepted trade” turnover from disposal of land (exclusive of turnover from construction operations carried out on that land),

to the amount of corporation tax referable to income from the excepted trade.

Example

Continuing with the facts of the previous example, assume that your sales turnover from developing land breaks down as follows:

Total construction operations part Net
Residential land development 17,150,000 4,175,000 12,975,000
“Commercial” development 5,365,000 1,195,000 4,170,000
22,515,000 5,370,000 17,145,000

The corporation tax referable to trading income from developing residential development land is calculated by applying the fraction:

12,975,000
17,145,000

to €312,500, which is the corporation tax referable to income from the excepted trade.

This gives a corporation tax applicable to residential land of 236,493
Therefore, the reduction in corporation tax (one-fifth) is 47,298
Therefore, the final corporation tax assessment is:
Profits 1,542,000
Corporation tax at 25% 385,500
Less reduction under section 644B 47,298
Corporation tax payable 338,202

See also Tax Briefing 40 June 2000.

Does the reduction of corporation tax apply to once off disposals which are taxed as income under Case IV?

(3) Capital profits arising on “once-off” disposals of development land can be taxed as income under Schedule D Case IV (section 643). Where such profits derive from a disposal of residential development land, the corporation tax applicable to the gain may be reduced by one-fifth.

The corporation tax referable to such capital profits is calculated by applying the fraction

“capital profits” chargeable at 25% (section 643)
total profits chargeable at 25% (section 21A)

to the amount of corporation tax chargeable at 25% (section 21A).

Example

You carry on business as a manufacturing company. On 30 June 2008, you received €1,150,000 when you sold off some land adjoining the factory for development.

You have been carrying on your manufacturing activity for 15 years, and you are entitled to the 10% rate of tax on your manufacturing profits until 31 December 2015.

You had the following taxable profits for the year ended 31 December 2008:

Trading income (Case I) 500,000
Profits 500,000
Corporation tax at 12.5% 62,500
Less “manufacturing” relief (2.5/12.5) x 120,000 12,500
= Corporation tax at 10% 50,000
Investment income (Case III) 55,000
Once-off gain on disposal of land for development (Case IV) 1,150,000
Rental income (Case V) 22,000
25%-taxed profits 1,727,000
Corporation tax at 25% 431,750

The corporation tax referable to the gain from the disposal of development land is calculated by applying the fraction:

1,150,000
1,727,000

to 431,750, which is the corporation tax chargeable at 25%.

This gives a figure of €287,500.

How is the corporation tax referable to dealing in residential development land calculated?

The corporation tax referable to the part of the gain attributable to dealing in residential development land is calculated by applying the fraction:

C
D

where―

C is the gain attributable to the disposal of residential development land (exclusive of turnover from construction operations carried out on that land), and

D is Case IV gain on the disposal of land for development (section 643),

to the corporation tax referable to the gain from the disposal of development land.

Example

Continuing with the facts of the previous example, assume that the 80% of the once-off gain is attributable to “residential” development.

The corporation tax referable to the “residential development land” part of the gain is therefore 80% x €287,500.

This gives corporation tax applicable to residential land of 230,000
Therefore, the reduction in corporation tax (one-fifth) is 46,000
Therefore, the final corporation tax assessment is:
Profits 2,227,000
Corporation tax 511,750
Less manufacturing relief 12,500
Less reduction under section 644B 46,000 76,000
Corporation tax payable 453,250

Note

The “gross” corporation tax figure of €511,750 is made up of the corporation tax on the trading income €62,500 (before manufacturing relief) and the corporation tax on the 25%-taxed profits €453,250 (before the reduction for residential land).

See also Tax Briefing 40.

Can these profits be taxed at the higher rate?

(4) A company may claim, in relation to an accounting period ending before 1 January 2001, that its profits from dealing in, or developing, residential development land are to be taxed at the higher rate (section 21A).

If the accounting period that straddles 1 January 2001, it is to be divided into two accounting periods: one ending on 31 December 2000, and the other ending on the accounting period end-date, and each sub-period is regarded as a separate accounting period.

When does the 20% residential land rate cease?

(5) The 20% corporation tax rate applicable to dealing in residential land ceases from 31 December 2008. If your accounting period straddles that date, it is divided into two accounting periods: one ending on 31 December 2008, and the other ending on the last day of the period.

Section 644C Relief from corporation tax for losses from dealing in residential development land

What definitions are used in restricting the use of “20% trade” losses?

(1) This section deals with the situation where a company has unused trading losses from a trade of dealing inresidential development land. In the absence of legislation, the company could use “20%” trade loss against its 25%-taxed profits – and it would lose out if it were only allowed to use the 20% trade loss against its 12.5%-taxed profits.

Two definitions are used: the company’s corporation tax referable to dealing in residential land is the 20% tax, and its relevant corporation tax is the 25% rate (the rate that would otherwise have applied to dealing in land).

The 20% corporation tax rate applicable to dealing in residential land ceases from 31 December 2008 (section 644B(5)). If your accounting period straddles that date, it is divided into two accounting periods: one ending on 31 December 2008, and the other ending on the last day of the period.

Can a pre-31 December 2008 20% trade loss be used against post-31 December 2008 profits?

(2) If a company wishes to carry forward a 20% trade loss from a period before 31 December 2008 to a period after that date, the loss will be reduced by 20%.

Example

Accounts year ended 31.12.2008: Your company has a 20% trade loss of €100,000.

Accounts year ended 31.12.2009: Your company has a 25% trade profit of €300,000. This can reduced by the loss carried forward (€80,000 = €100,000 x 80%) to €220,000.

Can a 20% trade loss be used against current profits?

(3) Under section 396(2), a company can use a “current” loss against profits of the current period, and carry any excess back for use against profits of the preceding accounting period of equal length.

If a company’s trade consists of or includes dealing in or developing residential land (i.e., a “20%” trade), the amount available under section 396(2) is reduced as follows:

(a) where the accounting period ends before 1 January 2009, the reduction is the lower of

(i) the amount of the loss, and

(ii) the amount of the “20% trade” loss, and

(b) where the accounting period straddles 1 January 2009, the reduction is the lower of

(i) the amount of the loss, and

(ii) the amount of the “20% trade” loss,

incurred before 1 January 2009.

Example

Accounts year ended 31.12.2008: Your company has:

(a) a 12.5% trade loss of €50,000,

(b) a 25% trade profit of €75,000, and

(c) a 20% trade loss of €100,000.

You want to use the 20% trade loss against the 25% trade profit.

You can’t. You can use the 12.5% trade loss (on a value basis).

The loss available for set-off under section 396(2) is reduced by the amount of the 20%-trade loss, i.e., €100,000. This means the loss can only be carried forward, but see (6)-(12) below.

How are receipts and expenses that are common to a 20% trade and another trade dealt with?

(4) It may be the case that a company carries on several trades, including (for example) dealing in non-residential land (25% tax rate) and construction activities (12.5% tax rate). In such a case “common” receipts and expenses must be apportioned on a just and reasonable basis across the trades.

How can a current 20% trade loss be used?

(5) Under (3) above, a “current” 20% trading loss is restricted and may not be used against profits of the current or preceding period.

Instead, the rules in (6)-(12) apply, and the relevant loss is treated as a loss in a separate trade.

Can a 20% trade loss be used against 12.5%-taxed profits?

(6) If a company has a relevant loss for an accounting period, it can make a claim for the loss to be set off against:

(a) 12.5%-taxed insurance income,

(b) 12.5%-taxed income,

(c) 12.5%-taxed foreign dividends,

(d) profits attributable to chargeable gains,

of the current period and of preceding accounting periods ending in the time period mentioned in (7).

The loss is then to be used against those profits, with later periods being relieved before earlier periods.

What is the “time period” in (6)?

(7) The time period referred to in (6) is the time immediately preceding the current period which is equal in length to that period. Relief is only given in respect of the proportion of the accounting period falling within that time period.

Can relief for a relevant loss be claimed?

(8) Yes. A taxpayer can claim relief for a relevant loss which exceeds the profits of the current and preceding period (see (6)).

Can relief on a value basis be claimed in respect of a 20% trade loss?

(9) Relief can be claimed in respect of a 20% trade loss that cannot be used in the current period and of preceding accounting periods ending in the time period mentioned in (10).

20% of the excess (the unrelieved amount) is claimed and that is used as a tax credit against tax paid in the current and preceding time period.

What is the time period in (9)?

(10) The time period referred to in (9) is the time immediately preceding the current period which is equal in length to that period. Relief is only given in respect of the proportion of the accounting period falling within that time period.

If loss relief on a value basis is claimed, is the loss “used up” for tax purposes?

(11) Yes. Where a claim on a value basis is made under (8), it is treated as having “used up” loss relief equivalent to the grossed-up amount of the tax “credit” derived from the loss, i.e., T x (100/20).

When do the new rules relating to 20% trade losses come into effect?

(12) The rules in (3)-(11) apply to loss relief claims, arising from a trade of dealing in residential land, made on or after 7 April 2009.

If a trade ceases before 31 December 2008, can a “terminal” 20% trade loss be carried back against profits of the preceding 36 months?

(13) Under section 397(1), a company can use a “terminal” loss incurred in the final 12 months of trading, against profits of the three year period preceding that 12 month period.

If a company ceases to trade on or before 31 December 2008, and it has incurred a “terminal” loss in the final 12 months of its trade (which includes a trade of dealing in residential land), that loss is reduced by the lower of

(a) the amount of the loss, and

(b) the amount of the “20% trade” loss.

In other words, the “20% trade” loss cannot be carried back for use against profits of the preceding 36 months. But see (15)-(16) which provide relief on a value basis

If a trade ceases on or after 1 January 2009, can a “terminal” 20% trade loss be carried back against profits of the preceding 36 months?

(14) If a company ceases to trade on or after 1 January 2009, and it has incurred a “terminal” loss in the final 12 months of its trade (which includes a trade of dealing in residential land), that loss is reduced as follows:

(a) where the accounting period ends before 1 January 2009, the reduction is the lower of

(i) the amount of the loss, and

(ii) the amount of the “20% trade” loss, and

(b) where the accounting period straddles 1 January 2009, the reduction is the lower of

(i) the amount of the loss, and

(ii) the amount of the “20% trade” loss,

incurred before 1 January 2009.

Can terminal loss relief be claimed on a value basis?

(15) If a company ceases to trade, it can claim relief for a “terminal” loss on a value basis, i.e., on the basis of the amount by which the loss has been reduced under (13) and (14).

How is a terminal loss relief on a value basis obtained?

(16) A relief claim under (15) is given as follows:

Calculate 20% of the loss and use the resulting figure as a tax credit against corporation tax referable to dealing in residential land in the three years preceding the final 12 months of trading.

Can value-based relief be double claimed?

(17) No.

Where a loss arises for an accounting period which straddles the final 12 months of trading, value-based relief (see (16)) is only given in respect of the proportion of the loss falling within the final 12 months. If an accounting period straddles the three year period preceding the final 12 months of trading, the “value-based” tax credit may only be used against the proportion of the accounting period falling within the 36 month period.

If terminal loss relief is claimed on a value basis, is the loss “used up” for tax purposes?

(18) Yes. A claim on a value basis under (15)-(16) is treated as having “used up” loss relief equivalent to the grossed-up amount of the tax “credit” derived from the loss, i.e., U x (100/20).

When do the new rules relating to “terminal” 20% trade losses come into effect?

(12) The rules in (13)-(18) apply to terminal loss relief claims, arising from a trade of dealing in residential land, made on or after 7 April 2009.

Can a 20% trade loss incurred before 31 December 2009 be surrendered?

(20) In general, under section 420, a company can surrender a 20% trade loss for use against profits of a claimant company in the same group.

However, as regards a loss incurred in an accounting period ending before 31 December 2009, in a trade of dealing in residential land, that loss is reduced as follows:

(a) where the accounting period ends on or before 31 December 2008, the reduction is the lower of

(i) the amount of the loss, and

(ii) the amount of the “20% trade” loss, and

(b) where the accounting period straddles 1 January 2009, the reduction is the lower of

(i) the amount of the loss, and

(ii) the amount of the “20% trade” loss,

incurred before 1 January 2009.

In other words, the “20% trade” loss cannot be surrendered. But see (21)-(22) which provide relief on a value basis.

If loss relief on a value basis is surrendered, is the loss “used up” for tax purposes?

(21) If a company makesa claim on a value basis under (20), it and the surrendering company are treated as having “used up” loss relief equivalent to the grossed-up amount of the tax “credit” derived from the loss, i.e., V x (100/20).

Can a company surrender a 20% trade loss for use against 12.5%-taxed profits of a claimant company in its group?

(22) If a company has a relevant loss for an accounting period, it can surrender the restricted loss to be set off against:

(a) 12.5%-taxed insurance income,

(b) 12.5%-taxed income,

(c) 12.5%-taxed foreign dividends,

(d) profits attributable to chargeable gains,

of the claimant company’s corresponding accounting period.

A company cannot surrender a carried back loss (section 396(2)), a loss in a foreign trade (section 396(4)) or a loss in a farming or market gardening trade (section 663).

What is the priority of surrendered group relief in relation to other reliefs available to the claimant?

(23) Group relief comes before terminal loss relief (section 397) but after carried forward loss relief (section 396) of the claimant.

Can consortium relief be claimed in respect of a 20% trade loss?

(24) If a member of a consortium is claiming relief in respect of its share of a consortium-owned company’s 20% trade loss, it is only entitled to claim its fractional share of the loss.

Can group relief be claimed in respect of a surrendering company’s unrelieved loss?

(25) If a surrendering company’s restricted (20%) loss exceeds the (12.5%) profits and chargeable gains that could have been set against that loss, the claimant company can claim relief for the difference (the relievable loss).

If a surrendering company’s “unrelieved loss” is claimed on a value basis, is the loss “used up” for tax purposes?

(26) Yes. If a company makes a claim on a value basis under (25), it and the surrendering company are treated as having “used up” loss relief equivalent to the grossed-up amount of the tax “credit” derived from the loss, i.e., W x (100/20).

How do the group provisions in (20)-(26) relate to the group provisions in this Act?

(27) The group relief provisions (sections 410 to 429) apply as if they contained the provisions in (20)-(26).

When do the group relief rules come into effect in relation to dealing in residential land?

(28) The rules in (20)-(27) apply in relation to group relief claims made on or after 7 April 2009 in respect of a 20%-taxed trade of dealing in land.

Section 645 Power to obtain information

What information may be required by Revenue?

(1)-(2) An inspector may write requiring, within 30 days, information regarding land dealing transactions:

(a) in which a person was acting on behalf of another,

(b) within section 643 or section 644, that require more detailed examination by the inspector,

(c) a person’s role, if any, in relation to such transactions).

How is a solicitor treated in relation to professional advice on a land dealing transaction?

(3) Where a solicitor has given professional advice in relation to a land dealing transaction, he/she is not to be regarded as a party to any scheme or arrangement involving such land.

This power to obtain information may not be used to breach a solicitor’s client confidentiality, except with the client’s consent.

A solicitor need only state the name and address of his or her client..

Section 646 Postponement of payment of income tax to be permitted in certain cases

What is the “basis period”?

(1) The basis period for an income tax year is the period the profits or gains of which are used to compute your income tax liability.

When do the income tax postponement rules apply?

(2) The rules in (3) and (4) apply for the tax year in the basis period of which a disposal takes place, if:

(a) the vendor carries on a trade of dealing in or developing land, and in the course of the trade, disposes of a full interest in any land,

(b) the disposal is to an unconnected purchaser,

(c) the contract gives a right to have the land leased back,

(d) that right is to be taken into account as part of the disposal proceeds, and

(e) the leaseback takes place within six months of the disposal.

Note

(e) Most leasebacks are granted immediately after the sale. The six month period allows for reasonable delays.

How does the postponement operate?

(3) A vendor who has made such a sale and leaseback, and has not disposed of any part of the leasehold interest, may postpone 90% of the tax liability, and pay that postponed tax in nine equal instalments, beginning on January 1 in the year after the year in which the tax was payable.

Any profit arising to a vendor on a sale and leaseback deal would not normally be considered a “trading” profit. Liability might arise, for example, on a sale-lease arrangement with a financial institution. In such a case, although the sale consideration might consist partly of cash and partly of the right to the leaseback, the total consideration would be included in computing the profits.

The value of the right to the leaseback depends on the rent payable under the lease. If the cash consideration is near to the property’s market value, the leaseback rent will be high and your right to that lease will not have much value.

If the cash consideration is significantly below the property’s market value, the leaseback rent will be low, the right to that lease will have value, and will represent a significant part of the consideration.

In such a case, if the lease is held as an investment for future subletting, cash-flow problems may arise if immediate payment of the entire liability is required. The section, therefore, allows the tax to be paid over a 10 year period.

When does the postponed tax become payable?

(4) The postponed tax liability becomes immediately payable if a person:

(a) ceases to hold the leasehold interest,

(b) disposes of an interest derived from that leasehold interest,

(c) dies, or

(d) being a company, goes into liquidation.

Note

(b) creates a sublease which requires payment of a premium.

Section 647 Postponement of payment of corporation tax to be permitted in certain cases

When can corporation tax be postponed with a sale and leaseback disposal?

(1)-(2) A company making a sale and leaseback disposal, may postpone 90% of the tax liability on the transaction and pay that postponed tax in nine equal instalments, beginning 12 months after the date on which the tax would otherwise have been due.

Section 648 Interpretation (Chapter 2)

What definitions apply to CGT on disposals of development land?

This Chapter taxes gains on relevant disposals, i.e., gains on disposals made on or after 28 January 1982, ofdevelopment land. This is land in the State having a potential realisable value in excess of its current use value at the time of its disposal. Development land also includes unquoted shares deriving their value from such land.

The current use value of land is its market value on the basis that it would be unlawful (planning permission would not be granted) to carry out any development of the land other than development of a minor nature (which does not require planning permission).

The current use value of shares deriving their value from land is also their market value on the basis that development (other than development of a minor nature) of the land would be unlawful for the same reasons.

Example

You own 200 acres of farm land in North County Dublin. The land is zoned “agricultural” by the planning authority, and planning permission for development would not be granted. As farm land, the land is worth €400,000. Its current use value is therefore €400,000.

If the land were rezoned for development purposes, the land would be worth €20m. Its development value is therefore €20m.

Development of a minor nature includes work carried out by a statutory undertaker (for example, a water, electricity, gas or phone utility) in relation to its pipe or cable network. It does not include, for example, the development of a housing estate by a local authority.

A compulsory disposal is a disposal to a local authority that has exercised its compulsory purchase powers to acquire the land in question.

The term does not include a “reverse compulsory purchase order” (initiated by the landowner under Local Government (Planning and Development) Act 1963 section 29), requiring the local authority to purchase the owner’s land (for example, where planning permission has been refused).

Development land is land with “hope value”, i.e., the owner “hopes” it will be rezoned: Morgan v Gibson, [1989] STC 568; Watkins v Kidson, [1979] STC 464.

The essential test (of whether land is development land) is the price realised.

Section 649 Companies chargeable to capital gains tax in respect of chargeable gains accruing on relevant disposals

How are a company’s development land gains taxed?

(1) A company’s development land gains are not chargeable to corporation tax; they are chargeable to capital gains tax.

Where a liability to capital gains tax arises, preliminary tax (capital gains tax) must be paid on or before the due date (section 958(2)). A form CG 1 must be filed on or before the return filing date.

Can development land gains be surrendered within a chargeable gains group?

(2) Development land losses may be surrendered (for set off against development land gains) within a chargeable gains group.

How are disposals outside a group of assets acquired from a group member treated?

(3) A group member disposing of development land outside the group is regarded as acting for the entire group.

Development land assets acquired by the disposing company from another group member are treated as having been acquired when first acquired by the group. However, development land assets are treated as acquired at market value by a group member:

(a) that disposes, as trading stock, of development land acquired by another group member as a fixed (non-trading stock) asset (section 618(2)),

(b) that leaves the group with a group asset which was the subject of, or basis for, a group rollover relief claim (section 623).

The base cost is the cost of the asset to the entire group.

Section 649A Relevant disposals: rate of charge

What rate applies to gains on disposals of development land?

(1) Gains arising on disposals of development land are charged to capital gains tax as follows:

(a) at 40%, where the disposal is during the period 3 December 1997 to 30 November 1999 inclusive,

(b) at 33%, where the disposal is on or after 6 December 2012.

Are all gains on disposals of development land before 1 December 1999 chargeable at the 40% rate?

(2)-(3) Gains arising on certain disposals of residential development land before 1 December 1999 are not chargeable at the 40% rate mentioned in (1)(a):

(a) Such gains are chargeable at 20%.

(b) The type of pre-1 December 1999 disposals that qualify for the 20% rate are:

(i) “Small” disposals i.e., the proceeds for which do not exceed €19,050 in a tax year (section 650).

(ii) Disposals in the period 23 April 1998 to 30 November 1999 to a housing authority, of land that has been specified in a certificate given by the authority as being for required for housing purposes.

(iii) Disposals in the period 10 March 1999 to 30 November 1999 to the National Building Agency Ltd. or an approved housing body, of land that has been specified in a certificate given a housing authority as being for required for housing purposes.

(iv) Disposals in the period 23 April 1998 to 30 November 1999 in relation to which planning permission for residential development, unless excluded by (c), exists at the time of the disposal (residential developmentincludes ancillary development necessary for the proper planning and development of the area in question).

(v) Disposals in the period 10 March 1999 to 30 November 1999 which, unless excluded by (c), are in accordance with the development objective of the appropriate planning authority, as stated in its development plan.

(c) The following pre 1 December 1999 residential land disposals are excluded from the 20% rate (and therefore remain liable at 40%):

(i) a disposal by a disponer to a connected person (section 10),

(ii) a disposal of land under a relevant contract, i.e., where the sale contract is conditional on permission for non-residential development being granted for that land.

A development of holiday cottages is a “residential development”. Therefore, planning permission for a holiday cottage development is regarded as planning permission for residential development (Tax Briefing 33).

Section 649B Windfall gains from rezonings: rate of charge

What definitions apply in relation to gains on disposal of rezoned land?

(1) “Windfall” gains may arise from the disposal of rezoned land. A relevant planning decision is a decision to rezone land from non-development land use to development land use.

What land rezoning gains are taxed under section 649C?

(2) This section taxes “windfall” gains which arise on the disposal of the rezoned land – even if acquired from a connected person.

What rate of capital gains tax applies to windfall gains?

(3) Windfall gains arising on the disposal of rezoned land are taxed at 80%.

What gains are exempt from the windfall gains charge?

(4) The following gains are not caught:

(a) a disposal of land to a local authority by way of compulsory purchase order,

(b) a disposal by a 75% subsidiary of NAMA,

(c) a disposal of a site of 0.4047 hectares or less and worth less than €250,000 to a child to enable the child to build a home.

Such gains are taxed at the normal CGT rate (25%).

Can I offset an “ordinary” (25%) CGT loss against a loss arising on a disposal of rezoned land (80%)?

(5) No.

When does the 80% rate come into effect?

(6) The 80% rate has effect from 30 October 2009 to 31 December 2014.

Section 650 Exclusion of certain disposals

Are all amounts from development land gains chargeable under the development land rules?

If the proceeds accruing in a tax year from development land gains do not exceed €19,050, the gain is treated as an “ordinary” gain and therefore qualifies for indexation relief (section 651), rollover relief (section 652), loss relief (section 653) and the 33% tax rate.

Section 651 Restriction of indexation relief in relation to relevant disposals [TCA 1997 s 651] Commentary

How do the indexation rules apply to disposals of development land?

In a CGT computation on a disposal of development land, only the current use value of the land at the time of acquisition, and proportionately scaled back incidental costs of acquisition, may be indexed (section 556).

If land was acquired before 6 April 1974, its current use value on that date may be indexed.

Example

01.04.1988 You bought farm land for €100,000 (£78,756) when its current use value was €50,000 (£39,378). The incidental costs of acquisition were €2,000.

01.06.1990 You spent €10,000 draining the land.

01.06.2008 You sold the land for €1m.

The gain is calculated as:
Proceeds 1,000,000
Cost 100,000
Current use value at 1 April 1988 50,000
indexed at 1.583 79,150
“Uplift” 29,150 29,150
Enhancement 1 Jan 1990 (unindexed) 10,000 139,150
Gain 860,850

Note

1. The excess of the price paid (€100,000) for the land over its current use value (€50,000) at the time of its acquisition reflects the land’s “hope” value, or future development potential.

2. Although only the current use value at the time of acquisition may be indexed, you are allowed a full deduction for the land’s acquisition cost (€100,000).

Section 652 Non-application of reliefs on replacement of assets in case of relevant disposals

Amendments

This section is now spent from 4 December 2002

Section 653 Restriction of relief for losses, etc in relation to relevant disposals

Can ordinary losses be used against development land gains?

(1) No. “Ordinary” allowable losses (section 546) cannot be set off against development land gains.

Can a development land loss be set off against ordinary gains?

(2) A development land loss may be set off against “ordinary” gains (section 545), but it may not be claimed twice. To the extent that a development land loss has been used against development land gains, it cannot be used against “ordinary” gains.

Section 654 Interpretation (Part 23)

What interpretation rules apply in relation to farming and market gardening?

Farming means occupying farm land (but not market garden land) in the State, wholly or mainly, for husbandry.

The occupation of land, in this context, means having the right to use the land or graze livestock on the land.

Market garden land is land in the State occupied as a nursery or garden to sell its produce. Market gardening does not include hops-growing.

Husbandry includes pig-rearing: Knockhall Piggeries Ltd v Kerrane, (1985) 3 ITR 319.

In O’Conaill v George Shackleton and Sons Ltd, (1976) 2 ITR 636, the company was allowed to use military land to grow grass, from which it produced grass meal. As the land was predominantly used by the military, the taxpayer did not “occupy” the land and so was assessable under Schedule D Case I (not the old Schedule B, which assessed occupiers of land).

“Cattle” does not include pigs: De Brún v Kiernan, (1981) 3 ITR 19.

Revenue accept a Circuit Court decision that bee-keeping is regarded as husbandry (Revenue Precedent 2293/85, 6 May 1995).

Mushroom-growing in tunnels is not regarded as farming within the meaning of section 654. It is regarded as market gardening. As a consequence, farm buildings allowance, income averaging and stock relief is not available. An industrial buildings allowance is available at the rate of 10% (Revenue Precedent, 28 June 1999).

Section 655 Farming and market gardening profits to be charged to tax under Schedule D

How are farming profits taxed?

(1) Farming profits are taxed as trading profits under Schedule D Case I.

Computation of farming income

In computing your farming income, the following must be included:

(a) Casual profits from the sale of trees, Elmes v Trembath, (1934) 19 TC 72, and turf, Lowe v J W Ashmore Ltd, (1970) 46 TC 597.

(b) Grants of a revenue nature: Higgs v Wrightson, (1944) 26 TC 73.

(c) Profits from the sale of a racehorse: MacGiolla Riogh v G Ltd, (1956) 2 ITR 315.

(d) Headage payments and ewe premia (Revenue Precedent IT91-3063, 20 June 1991).

(e) Payments from the Department of Agriculture under the Flood Damage Relief Scheme 1995. It is the Revenue view that these payments, which are in respect of loss of livestock or fodder, are income receipts liable to income tax in the hands of the recipient (Revenue Precedent IT95-3512, 31 August 1995).

(f) Payments received from the EU for set-aside of land (even where the land is used for commercial woodlands) (Revenue Precedent IT91-3022, 16 July 1991).

(g) Payments under the Rural Environment Protection Scheme (REPS) to compensate farmers for income losses caused by reductions in output and for increases in costs of a revenue nature. This scheme, which came into operation on 1 June 1994, administered by the Department of Agriculture, Food and Forestry, was implemented pursuant to a programme approved under Council Regulation (EEC) No. 2978/92 of 30 June 1992. The objectives of the scheme are to:

(i) establish farming practices and controlled production methods which reflect the increasing public concern for conservation, landscape protection and wider environmental problems,

(ii) protect wildlife habitats and endangered species of flora and fauna,

(iii) produce quality food in an extensive and environmentally friendly manner.

Farmers who wish to join the Scheme must have an agri-environmental plan drawn up by an approved agency. The payments should therefore be included by practitioners as trading receipts when preparing annual accounts.

Where a payment has been made specifically to compensate the farmer for identifiable capital expenditure, it will not be treated as part of the farming income. It will, however, fall to be deducted in arriving at qualifying expenditure for capital allowances purposes. From the documentation available on the Scheme, payments of this nature should not occur in many cases. Where such payments are made it appears they will constitute only a very small part of the total amount received by a farmer under REPS.

In computing farming income the following must be excluded:

(a) Grants of a capital nature: Watson v Samson Bros, (1959) 38 TC 346. Compensation under the Dairy Herd Conversion Scheme was taxed in White v G and M Davis, [1979] STC 415.

(b) Payments received by farmers under the EEC Scheme of Installation Aid for Young Farmers (EEC Council Regulation 797/85). Such payments do not give rise to a charge to capital gains tax as there is no disposal of an asset (Revenue Precedent IT89-2030, 4 September 1989 and IT90-3118, 6 September 1990, Inspector Manual23.1.3).

(c) Compensation received under the EEC Milk Cessation Scheme (Council Regulation (EEC) No. 1336/86). Under the scheme, producers who surrender their entire milk quotas are paid approximately 15.31 pence each year for seven years for each gallon of milk quota surrendered; they must discontinue milk production for seven years or until the end of the super levy system, if later. Payments made under the scheme are regarded for tax purposes as compensation for the disposal of an asset.

(d) Compensation received for the suspension of a milk quota (Revenue Precedent IT89-2037, 14 February 1997). In its continuing attempts to regulate the supply of milk, the EU introduced a temporary suspension of part of all milk quotas for 1987-88 and 1988-89 only. The temporary suspension was extended for a further three years by Council Regulation (EEC) 1111/88 (Inspector Manual 23.1.28).

(e) Payments under the Forest Premium Scheme 7 February 1990, introduced by the Minister for Energy under EEC Council Regulation No. 797/85 as amended by EEC Council Regulation No. 1609/89. The aim of the scheme is to encourage farmers to divert resources away from the production of goods which are in surplus, and into forestry. The premium is exempt from tax (section 232(2)). Expenses or capital allowances relating to expenditure incurred in connection with the preparation of land for afforestation or in the subsequent planting or management of the afforested area are not allowable under any heading for tax purposes. Interest on money borrowed to purchase land for afforestation, or to purchase trees or develop the forestry is also not allowable for tax purposes (Statement of Practice, SP IT/1/90, Inspector Manual 23.1.27).

In computing farming profits, the cost of land is not deductible, even if part of the cost relates to growing crops: IRC v Pilcher, (1949) 31 TC 314; Gunn v IRC, (1955) 36 TC 93.

See also: Inspector Manual 23.2.20, 26.

Are different farming activities considered different trades?

(2) No. All farming carried on by a person in the State, whether solely or in partnership, is to be treated as a single trade. The partnership cessation and commencement rules (Part 4 Chapter 3) apply where appropriate.

This reverses the effect of the decision in Bispham v Eardiston Farming Co, (1919) Ltd, (1962) 40 TC 322.

How are market gardening profits taxed?

(3) Market gardening profits are also taxed as trading profits under Schedule D Case I.

See McGarry v Spencer, (1945) 2 ITR 1, Bomford v Osborne, (1941) 23 TC 642, Cross v Emery, (1949) 31 TC 194.

Section 656 Farming: trading stock of discontinued trade

How is farming trading stock valued when a trade is discontinued?

(1)-(2) Normally, when trading stock of a discontinued trade that is transferred to a successor is not valued at sale price, it must be valued at market value on the date of discontinuance (section 89).

However, in the case of farming trading stock, thew successor and the transferor may jointly elect that this rule need not apply, provided the trading stock is included at the same book value amount in the accounts of both.

Such an election must be made in writing on or before the self assessment return date (section 950) for the chargeable period in which the stock is transferred.

Example

X, a retiring farmer, has trading stock with market value of €20,000, which has book value of €9,000.

If he/she gives the stock to you (his/her successor), and the stock is taken as transferred at market value of €20,000, he/she must pay tax on the “profit” of €11,000 (€20,000 – €9,000).

This section allows the transferred stock to be valued at €9,000 in the books of X and you, if you both so elect.

Section 657 Averaging of farm profits

Is income averaging available to part-time farmers?

(1) No. A farmer is classed as part-time if:

(a) he/she carries on another trade or profession at any time in the tax year but not if the trade is ancillary to the farming trade and carried on on the farm land,

(b) his/her spouse or civil partner at any time in the tax year carries on another profession or trade (providing farmhouse accommodation is not counted as a trade) but not where they are separated for tax purposes,

(c) he/she owns or control more than 25% of the ordinary share capital of a trading or professional company of which he/she is a director or employee,

(d) his/her spouse owns or controls more than 25% of the ordinary share capital of a trading or professional company of which he/she is a director or employee.

Paras (b) and (d) do not apply if the part-time farmer is singly assessed (section 1016).

Is income averaging available to a jointly assessed individual whose spouse is a part-time farmer?

(2) No.

What ordinary share capital is deemed to be owned?

(3) In the context of (1), ordinary share capital that is owned (or controlled) by the director’s spouse, minor child, or the trustee of a trust for the benefit of the director’s spouse or child is regarded as owned (or controlled) by the director.

When can a full-time farmer elect for income averaging?

(4) A full-time farmer (i.e., a farmer other than a part-time farmer within (1)) may elect for income averaging within 30 days of the date of the notice of assessment. The farmer’s election is to be treated as an appeal against the assessment notice, and the assessment is to be amended in accordance with the farmer’s election.

A full-time farmer may elect for income averaging only if the farming profits of the two preceding years were charged to tax.

A farmer is not regarded as charged to tax (section 65(1)) on his trading profits in the immediately preceding four years if no such profits arose, i.e., if:

(a) a farming loss arose, or

(b) profits are nil due to stock relief (section 666) (Revenue Precedent IT96-3009, 4 June 1996).

This applies even if a balancing charge arose in either year (Revenue Precedent GD97084, 20 October 1997).

A farmer may not reverse his election for income averaging (Revenue Precedent IT97-3014, 23 September 1997).

In Palmer v Moloney, [1999] STC 890, a taxpayer who worked 42.5 hours per week for a company and 7.5 hours per week as a sole trader was held to be a “full-time” employee of the company.

How are farmers who first opt for averaging in 2014 treated?

(4A) Such a farmer will have his tax in 2015 determined by a 4 year average of profits.

What does income averaging mean?

(5) Income averaging means your farming profits for a tax year are taken to be the average annual profits over five tax years, i.e., the average profits of the basis periods (ending on the same date) in the current tax year and the four immediately preceding tax years.

Losses in any of the five averaging years may be aggregated with profits of the other years.

Where a person has farm income as a sole trader and also from a farming partnership, the income averaging rules should be applied to both businesses. All farming carried on by a person whether as a sole trader or partner is regarded as the carrying on of a single trade (section 655) (Revenue Precedent IT94-3512, 22 July 1994).

If a sole trader farmer commences to farm in partnership so that part of his profits from the sole trade are taxed under income averaging and part are taxed under the partnership commencement rules (section 66(1)), each part of the overall trade is looked at separately. This means that income averaging continues to apply to the sole trade, and income averaging will apply to the partnership income once that income has been assessed for the necessary two years (section 65(1)) (Revenue Precedent IT92-2037, 11 June 1992).

If a deceased spouse was on income averaging, and the farming trade passes entirely to the deceased’s spouse, the surviving spouse will be regarded as continuing on income averaging (Revenue Precedent IT92-3034, 8 July 1992).

Does an election for income averaging continue?

(6) The profits of a farmer who has elected for income averaging continue to be taxed on that basis, unless he/he becomes a part-time farmer, or ceases to farm.

An election for income averaging, you continues until:

(a) an individual becomes a part-time farmer,

(b) is not chargeable to tax on farming profits, or

(c) elects to opt out of income averaging (see (8)).

Losses incurred while on income averaging do not affect entitlement to be on income averaging (Revenue PrecedentIT89-2000, 16 November 1989).

If the father (in a father-son trade farming partnership) decides to retire and the son continues to farm as a sole trader, the son is entitled to continue on income averaging. In other words, the cessation of a partnership trade and the commencement of a sole trade do not affect your entitlement to income averaging. The cessation of the partnership will give rise to a review of both the father’s and the son’s assessments (section 67) (Revenue Precedent IT97-3010, 4 September 1997).

Can a farmer elect to return to the ordinary basis of assessment?

(7) A farmer who was assessed on the income averaging basis for the five preceding years may elect to revert to the ordinary (current year) basis of assessment.

A farmer who becomes a part-time farmer is deemed to have made this election.

The farmer’s profits are then adjusted for the four tax years preceding the tax year which precedes the tax year in which he/she opts to revert to the ordinary basis (see (8)).

What rules apply to opt-outs in 2015 and 2016?

(7A)(a) A person may elect to return to the normal basis of taxation in 2015 if income averaging applied for the previous 3 years.

(b) A person may elect to return to the normal basis of taxation in 2016 if income averaging applied for the previous 4 years.

How is a farmer who opts out of income averaging taxed?

(8) A farmer who opts out of income averaging is taxed in the normal way (i.e., on the basis of profits of an accounts period ending in the tax year) for the year in which she/he opts out.

(a) A person who opts out of income averaging is assessed for that and subsequnt years on the normal basis.

(b)When a person opts out in 2015 he profits of 2012 and 2013 are adjusted to ensure the profits for each of those two years are not less than the (averaged) profits for 2014.

(c) When person who first opted for averaging in 2014 opts out the 3 years preceding the year of opt out will be reviewed to ensure that the amount charged in each of those years is not less than the profits of the year preceding the opt out.

(d) When person who first opted for averaging after 2015 opts out the 4 years preceding the year of opt out will be reviewed to ensure that the amount charged in each of those years is not less than the profits of the year preceding the opt out.

Example

You are a farmer who opts out of income averaging for the year 2009. The profits for 2006 and 2007 are adjusted to ensure they are not less than the averaged profits for 2008.

Tax year Profit/Loss (P/L) Three year P/L Average
2006 31.12.2006 18,000 60,000 20,000
2007 31.12.2007 21,000 54,000 18,000
2008 31.12.2008 24,000 63,000 21,000
2009 31.12.2009 (18,000) 27,000 9,000

You receive an additional assessment in the amount of €1,000 for 2006. This increases the assessed profit from €20,000 to €21,000, which equals the three-year averaged figure in 2008 (€21,000).

You receive an additional assessment in the amount of €3,000 for 2007. This increases the assessed profit from €18,000 to €21,000, which equals the three-year averaged figure in 2008 (€21,000).

A farmer elects for income averaging and the following year, commences to carry on another trade. As he/she is no longer a full-time farmer (see (1)), he/she is no longer entitled to income averaging and his/her liability must be reviewed. Although averaging only operated for one year for one year, the revision is not restricted to that year (Revenue Precedent IT92-3036, 18 June 1992).

How are capital allowances and balancing adjustments made where income averaging applies?

Capital allowances and balancing adjustments are not averaged but are given on the current year basis.

Do the normal cessation rules apply if income averaging is used?

(10) Cessation rules (section 67) continue to apply to you as a farmer who has opted for income averaging.

When a trade ceases, the penultimate year revision is based on a comparison between the actual and the “averaged” profits (not the current year profits). If the actual profits exceed ythe averaged profits for that year, the charge is on the actual profits (Revenue Precedent IT91-3024, 19 August 1991).

What are the tax implications for a previous farming trade where a milk production partnership commences?

(10A) A farmer who commences a milk production partnership will not suffer a clawback in respect of the previous farming trade.

How are losses treated under the income averaging rules?

(11)(a) Where the aggregation of losses results in a net loss for the income averaging period a farmer who first opted for averaging in 2014 will have one quarter of that loss allocated to the last of the four years in the income averaging period.

(b) In any other case one fifth of the loss will be allocated to the fifth year of the five year averaging period.

Losses aggregated in an income averaging period may not be used to relieve any other profits.

The loss so allocated may be carried forward against (averaged) profits of the next tax year.

Do the normal income tax rules for returns apply to farmers who opt for income averaging?

(12) Income-averaged profits of a farmer who has opted for income averaging are treated as profits for tax purposes. Income tax provisions relating to returns, accounts, statements and documents continue to apply to such a farmer.

Section 657A Taxation of certain farm payments

Who is a “relevant individual” regarding the taxation of certain farm payments?

(1) This section applies to a relevant individual, i.e., who is carrying on a farming trade, and who receives a payment under the EU single payment scheme, or a terminated FEOGA scheme payment. It does not apply to farmers who are already availing of income averaging.

Can a relevant individual elect to have EU payments averaged?

(2) A relevant individual may elect, in accordance with the conditions set out in (3) to (6), to average such payments over three years.

How does the averaging of these farm payments operate?

(3) The averaging works as follows: one third of the payment is taxed in the year it is earned (the year in which it would otherwise be fully taxed), one third is taxed in the following tax year, and one third is taxed in the next following tax year.

Where a farming trade ceases, how are instalments which are due in future years taxed?

(4) If a farming trade ceases, any instalment which is due to be taxed in a future year is chargeable under Schedule D Case IV in the year of cessation.

What time limits apply to the election to average relevant payments?

(5) The election to average relevant payments must be made in writing on or before 31 October in the year (e.g., 2009) after the year in which it is earned (e.g., 2008) together with the return of income for the year in which it is earned (e.g., 2008).

Can an election to average relevant payments be withdrawn?

(6) No. Once an election to average relevant payment is made, it cannot be withdrawn.

Section 657B [Restructuring and diversification aid for sugar beet growers]

Who does this relief apply to?

(1) This section applies to a specified individual, i.e., who is carrying on a farming trade, and who receives a payment under the EU temporary scheme for the restructuring of the sugar industry (a specified payment).

Can EU payments for sugar beet be treated as received over several tax years?

(2) A farmer (a specified individual) may elect to treat diversification and payments (specified payments) as received over several tax years.

How does the election operate?

(3) The specified payments are disregarded in the tax year of receipt. Instead, the payment is taxed in five equal instalments over the following five tax years.

How are “post-cessation” instalments taxed if a farming trade ceases?

(4) If a farmimg trade closes, tax on any “post-cessation” instalments is charged under Schedule D Case IV in the year of cessation.

What is the time limit for making an election for averaging?

(5) An election for averaging must be madein writing on or before the self-assessment return filing date.

Can an election for averaging be changed?

(6) Unless the trade ceases, an election for averaging, once made, may not be changed.

Section 658 Farming: allowances for capital expenditure on construction of buildings and other works

What allowances can a farmer claim for expenditure on buildings and other works?

(1)-(2) A farmer whose profits are taxed as trading profits under Schedule D Case I may claim a farm building allowance for capital expenditure on farm buildings (but not a building used as a residence), drains, fences, roadways, yards, and land reclamation and other works.

The allowance is to be written off over seven years: 15% of the expenditure being claimed in each of the first six years, and 10% of the expenditure in the seventh year.

Transitional rules (Schedule 32 para 23) apply for farming capital expenditure incurred before 27 January 1994.

Other works include capital improvements such as drainage and sewerage works, electricity and water installations, glasshouses on farm land, “shelter belts”, and walls.

Retired farmer

A retired farmer who has leased buildings to another farmer ou may not (as lessor) continue to claim the remaining farm building allowance. Only a farming trade, the profits of which are taxed under section 655 qualifies (Revenue Precedent IT94-3518, 20 December 1994).

Partnership

A farmer who lets a building to a partnership in which he/she is a partner is entitled to a farm building allowance, provided:

(a) the building is let at market value, and

(b) the payment is not in respect of services to the partnership.

If the building is introduced to the partnership, the capital allowance goes to the partnership (Revenue Precedent IT92-2026, 3 May 1999).

Racehorse trainers

A racehorse trainer is regarded as a farmer (within section 654) and therefore entitled to farm buildings allowance in respect of expenditure incurred on stables, yards, etc. if he/she has the use of land or, the right by virtue of any easement (section 96), to graze livestock on land (Tax Briefing 20, December 1995).

Work carried out as part of compensation under compulsory purchase order

Section 658 provides that a farm buildings allowance will be made where a farmer incurs any capital expenditure on the construction of farm buildings. The agreement of the compensation terms arising under the compulsory purchase order does not amount to a contract under which expenditure may be regarded as having been incurred. Accordingly, such allowances are not available (Revenue Precedent, 17 September 1999).

What is the basis period used when calculating capital allowances and balancing adjustments?

(3) When calculating capital allowances and balancing adjustments, the basis period for an income tax year is the period the profits or gains of which are used to compute your income tax liability (sections 306, 321).

Is farm building allowance given in a year of exemption from tax?

(4) A farm buildings allowance is deemed to have been made for a tax year of exemption from tax (under the old notional basis, or because the rateable valuation of your farm was below the exemption threshold).

Previously exempt farmers coming into the tax system in 1983-84 brought in their farm buildings as written down by deemed allowances. They cannot bring forward capital allowances from years in which they were exempt from tax for set off against profits of years in which they are not exempt.

Can an allowance be claimed for expenditure before farming begins?

(5) Capital expenditure incurred before farming begins is deemed to have been incurred when farming begins.

How is a claim for a farm building allowance made?

(6) A claim for a farm building allowance is to be included with your income tax or corporation tax return.

Any excess farm building allowance that cannot be offset against your taxable profits of the current chargeable period may be carried forward (section 304(4)) for set off against the taxable profits of the next or subsequent chargeable periods.

Who assesses a claim for a farm business allowance?

(7) A claim for a farm building allowance is to be made to, and determined by, the inspector. A farmer who disputes the inspector’s determination may appeal to the Appeal Commissioners.

What appeal procedures apply?

(8) The Appeal Commissioners must hear and determine such an appeal in the same manner as an appeal against an income tax assessment. Where necessary, a case may be reheard by a Circuit Court Judge. A taxpayer also has a right to have a case stated for the opinion of the High Court on a point of law.

Is the allowance still available when farm land is transferred?

(9) Where farm land is transferred, the transferee is entitled to the farm buildings allowance (if any) for chargeable periods after the chargeable period in which transfer occurred.

A transfer includes a transfer of a farm to a trust, but a life interest is retained with remainder interests to a discretionary settlement in favour of the farmer’s children.

Even where the life interest continues the allowance goes to the transferee (Revenue Precedent IT92-3025, 27 May 1992).

How does the claim operate where only part of the farm land is transferred?

(10) Where part of farm land is transferred, the transferee may claim a referable part of the farm buildings allowance for chargeable periods after the period in which the transfer occurred.

How is capital expenditure that only partly relates to the farming trade treated?

(11) It is apportioned between the part relating to farming and the other part.

Can an industrial building allowance be claimed in addition to a farm building allowance?

(12) No – expenditure which qualifies for farm building allowance cannot simultaneously qualify for an industrial building (initial or annual) allowance.

Does expenditure met by the State or another person qualify for an allowance?

(13) Any expenditure met by the State, the European Union, or any person other than you as the claimant, does not qualify for a farm building allowance.

Section 659 Farming: allowances for capital expenditure on the construction of farm buildings, etc for control of pollution

Can a farmer claim an allowance for capital expenditure incurred on buildings used for pollution control?

(1) A farmer whose profits are taxed as trading profits under Schedule D Case I may claim an allowance for capital expenditure incurred on farm buildings (but not a building used as a residence) used for pollution control:

(a) Waste storage facilities, for example, tanks for slurry, soiled water and effluent.

(b) Tanks fences and covers.

(c) Dungsteads and manure pits.

(d) Yard drains for removing soiled water and storm water.

(e) Silos.

(f) Cattle housing structures that help eliminate soiled water.

(g) Sheep housing, and sheep wintering and dipping structures.

The expenditure must be in accordance with a farm nutrient management plan prepared in accordance with:

(i) the Department of Agriculture guidelines of 21 March 1997, or

(ii) a plan drawn up under the Rural Environment Protection Scheme, or the Erne Catchment Nutrient Management Scheme.

In addition the construction expenditure must be incurred, and the building work must have been carried out, on or after 6 April 1997 and before 1 January 2011.

How does a farm pollution control allowance apply?

(2) A farmer who has delivered the farm nutrient management plan mentioned in (1) and who has incurred farm pollution control expenditure within (1) is entitled to a farm pollution control allowance in respect of the expenditure, and that allowance may be written off as follows:

(i) Where the expenditure was incurred before 6 April 2000, over eight years beginning with the chargeable period related to the expenditure.

(ii) Where the expenditure is incurred on or after 6 April 2000 but before 1 January 2005, over seven years beginning with the chargeable period related to the expenditure.

(ii) When the expenditure is incurred on or after 1 January 2005, over three years beginning with the chargeable period related to the expenditure.

How is the farm pollution control allowance given for expenditure incurred on or after 1 January 2005?

(3AA) The farm pollution control allowance is given in equal installments over three years (3 x 33⅓%). It was previously (6 x 15%) + 10%.

How can off farm pollution control expenditure be written off?

(3B) Expenditure incurred after 5 April 2000 can be written off as follows:

(a) A write off in any year of the writing down period up to the residual amount, i.e., 50% of the expenditure, or if lower, €31,740.

(b) 15% of the balance of the expenditure (the specified amount) may be written off in each of the first six years of the writing down period.

(c) The remaining 10% of the balance of the expenditure may be written off in the seventh year of the writing down period.

(d) The total of the allowances in (a) and (b) or, where applicable, (a) and (c) may not, for any year of the writing down period, exceed the residual amount.

Are there any other options?

(3BA) Where farm pollution control expenditure is incurred on or after 1 January 2005 a farmer may elect to take the allowance as follows:

(a) 33⅓% for each of the three years of the writing down period, and

(b) up to 50% of the allowances in any year of the writing down period.

This allows the allowances to be “front-loaded”.

What time limits apply for making these elections?

(3C) The election mentioned in (3B) or (3BA) must be made on or before the self-assessment return date for the accounting period or tax year basis period in which the expenditure was incurred. The election must be made in the income tax or corporation tax return.

Once made, the election cannot be changed during the writing down period.

What basis period is used in this section?

(4) When calculating capital allowances and balancing adjustments, the basis period for an income tax year is the period the profits or gains of which are used to compute the income tax liability (sections 306, 320).

How is a claim for a farm pollution control allowance submitted?

(5) A claim for a farm pollution control allowance is made in the income tax or corporation tax return.

Any excess farm pollution control allowance that cannot be offset against your taxable profits of the current chargeable period may be carried forward (section 304(4)) for set off against the taxable profits of the next and subsequent chargeable periods.

Who assesses a claim for a farm pollution control allowance?

(6) A claim for a farm pollution control allowance is to be made to, and determined by, the inspector. The inspector’s determination may be appealled to the Appeal Commissioners.

What are the appeal procedures?

(7) The Appeal Commissioners must hear and determine such an appeal in the same manner as an appeal against an income tax assessment. There is a further right to have the case reheard by a Circuit Court Judge or, on a point of law, to have a case stated for the opinion of the High Court .

Where farm land is transferred, does the relief apply in future chargeable periods?

(8) Where farm land is transferred, the transferee is entitled to the farm pollution control allowance (if any) for chargeable periods after the chargeable period in which transfer occurred.

How does the allowance apply to the transferee when farm land is transferred?

(9) Where part of farm land is transferred, the transferee may claim a referable part of the farm pollution control allowance for chargeable periods after the period in which the transfer occurred.

How is capital expenditure that only partly relates to the farming trade treated?

(10) Capital expenditure that only partly relates to the farming trade is to be apportioned between the part relating to farming and the other part.

Can other allowances for buildings or plant apply to the same expenditure?

(11) Expenditure which qualifies for farm pollution control allowance cannot simultaneously qualify for an industrial building (initial or annual) allowance, neither can it simultaneously qualify for a plant and machinery allowance.

Is an allowance given for expenditure met by the State or another third party?

(12) No. Any expenditure met by the State, the European Union, or any person other than you as the claimant does not qualify for a farm pollution control allowance.

During what period can farm pollution control allowance be claimed?

(13) Only capital expenditure properly attributable to building work carried out in the period 6 April 1997 to 5 April 2000 qualifies for a farm pollution control allowance.

Section 660 Farming: wear and tear allowances deemed to have been made in certain cases

Can farming wear and tear allowances be deemed to have been made?

(1)-(2) Where wear and tear allowance is not claimed becausre there are no, or insufficient, profits or because the machinery or plant is not used for a trade, the normal wear and tear allowance is deemed to have been given for every chargeable period concerned, as if:

(a) the profits were taxed as a trading profits under Schedule D Case I on a current year basis,

(b) the farming profits were taxed on an actual (not notional) basis,

(c) farming had continued since the machinery or plant was acquired,

(d) the machinery or plant was used solely for farming since its acquisition,

(e) a proper wear and tear claim had been made for each such chargeable period.

When is there a deemed wear and tear allowance?

(3) A machinery or plant wear and tear allowance is deemed to have been made for any chargeable period in which:

(a) the machinery or plant was not used for farming,

(b) tax was charged to on the old notional basis (Finance Act 1974 section 21),

(c) a farming trade was not carried on,

(d) the farming profits were not fully taxed.

A deemed wear and tear allowance is also made for any tax year in which the machinery was used for non-trading (i.e., private) purposes.

What is the chargeable period for companies not within the charge to CT?

(4) For companies not within the charge to corporation tax, the income tax year is taken as the chargeable period.

Is there a limit to the amount that a balancing charge can be?

(5) A balancing charge can never exceed the actual allowances given to you for the asset (section 288(4)).

Section 661 Farming: restriction of relief in respect of certain losses

Can a previously exempt farmer use losses from years when he was not exempt?

(1)-(2) No. A previously exempt farmer who came into the tax system in 1983-84 is not allowed to bring forward (section 382) farming losses from years in which he was exempt from tax, for set off against profits of later years in which he is not exempt.

Section 662 Income tax: restriction of relief for losses in farming or market gardening

What special rules apply to farming and market gardening losses?

(1)-(2) A farming or market gardening loss may not be carried forward against profits of a later tax year unless a claimant can show that, for the year of the loss, farming was conducted on a commercial basis, with a reasonable expectation of realising a profit.

A farming or market gardening loss may not be carried forward if a loss was also made in the prior period of loss, i.e., in each of the three immediately preceding tax years (the prior three years). The prior period of loss also includes a sequence of losses incurred over a period longer than three years, ending at the same time as the prior three years, if the “loss” part of that longer period amounts to longer than three years.

This denies relief for “hobby farming” losses, i.e., persistent losses of “farmers” who are indifferent as to whether they make a profit, because of income from other sources.

Carry forward of a (fourth year) loss is not denied if, at the beginning of the prior period of loss, a competent farmer (or market gardener) could not have reasonably expected to make a profit until the end of the fourth year. This allows a fourth year loss in the case of a genuine undertaking with heavy initial losses, for example, where a farmer is regenerating marginal land, or where a stud farm is being built up on a long term basis.

Losses cannot be carried forward indefinitely. The competent farmer must have a reasonable expectation of profit at the start of the period (Revenue Precedent IT97-2003, 9 July 1996).

Fourh year losses:

Inspector Manual 23.1.5.

Larger trading undertaking

Carry forward of loss relief is not to be denied if the farming trade is carried on as part of and ancillary to a larger trading undertaking.

This is designed to meet cases such as that of:

(a) a butcher who makes a practice of fattening bullocks for his business,

(b) a manufacturer who grows his own raw materials,

(c) a seedsman, chemical manufacturer or fertiliser manufacturer who runs a farm for testing or improving his products.

“Ancillary” means subservient and annexed to: Cross v Emery, (1949) 31 TC 194. It implies a close operating link and contribution to the larger undertaking.

Land-dealing

Where a trade of farming and a trade of land-dealing is carried on, the question of whether the farming trade forms part of the land-dealing trade (for the purposes of a claim to loss relief in the fourth year) is a question of fact.

Prima facie, it is highly unlikely that a farming trade could form such a part, as the farming operations are not sufficiently linked to the land-dealing trade nor do they contribute to that trade. Therefore, the farming trade cannot be regarded as ancillary to the land-dealing trade (Revenue Precedent IT97-3007, 8 January 1997).

What rules determine whether a loss was incurred or not?

(3) The Schedule D Case I computation rules are used to determine whether a loss has arisen for a tax year.

Can the three tax years include a tax year which is not a full year’s trading?

(4) The three tax years may include a tax year that is not based on a full year’s trading, for example, a year in which the trade has begun, or is treated as discontinued.

Are there any exceptions to the denial of relief for a fourth year loss?

(5) Relief is not denied for a fourth year loss if the trade began, or was taken over, in any of the three tax years preceding the year of the claim.

This means that in a commencement situation, losses may be claimed in the fourth year (Revenue Precedent IT94-3513, 6 December 1994).

Can the restriction be avoided by transferring the farm to another person?

(6) This anti-avoidance provision is to stop taxpayers getting more than one run of three years by transferring the farm to a spouse, relative or a controlled company.

Where a farming trade changes hands, a successor who is connected with you as the predecessor is denied loss relief if you had three or more successive years of losses.

Section 663 Corporation tax: restriction of relief for losses in farming or market gardening

Are there restrictions of relief for farming losses by a company?

(1)-(2) A farming or market gardening loss may not be carried forward against profits of a later accounting period unless for the year of the loss farming was conducted on a commercial basis, with a reasonable expectation of realising a profit.

A farming or market gardening loss may not be carried forward if a loss was also made in the prior period of loss, i.e., in each of the three immediately preceding tax years (the prior three years)or a longer period ending at the same time as the prior three years.

A (fourth year) loss may be carried forward if it can be shown that a competent farmer (or market gardener) could have reasonably expected to make a profit at the start of the preceding three year loss period.

The Schedule D Case I computation rules are used to determine whether a loss has arisen for an accounting period, but such a loss must be computed without regard to capital allowances.

Carry forward of loss relief is not denied if the farming trade is carried on as part of and ancillary to a larger trading undertaking.

Fourth year losses: Inspector Manual 23.1.31.

Can the three year period include an accounting period of less than a full year?

(3) The three year period may include an accounting period shorter than one year, for example, a period in which the trade has begun or is treated as discontinued, but excluding a trade that under section 400(6) (company reconstructions without change of ownership) is not treated as discontinued.

Are there exceptions to the denial of relief for a fourth year loss?

(4) Relief is not denied for a fourth year loss if the trade began, or was taken over, in the three year period preceding the period of the claim.

Can restriction be avoided by transferring my farm?

(5) This anti-avoidance provision is to stop taxpayers getting more than one run of three years by transferring the farm to a spouse, relative or a controlled company.

Where a farming trade changes hands, a successor who is connected with a predecessor is denied loss relief if the predecessor had three or more successive years of losses (before capital allowances, whether the losses were incurred in tax years or accounting periods).

Section 664 Relief for certain income from leasing of farm land

What definitions apply for the relief of income from the leasing of farm land?

(1) Farm land means land in the State occupied mainly for husbandry, and includes a building (but not a dwelling) on such land.

A lease includes any tenancy and any lease-type agreement (but not a mortgage) whereby a landlord (lessor) receives rent from a tenant (lessee) in respect of leased land or buildings (premises) in the State. Rent includes any payment in the nature of rent (for example, work done by a tenant on the leased premises).

A qualifying lease is a written lease for five or more years, between a qualifying lessor and a qualifying lessee.

A qualifying lessee is an unconnected individual or company who uses the land for a trade of farming.

A qualifying lessor is an individual who is not leasing farm land which has been leased to him/her on favourable terms from a connected person.

Example

The condition in (b) counteracts the following kind of scheme:

You are a farmer who is not incapacitated, and you wish to lease farm land to X for seven years at an annual rent of €19,618.

Instead of leasing directly to X, you let the land to Y, who is a qualifying lessee in relation to X, for €12,000; X in turn leases the land to Y for €19,618. X then passes his/her exempt profit (€7,618) to you.

The specified amount is the maximum income exemption available. It is the lower of the farm rental income surplus or the appropriate figure shown in this table:

Qualifying lease made Specified amount
6 January 1985 – 19 January 1987 £2,000 (€2,539.48)
20 January 1987 – 31 December 1987 £2,800 (€3,555.27)
1 January 1988 – 29 January 1991 £2,000 (€2,539.48)
30 January 1991 – 22 January 1996 £4,000 (€5,078.95) where lease is for 7 years or more
£3,000 (€3,809.21) in any other case
23 January 1996 – 31 December 2003 £6,000 (€7,618.43) if lease is for 7 years or more and
£4,000 (€5,078.95) in any other case
On or after 1 January 2004 €10,000 if lease is for 7 years or more and
€7,500 in any other case
Between 1 January 2006 and 31 December 2006 €15,000 if lease is for 7 years or more and €12,000 in any other case
On or after 1 January 2007 €20,000 if the lease is for 10 years or more, €15,000 if lease is for 7 to 10 years, and
€12,000 in any other case

Note

The figure is proportionately scaled back for a rental period of less than a full year’s letting.

Where a lessor had availed of an earlier lower lease exemption limit he may make an additional lease up to the maximum available under the latest specified amount.

Where a verbal agreement was made to lease land for a five year period, and a written agreement was drawn up at the beginning of the final year of the lease, relief may be claimed for all years since the commencement of the verbal agreement. Revenue “would consider granting relief” if:

(a) the lessor can prove to the satisfaction of the inspector that the farmland was actually leased in the period, and he/she received rental income from the lease, and included that income in his/her tax return, and

(b) all other conditions have been met.

(Revenue Precedent IT92-3012, 31 March 1992).

Qualifying lease: If the qualifying lessor is a partnership, each of the partners must not be connected with the lessee. Similarly, if the qualifying lessee is a partnership, each of the partners must not be connected with the qualifying lessor. If both qualifying lessor and qualifying lessee are partnerships, none of the qualifying lessor’s partners may be connected with the qualifying lessee’s partners.

Incapacity is not rigidly interpreted. A farmer who is a minor, or is a widow with young children, may qualify.

See diagram to section 10(3). A niece (or nephew) is not regarded as connected with an uncle (or aunt) (Revenue Precedent IT94-3037, 8 June 1994).

How is the leasing exemption granted?

(2) For a qualifying lessor with Schedule D Case V income that includes income from qualifying leases, the farm land leasing exemption is given as a deduction in determining your total income. The deduction is limited to the overall Case V income, or the specified amount, whichever is lower.

The limitation to overall Case V income ensures that this relief cannot be used to create losses.

Can both spouses claim the relief if both have a qualifying lease?

(3) If the spouses are jointly assessed (section 1017) or separately assessed (section 1023) and both engage in qualifying leasing, each is entitled to a separate farm leasing income exemption. The relief is calculated as if they were singly assessed, and therefore unused balances of the relief may not be transferred from one spouse to the other.

Example

You have exclusive title to land. You let the land jointly with your spouse to a qualifying lessee with a provision for entitlement to half the rent each. Your spouse pays no rent to you. Relief should be resisted on the grounds that as your spouse has no title, he/she cannot give a lease and if he/she has title, it can only have been received from you (who is a connected person) on non-arm’s length terms.

Source: Inspector Manual 23.1.23

How does the relief operate if the lease includes non-farm land?

(4) Where a single qualifying lease covers farm land and other property, only the part of the rent attributable to the farm land qualifies for exemption.

The inspector (or on appeal, the Appeal Commissioners or Circuit Court Judge) must determine the amount of rent to be attributed to the farm land.

Can further information be requested?

(5) An inspector may write to a lessor, asking for any information he/she needs to decide whether there is entitlement to the relief.

What other rules apply to the granting of the relief?

(6) The farm land leasing exemption is treated as if it were a personal allowance (section 458) of yours.

The reduction in tax may not be used against income of which you have divested yourself (sections 237, 238). If your farm land leasing exemption exceeds your total income, any tax overpaid must be repaid (section 459(1)-(2)).

The farm land leasing exemption is claimed by completing the Revenue form (the income tax return). As the claimant, you (or your agent or guardian) must sign the appropriate declaration (section 459(3)-(4)).

Is compensation received for the loss of single farm payments, classed as income for the purpose of the exemption?

(7) A payment received by a lessor to compensate for the loss of Single Farm Payments (that have been transferred to the lessee), is regarded as income from leased farm land. Therefore, it may qualify for exemption if within the exemption limits in (1).

What can prevent a lease being a qualifying lease?

(8) Where a qualifying lessee of a lease or a connected person is also a qualifying lessor of another lease the first lease will not be a qualifying lease. If the farm land which is the subject of the lease is farmed in whole or in part by the qualifying lessor the lease will not be a qualifying lease.

Section 664A Relief for increase in carbon tax on farm diesel

What is the double deduction for farm diesel?

(1) With the imposition of carbon tax, the cost of farm diesel increased from 1 May 2012. This section compensates farmers by giving them a double tax deduction in respect of the increase, i.e., the relevant carbon tax. This is calculated as A – B, where A is the carbon tax included in the price of the diesel at the time of its purchase, and B is the carbon tax that would have been includes in the price of the diesel as at 30 April 2012.

Can farmers claim a double deduction for farm diesel?

(2) A farmer carrying on a farming trade is entitled to a double deduction in respect of the increase in farm diesel since 1 May 2012 (relevant carbon tax).

Section 665 Interpretation (Chapter 2)

What definitions apply in relation to relief for increase in stock values for farmers?

An accounting period, in the case of a company (section 4) means an accounting period for corporation tax purposes (section 27). In the case of an individual resident, it means a one year period ending on the normal accounting date.

Where accounts have not been prepared, or have been prepared for a period shorter or longer than one year, Revenue may determine the accounting period (not to exceed one year).

A period of account means a period for which accounts have been prepared.

Farm trading income in the case of a company means its Schedule D Case I farm trading income. In any other case it means the person’s Schedule D Case I farm trading profits.

Trading stock means stock of property normally sold by the business. The term also includes stock of work in progress that would be sold if finished, and stock of raw materials used to produce the property that is sold (section 89).

Trading stock value is to be reduced by the value of any payment on account received towards the purchase of such stock.

Trading stock

Trading stock includes:

(a) deer (in the case of a deer-farming trade),

(b) inputs to a tillage farming trade (for example, fertilisers, pesticides), and

(c) inputs to a stock farming trade (for example, purchased feed, home produced feed).

It does not include expense items such as machine parts, diesel, etc (Revenue Precedent IT90-3005, 26 March 1990).

Deer farming

A deer farmer is regarded as carrying on a farming trade. If deer farming is carried on in conjunction with another farming enterprise, the two enterprises are regarded as one trade for tax purposes (section 655(2)) (Revenue Precedent IT92-3019, 5 May 1992).

Stock valuation cattle, sheep, pigs:

Tax Briefing 13.

Brood mares:

Tax Briefing 25.

The review procedure for the valuation of brood mares operates for accounting periods ending on or after 1 December 1994 (Revenue Precedent IT97-3008, 14 February 1997).

Foals:

Inspector Manual 23.1.9.

Section 666 Deduction for increase in stock values

Is there relief for increases in stock value?

(1) Where farming profits are taxed under Schedule D Case I, a deduction of 25% of the increase in stock value (i.e., the excess of closing stock value over opening stock value) over the accounting period is given as if it were a trading expense of the accounting period.

Example

Opening stock at 1 January 2008 20,000
Closing stock at 31 December 2008 25,000
Increase in value of trading stock 5,000
Farming profits of year ended 31 December 2008 6,000
Less stock relief (25% of increase in stock value) 1,250
Revised farming profits for 2008 4,750

Source: Revenue Guidance Notes

How does the stock relief deduction apply to a company?

(2) For a company, this stock relief deduction may not exceed trading income for the accounting period as reduced by unrelieved trading losses and excess charges (section 396), and terminal losses (section 397), and after taking into account any capital allowances (sections 307, 308).

If a stock relief deduction is given against trading income for an accounting period (the relevant period):

(a) Capital allowances (sections 307, 308) for accounting periods earlier than the relevant period may not be carried forward to accounting periods later than the relevant period.

(b) A trading loss (section 396) for an accounting period earlier than the relevant period may not be carried forward for set off against profits of an accounting period after the relevant period.

(c) A terminal loss (section 397) for an accounting period later than the relevant period may be not carried back for set off against profits of an accounting period earlier than the relevant period.

How are losses treated when the deduction applies?

(3) If a stock relief deduction is given against trading profits for an accounting period for a tax year (the relevant year):

(a) A trading loss (section 382) for a tax year earlier than the relevant year may not be carried forward for set off against profits of a tax year later than the relevant year.

(b) A terminal loss (section 385) for a tax year later than the relevant year may not be carried back for set off against profits of a tax year earlier than the relevant year.

(c) Unrelieved capital allowances (section 304(4)) for tax years earlier than the relevant year may not be carried forward for set off against profits of the relevant year.

(d) Capital allowances for the relevant year may not be used to create or augment a loss.

The stock relief deduction may not exceed trading income for the relevant year.

Stock relief cannot be used to create a loss. Capital allowances and losses coming from other periods may not be used for periods beyond the relevant period (accounting period paid or tax year) once stock relief has been claimed for that period.

When does the relief expire?

(4) For companies stock relief is not available for accounting periods ending after 31 December 2018.

For an individual stock relief is not available for tax years after 2018.

What procedures apply for making a claim?

(5) Stock relief must be claimed, in writing, on or before the self-assessment return date.

Where a timely stock relief claim is in place, and an assessment is increased by amendment following an audit, a claim for stock relief is allowable against the additional profits included in the assessment.

Example

Return of income submitted by farmer
Case I profits (net of stock relief) 12,000
Profits uplift following Revenue Audit 4,000
Amended assessment Case I profits 16,000
Stock relief due 4,000 x 25% 1,000

Source: Inspector Manual 23.2.3

Does stock relief apply to partnerships?

(6) Yes. In the case of a partnership, the practice has been to deduct the stock relief due in arriving at the partnership profit. This practice will continue where all the partners come within the same stock relief regime. However, where some partners in a partnership are entitled to 100% stock relief (section 667) while others are entitled to the usual 25% relief, it may be accepted that the partnership profit to be allocated in accordance with the profit sharing ratios is the profit before stock relief but after making all other adjustments. The stock increase will be allocated in accordance with the profit sharing ratios in the basis period and stock relief will be allowed accordingly, to arrive at the Case I profit of each partner.

Example

You are a non-qualifying farmer who farms in partnership with X (a qualifying farmer). You share profits and losses equally.

20,000
Closing stock 75,000
Opening stock 51,000
Stock increase 24,000
Stock increase allocated to you – 50% 12,000
Stock increase allocated to X – 50% 12,000
Your share of profit 10,000
Stock relief – 25% (Stock increase of 12,000 x 25%) 3,000
Case I profit – you 7,000
X’s share of profit 10,000
Stock relief – 100%: (Stock increase of 12,000 x 100%) 12,000
Case I profit – X (stock relief cannot create a loss) nil

Note

It is a question of fact as to whether a partnership exists in any particular case. The profit sharing ratios of any partnership are also a question of fact.

The enhanced relief should be withdrawn or re-calculated and allowed by reference to the factual profit sharing ratio where auditors encounter “partnership” cases where the enhanced relief is claimed by one or more of the partners and it appears that:

(a) a partnership does not exist, or

(b) the profit-sharing ratios are not factual and appear to have been altered so as to maximise the enhanced relief for the period that it is available.

Source: Inspector Manual 23.2.1

Section 667 Special provisions for qualifying farmers

Amendments

Section 667 is spent. See now section 667B.

Section 667A Further provisions for qualifying farmers

Amendments

Section 667A is spent. See now section 667B.

Section 667B New arrangements for qualifying farmers

Who is a young trained farmer from 2007?

(1) A young trained farmer (a qualifying farmer) is one who, in 2007 or a later tax year:

(a) first qualifies for grant aid through the Department of Agriculture Scheme of Installation Aid for Young Farmers, or

(b) whose farming profits are first taxed and who is still under 35 years old at the start of such year and who meets the conditions in (2) and (3).

Young farmers who first become assessable in 2012 or later years must submit a business plan to Teagasc or the Minister for Agriculture on or before 31 October of the following year.

Which qualifications are required for this subsection?

(2) To qualify under this subsection, one of the qualifications set out in the Table below must be held.

Are allowances made if a farmer has restricted learning capacity?

(3) Yes, if the farmer holds a letter from Teagasc confirming satisfactory completion of an approved course for persons with restricted learning capacity caused by mental or physical disability.

Can any other qualifications meet the requirements?

(4) A qualification may, on being certified by Teagasc, be treated as if it were a qualification set out in the Table to this section.

What stock relief applies between 1 January 2007 and 31 December 2018?

(5) A farmer who becomes a qualifying farmer on or after 1 January 2007 and before 31 December 2018 is entitled, in calculating farming income, to deduct 100% of the increase in the value of trading stock over the accounting period as if it were a trading expense of the accounting period.

The stock relief then applies for the tax year in which he/she becomes a qualifying farmer and each of the three succeeding tax years.

Is there a limit to the amount of stock relief?

(5A) The relief is the difference between the tax payable if there was no stock relief available and the amount payable after a claim under (5).

That relief is limited to €40,000 in a single year of assessment and €70,000 over the four years 2012 to 2015.

Can holders of qualifications under earlier stock relief qualify under this section?

(6) This subsection allows existing holders of qualifications under section 667A to be treated as qualifying under this section.

Is there any other condition?

(7) For 2012 and later years the claimant must be a qualifying farmer who comes within the definition of “small and medium-sized enterprises” in EU regulations.

Section 667C Special provisions for registered farm partnerships

Can farm partnerships get stock relief?

(1) Milk production partnerships and farm partnerships registered under subsection (4A) qualify for relief.

Excluded farm assets are land, livestock and machinery used for any of the listed activities where those activities are excluded by the terms of the partnership agreement. Otherwise farm asset means farm land, CAP payments and livestock and machinery used for farming but does not include land that is to be compulsorily purchased.

non-active partner  is one who spends less than 10 hours a week on average engaged in the partnership activity or a partner company whose officers and employees spend less than 10 hours a week on average engaged in the activity.

(1A) A primary participant (precedent partner) may apply to register the farm partnership. The partnership must exist solely to carry on a farming trade and there must be a written agreement that complies with the Partnership Act 1890 and which identities the partners and their shares and the land to be farmed and the mode of operation. The agreement must commit the partners to operate the partnership for 5 years. There must be at least 2 and not more than 10 partners all of whom must be active partners. At least one of the partners must have been farming at least 3 hectares for the 2 years preceding the formation of the partnership.At least one other individual partner must have an agricultural qualification required by subsection 4A and that individual must be entitled to at least 20% of the profits.

(1B) If there is any change in the farm partnership or its activities the primary participant must notify the Minister with 21 days. Failure to do so will result in the removal of the partnership from the register unless the Minister is satisfied that the change does not affect the partnership’s eligibility and the failure was not the result of careless or deliberate behaviour and is quickly rectified. The primary participant must also notify the Minister of partners joining or leaving the partnership. The Minister must be satisfied that the partnership will continue to be compliant with this section before approving a change or amending the register.

(1C) A farm partnership will not be eligible to be entered in the register if a partner is also a director or a direct or indirect shareholder of a company that is a partner.

(1D) The Minister can only enter a partnership in the register fi satisfied that it complies with subsection 1A and must remove it if it ceases to comply. A farm partnership shall also be suspended from the register if it is subject to an order under the Animal Health and Welfare Act 2013.

Can partners in registered farm partnerships get increased stock relief?

(2) Although stock relief is generally given at 25%, farmers in registered farm partnerships are entitled to relief at 50%.

The 50% rate reverts to 25% after 31 December 2018.

Are young trained farmers who are members of farm partnerships entitled to the 50% stock relief rate?

(3) If a young trained farmer (qualifying farmer) is a member of a registered farm partnership, and his four year period of 100% stock relief expires, he can qualify for the 50% rate up to 31 December 2015.

Is there a limit to the relief for a farmer who is a partner?

(3A)(b) The relief (50%) given to a farmer who is a partner in a farming partnership is restricted to a maximum of €7,500 over the qualifying period. This restriction does not apply to young trained farmers entitled to 100% relief (see section 667B)

(c) For qualifying periods beginning on or after 1 January 2014 the maximum relief is €15,000.

When does this section apply?

(4) The section operates in respect of accounting periods commencing from 1 January 2012 and ending up to 31 December 2018.

How are farm partnerships registered?

(4A) The Minister for Agriculture can make regulations establishing a register and prescribing the conditions under which a farm partnership may be registered.

When does the 50% stock relief come into effect?

(5) The 50% stock relief comes into effect when the Minister for Finance makes a commencement order.

Section 667D Succession farm partnerships

How is a succession farm partnership registered?

(1) A primary participant may apply to the Minister to enter a registered farm partnership on the register of succession farm partnerships.

What are the conditions for registration?

(2)(a) The partnership must have at least two members who must be individuals;

 (b) at least one member, referred to as the “farmer”, must have farmed at least 3 hectares for at least 2 years immediately before the partnership was formed  and all the others, referred to as the “successors”, must be under 40 and have a recognised agricultural qualification. and be entitled to at least 20% of the profits;

c) the partnership’s business plan must be submitted to and approved by the Ministe

(d) the farmer must enter into an agreement with one or more of the successors  to transfer or sell at least 80% of the farm assets to the successor(s) between 3 and 10 years after the date of the application for registration;

(e) the partnership agreement must contain details of the farm assets, any conditions of the proposed sale, the proposed date of the sale and any other terms agreed between the farmer and the successor(s).

 What happens if the farm assets are jointly owned?

 (3) Where the farm assets are jointly owned before the formation of the succession farm partnership the joint owner must consent to the agreement and may become a partner even if he or she is a non-active partner.

Can the spouse or civil partner of a successor be included?

(4) Where the farmer wishes to form a succession farm partnership with the spouse or civil partner of the successor the spouse or civil partner can become a partner without being an active partner and farm assets my be sold or transferred to both the successor and the spouse or civil partner.

What are the obligations of the Minister?

(5) The Minister shall enter the farm succession partnership in the register if satisfied that the condition in subsection (2) are met but may remove it if they cease to be met.

What benefit do the partners receive?

(6) For the year of registration and the following 4 years the partnership will receive a tax credit of €5,000, divided in the profit sharing ratios of the partners, or the amount of the profits if less. The credit will not be given for a year if any of the successors has reached the age of 40 before the start of the year. If the farm assets are not transferred in accordance with the agreement an assessment will be made on the farmer of €125,000 or such lesser amount as will recover the tax credits by taxing the amount at 20% (as an annual payment). The assessment may be raised on the successor if he or she declined to fulfill the terms of the agreement or on both the farmer and the successor if they mutually agreed not to proceed with the transfer.

Can the Minister make regulations regarding succession farm partnerships?

Yes the Minister , in consultation with the Minister for Finance, may make regulations regarding the register, registration, the documentation required and the issuing of identifier numbers and other relevant matters.

Section 667E Authorised officers

To what does this section apply?

(1) This section applies to the appointment and powers of auuthorised officers for the purposes of farm partnerships and succession farm partnerships. A person in charge in relation to a place means the owner or the person directing activities in the place or a person an authorised officer has reasonable grounds to believe is in charge or the driver of a vehicle. Place includes a vehicle or trailer.

How are authorised officers appointed?

(2) The Minister may appoint authorised officers and furnish them with a warrant of their appointment. They must, on request, produce the warrant to any person with whom they have dealings.

What powers has an authorised officer?

(3) An authorised officer may at reasonable times enter on to land or  into a place he or she believes to be subject to this section to survey or map the land or for any other relevant purpose; may inspect rcords; may take copies of such records; may make enquiries of the person in charge and may make enquiries of any other person they believe can help any investigation, inspection or examination.

Can an authorised officer enter a dwelling?

(4) An authorised officer can only enter a swelling with the consent of the occupier or with a warrant from the District Court.

When can an authorised officer apply for a warrant?

(5) If an authorised officer is prevented from entering land or a place an application may be made to the District Court for a warrant authorising entry.

When can the District Court issue a warrant?

(6) If the District Court judge is satisfied by information given on oath by an authorised officer that there are records that would assist any investigation or that there is evidence of contravention of the statutory provisions he or she may issue a warrant to enter the place with reasonable force if necessary. The warrant must be used within one month of being issued.

Can an authorised officer seek assistance?

(7) If an autrhorised officer anticipates any obstruction to the performance of his or her duties the officer may be accompanied by other authorised officers or by such other persons as the Minister may authorise for that purpose.

Section 667F Appeals officer

Who may appoint appeals officers?

(1) The Minister may appoint appeals officers for the purposes of section 667G.

Who may be an appeals officer?

(2) Only practising solicitors or barristers with at least 5 years experience may be appeals officers.

Can State employees be appeals officers?

(3) No. Solicitors or barristers employed full-time by the State cannot be appeals officers.

What conditions apply to appeals officers?

(4) An appeals officer will hold office for a 3 year term and may be reappointed; shall be independent in the exercise of his or her functions; shall be paid such fees as the Minister may determine and will report periodically to the minister on the performance of his or her functions.

Can an appeals officer resign or be removed?

(5) Yes. An appeals officer may resign by letter to the Minister. If the Minister may remove an appeals officer he or she believes  cannot function effectively because of ill health or one who has misbehaved.

How many terms can an appeals officer serve?

(6) Not more than two.

Can an appeals officer establish operating procedures?

(7) Yes. The appeals officer may, in consultation with the Minister establish procedures for the conduct of appeals and his or her interaction with the parties to an appeal.

Will appeals officers be indemnified by the Minister?

(8) Yes. The Minister will indemnify appeals officers in respect of any acts done in the performance of their duties unless they are done in bad faith.

Section 667G Appeals

What obligations has the Minister to primary participants?

(1) The Minister must give primary participants notice in writing of decisions to refuse to register a farm partnership, a succession farm partnership, to remove either from the registers, to refuse to amend an entry on the register or to refuse to approve a business plan.

What must the notice contain?

(2) A notice must give the reasons for the decision and inform thr primary participant of his or her right to appeal within 21 days and that the rounds for the appeal must be stated. It must state that the decision is suspended for 21 days or until the appeal is dealt with.

What happens if no appeal is made?

(3) The Minister’s decision becomes final after 21 days.

Can a fee be charged for an appeal?

(4) Yes. The Minister may require a notice of appeal to be accompanied by a fee which he or she may determine and publish.

What are the obligations of an appeals officer?

(5) An appeals officer must notify the Minister of an appeal. He or she shall request submissions from the parties to the appeal after which a hearing may be held. The appeals officer may request information from the parties to the appeal or, if necessary, third parties.

How is an appeal to be conducted?

(6) The parties to the appeal are entitled to be heard at the hearing. The appeals officer may adjourn the hearing to a specified day.

What must the appeals officer consider?

The appeals officer must consider the submissions from the parties, the evidence presented and the information furnished.

When must a decision be given?

(8) After considering the appeal the officer must make a determination, not later than 42 days after the notice of appeal, to uphold or quash the Minister’s decision.

When must the appeals officer give notice of the decision?

(9) The appeals officer must notify his or her decision to the parties as soon as practicable after it is amde.

Can a further appeal be made to the High Court?

(10) Yes. A party to the appeal may apply, within 14 days of notification of the decision of an appeals officer, to the High Court on a point of law.

Section 668 Compulsory disposals of livestock

What disposals of livestock do these rules apply to?

(1)-(2) These rules apply where:

(a) Cattle stock is compulsorily destroyed under a disease eradication scheme, or

(b) compensation is paid by the Minister for Agriculture and Food for diseased animals and poultry (which have been destroyed, for example, under foot and mouth control procedures).

Where cattle are destroyed under a brucellosis eradication scheme, the entire cattle herd (i.e., the stock to which this section applies), and not just the infected animals, may be treated as destroyed.

A farmer may elect, on the appropriate Revenue form, to have any profit on the disposal (the excess of the relevant amount received as disposal proceeds over the opening stock value) deferred.

Income means the total proceeds received in respect of the cattle disposed of (Revenue Precedent GD94069A, 24 February 1997).

Cattle that have been disposed of due to bovine spongiform encephalopathy (BSE) are regarded as having been compulsorily disposed of under a disease eradication scheme (Revenue Precedent GD90.112, 28 November 1995).

Partial disposals are not relieved, apart from those in relation to brucellosis-infected animals (Revenue PrecedentGD94069, 3 July 1996).

A loss arising as a result of an election made under this provision may be set against other income (subject to the restrictions in section 662) (Revenue Precedent IT95-3560, 8 November 1995).

A taxpayer received BSE compensation and elected under section 668 to have the excess treated as arising in each of the two immediately succeeding periods on a 50/50 basis for the years ended 31 March 2000 and 31 March 2001. Taxpayer successfully restocked during the year ended 31 March 2000 but was prevented from doing so during the year ending 31 March 2001 due to the onset of foot and mouth disease.

As the difficulties which prevented the taxpayer restocking were due to foot and mouth disease and could not have been provided for under section 668, the taxpayer was concessionally allowed to have the second instalment of the profit on disposal of cattle from BSE compensation to be deferred and taxed in the year ending 31 March 2002. The taxpayer was entitled to the balance of stock relief in respect of his accounts to year ending 31 March 2002 (Revenue Precedent, 22 December 1999).

If a person elects to claim a 100% stock relief deduction under section 668 in respect of cattle compulsorily disposed of, he/she is not entitled to a further deduction in respect of those cattle under section 666 for that year (Revenue Precedent, 22 December 1999).

What options are available in relation to this profit?

(3) The deferred profit, i.e., the excess (see (2)), may be ignored in the accounting period of the disposal and treated instead as arising in equal instalments in the next four accounting periods.

Alternatively, the profit may be treated as arising in equal instalments in the current accounting period and next three accounting periods.

These options are not available if the farm trade is permanently discontinued.

How are the profits treated when a farm trade is permanently discontinued?

(3A) Where a farm trade is permanently discontinued, the profits which would have arisen but for the “spreading” provisions in subs (3), are charged to tax under Schedule D Case IV for the chargeable period in which the discontinuance takes place.

What stock relief is available where there has been a compulsory disposal?

(4) The “excess” profit arising on a compulsory disposal is taxed by spreading it over a four year period (see (2)). This subsection gives stock relief by spreading it over a matching four year period. To qualify for the stock relief, an amount not less the compensation received must be invested in replacement stock before the end of the four year period. The stock relief deduction is “matched” with the amount of excess profit under (2) for each year of the four year period.

What happens if the expenditure on replacement stock was less than the compensation?

(4A) If it transpires that the expenditure on the replacement stock was less than the compensation, then the aggregate stock relief is reduced in the same proportion and the reduction is made as far as possible in a later accounting period before an earlier period.

How is an election for this deferral made?

(5) An election must be made in writing on or before the self-assessment return date for the chargeable period (tax year or accounting period) in which the compulsory disposal occurred.

Section 669 Supplementary provisions (Chapter 2)

What valuation rules apply for trading stock of a farming trade?

(1) The opening or closing value of farming stock acquired by you other than in the normal course of a farming trade may be revised by the inspector.

Closing stock must be valued on the same basis as opening stock.

In a particular case, a son took over farm stock when his father ceased to trade as a farmer. The stock contained a “gift” element and the son assumed trading liabilities and loans incurred by the father. The Appeal Commissioners held that the stock was not acquired in the normal conduct of a trade of farming: 11 AC 2000.

In another case, a farmer received a grant from the Department of Agriculture for the sale of carcasses of brucellosis-infected cattle. The Appeal Commissioners did not agree with the Revenue contention that the stock was disposed of other than in the normal conduct of a trade of farming: 13 AC 2000.

How is an increase in stock value calculated where the accounting periods and periods of account do not coincide?

(2) To cater for situations where accounting periods and periods of account (both defined in section 651) do not coincide, an increase in stock value is determined by reference to a reference period. This begins at the beginning of the period of account (the period for which accounts have been made up) and ends at the end of the period of account, except:

(a) if the beginning of the accounting period and period of account are the same, the reference period begins on that date, and

(b) if the end of the accounting period and period of account are the same, the reference period ends on that date.

What computation rules apply where the accounting periods and periods of account don’t coincide?

(3) The increase in stock value (C – O) between the beginning and end of the reference period is then scaled down (or up) to match the time span of the accounting period, by multiplying it by A/N where:

A is the number of months in the accounting period,

N is the number of months in the reference period,

C is the value of the closing stock at the end of the reference period, and

O is the value of the opening stock at the start of the reference period.

Are there circumstances where stock relief is not given for a period?

(4) Stock relief is not given for an accounting period in which a farming trade ceases, a farmer becomes non-resident, or the farming profits cease to be chargeable under Schedule D Case I.

This restriction also applies where an accounting period is comprised in a reference period.

What valuation rules apply to opening stock?

(5) The value of opening stock for the first accounting period of a farmer, unless acquired on a sale or transfer from a person who has ceased to trade, may be revised by the inspector.

An inspector who revises the value of opening stock must take account of price movements during the accounting period of items comprised in the opening stock, and changes in the volume of trade you carry on.

The inspector’s opening stock valuation may be amended by the Appeal Commissioners, and they must also take account of stock price movements and changes in the volume of trade during the first accounting period.

The opening stock valuation may also be revised where the first accounting period is comprised in a reference period.

How is the number of months calculated where a period includes a fraction of a month?

(6) Where an accounting period (or reference period) contains a number of complete months and a fraction of a month (for example, a ten and a half month period), a reference to the number of months in the period includes the fraction of the month (the half month).

Section 669A Interpretation

What definitions apply for milk quota allowances?

A farmer may write off qualifying expenditure incurred on acquiring a milk quota which is a qualifying quota over seven years (see section 669B).

In this regard, a milk quota means the maximum amount of milk or other milk products that may be:

(a) supplied to a purchaser, or

(b) sold or transferred free for direct consumption,

in a 12 month period from 1 April to the following 31 March (i.e., a milk quota year), without incurring a levy under EU Council Regulation 3950 of 28 December 1992.

Milk means the produce of milking cows, and other milk products includes cream, butter and cheese.

A milk quota is a qualifying quota if it is:

(a) bought after 31 March 2000 by a milk producer under a milk quota restructuring scheme introduced by the Minister for Agriculture, Food and Rural Development under the same EU Council Regulation, or

(b) bought by a lessee who agreed to lease that quota under an agreement made before 13 October 1999 which expires after 31 March 2000 and which complies with EU Council Regulation 857/84 of 31 March 1984, or 3950 of 28 December 1992.

Qualifying expenditure on acquiring a milk quota means:

(a) in the case of a milk quota bought under a milk quota restructuring scheme, the capital expenditure incurred, and

(b) in the case of a milk quota, the lower of:

(i) the capital expenditure incurred on buying that quota, and

(ii) the capital expenditure which would have been incurred on buying the quota if the price paid were st other than by the Minister for Agriculture and Food for the purposes of a milk quota restructuring scheme in the area in which the milk quota land is located.

Note: This ensures that capital allowances are given by reference to the price set for milk quota in the market pool trading system (which represents 70%) of the national quota and not the priority pool (which represents 30% of the national quota). It means that allowances are given by reference to the higher figure obtainable in the particular co-op area when a milk quota is sold by competitive tendering process – such a price might exceed the maximum price set by the Minister in respect of the priority pool.

Section 669B Annual allowance for capital expenditure on purchase of milk quota

Is there relief for capital expenditure on a milk quota?

(1) A writing down allowance may be claimed over the duration of the writing down period for qualifying expenditure on a qualifying milk quota.

What is the writing down period?

(2) The writing down period is seven years, beginning at the start of the chargeable period in which you incur the expenditure.

How is the allowance for a period calculated?

(3) Each writing down allowance within the writing down period is calculated by the formula:

A  x  B
C

where:

A is the qualifying expenditure on the purchase of the quota,

B is the length of the part of the chargeable period within the writing down period, and

C is the length of the writing down period.

Example

01.05.2003 You incur €70,000 qualifying expenditure on the purchase of a qualifying quota under a milk quota restructuring scheme.

You have been carrying on your farming trade for many years and make up your accounts to 31 December. The expenditure is incurred in the year ended 31 December 2003, which begins on 1 January 2003.

Therefore, the writing down period is the seven year period 1 January 2003 to 31 December 2009. The writing down allowances are:

Chargeable period:
Y/e 31 December 2003, basis period for 2003 (year 1) 10,000
Y/e 31 December 2004 10,000
Y/e 31 December 2005 10,000
Y/e 31 December 2006 10,000
Y/e 31 December 2007 10,000
Y/e 31 December 2008 10,000
Y/e 31 December 2009 10,000

The allowance for a chargeable period shorter than 12 months is reduced in proportion to the number of months in that period.

Section 669C Effect of sale of quota

What are the consequences of selling or ceasing to use a milk quota?

(1) A balancing event arises if, before the end of the writing down period:

(a) the quota, or the part still owned, is sold,

(b) the quota comes to an end or completely ceases to be used, or

(c) part of the quota is sold and the net sale proceeds are not less than the remaining unallowed expenditure.

No writing down allowance is given for the chargeable period in which the balancing event occurs, or for any subsequent chargeable period.

The balancing event requires a balancing adjustment, i.e., an additional capital allowance (a balancing allowance) or a reduction or withdrawal of a capital allowance already given (a balancing charge).

The balancing adjustment is to ensure that the trader receives the proper writing down amount (and no more or no less) for the quota.

Once the writing down period has expired, no balancing adjustment can arise.

What happens where the remaining unallowed expenditure exceeds the net sales proceeds?

(2) A balancing allowance equal to the remaining unallowed expenditure less the net sale proceeds (if any) is given where:

(a) the quota comes to an end or completely ceases to be used, or

(b) all or part of the quota is sold and the net sale proceeds are less than the remaining unallowed expenditure.

Example

You spend €70,000 on a milk quota, which is to be written off at €10,000 per year for each of the seven tax years 2005 to 2011.

remaining unallowed
2005 annual allowance 10,000 60,000
2006 annual allowance 10,000 50,000
2007 annual allowance 10,000 40,000
2008 annual allowance 10,000 30,000

You sell the quota on 1 January 2007 (tax year 2007) for €25,000. The sale is a balancing event, and will require a balancing adjustment.

No annual allowance will be given for tax years 2009, 2010, or 2011.

Remaining unallowed expenditure 30,000
Less: net proceeds of sale 24,000
= balancing allowance 6,000

See (4) below to see how the allowance is given.

What happens when net sales proceeds exceed the remaining allowances?

(3) Where all or part of the quota is sold and the net sale proceeds exceed the expenditure remaining unallowed, abalancing charge equal to the excess arises.

Example

Take the facts of the previous example, but assume that you sold the quota for €37,000.

Net proceeds of sale 37,000
Less: remaining unallowed expenditure 30,000
= balancing charge 7,000
This balancing charge is made for 2007.

What happens if part of a milk quota is sold without a balancing charge arising?

(4) Where part of a quota is sold without a balancing charge arising on the transaction, future allowances on the part retained must be adjusted.

The expenditure remaining unallowed (for the current and subsequent chargeable periods) is reduced by the net sale proceeds. The resulting figure is allocated in equal instalments to the remaining complete years of the writing down period.

Example

Continuing from the previous examples:

Remaining unallowed expenditure 30,000
Less: net proceeds of sale 24,000
= balancing allowance 6,000
This allowance is allocated as follows:
remaining unallowed
2009 annual allowance 2,000 4,000
2010 annual allowance 2,000 2,000
2011 annual allowance 2,000 nil
6,000 6,000

What is the “expenditure remaining unallowed”?

(5) The expenditure remaining unallowed means the initial capital expenditure, less any capital allowances given before the chargeable period in which the balancing adjustment event takes place, less the net sale proceeds arising from any previous sale of part of the quota.

What other rules apply to the balancing allowances and charges in this section?

(6) A balancing allowance is not to be made unless a writing down allowance has been or could have been made.

A balancing charge can never exceed the net allowances granted to the trader for the rights.

Section 669D Manner of making allowances and charges

How are the allowances or charges made in the case of a milk quota?

Where a quota is owned for the purposes of a trade, an allowance or charge in respect of expenditure on the quota is made in taxing farming trade (i.e., in charging your farming profits for income tax or corporation tax) under Schedule D Case I.

Section 669E Application of Chapter 4 of Part 9

Do the normal rules apply to milk quota capital allowances?

(1) The capital allowance rules in Part 9 Chapter 4 apply to milk quota capital allowances in this Chapter.

Can milk quotas be transferred at written down value?

(2) Companies (and partnerships) under common control may, where the tax written down value is lower, opt to substitute the transferred asset’s tax written down value for its open market value.

This option is available where the transferred asset consists of a milk quota.

If this option is taken the selling company does not have a balancing charge, and the buying company may write off a reduced figure over the remaining life of the asset. However, if the buying company subsequently sells the asset for more than its tax written down value, the balancing charge must take account of the allowances already given to the first company.

Because this option simply moves a balancing charge from the seller to the buyer, it is not normally available if one of the companies is non-resident, as it might prove impossible to collect any balancing charge from the non-resident buyer.

However, the option is allowed if the non-resident company is trading through a branch or agency in the State.

Section 669F Commencement (Chapter 3)

When does this Chapter come into effect?

This Chapter comes into operation from 1 November 2001 (appointed by the Minister for Finance).

Section 669G Interpretation (Chapter 4)

What definitions apply to the taxation of stallion stud fee income?

Under the new regime for taxation of stallion stud fee income, stallions are to be treated as trading stock. The owner is allowed to write off the cost of the stallion over four years. The write-off figure is based on the initial value, i.e., itsmarket value on the date it is acquired or transferred to stud activities. In this regard, a stallion’s market value means the price it might reasonably be expected to fetch for sale in the open market, assuming the purchase is made at arm’s length and the buyer is not connected with the seller.

In any particular year, the residual value will be the initial value less amounts claimed to date as an annual write-off. Thus, after four years, the stallion’s residual value will be zero, since its full initial value will have been allowed over the previous four years.

The high earners restriction [thisact (Part 15, Chap 2A)], applies to stallion income.

Section 669H Charging provisions

When must tax on income from stallion fees be paid?

(1) From 1 August 2008 an owner or part-owner of a stallion, is subject to income tax (or if a company, corporation tax) on income from stallion fees.

How is stallion income taxed?

(2) An owner who carries on a farming trade is taxed on stallion income as part of his/her farming profits under Schedule D Case I.

If a farming trade is not carried on, stallion income is taxed under Schedule D Case IV.

Section 669I Provisions as to deductions

Who can avail of the deduction in this section?

(1) An owner or part-owner of a stallion is entitled, in computing income for tax purposes (section 669(2)), to claim the deductions set out in (2).

What deduction is available to a stallion owner?

(2) a stallion owner who also carries on a farming trade is entitled to a deduction equal to 25% of the stallion’s initial market value for each of four consecutive chargeable periods (i.e., tax years or accounting periods as appropriate), beginning with:

(i) in the case of a stallion owned on 1 August 2008, the period in which that date falls, or

(ii) the period in which the stallion is acquired or appropriated to stud activities.

Where there is no farming trade and income is taxed under Schedule D Case IV, the same deductions are allowed as for Schedule D Case I. This allows expenses related to upkeep of the stallion in such cases.

What happens where a stallion is disposed of or dies?

(3) This subsection deals with the situation where a stallion is disposed of, or dies. In such a case:

(a) the 25% annual deduction is lost for the chargeable period in which the death or disposal occurs,

(b) instead, a full write-off in respect of the stallion’s residual value is allowed, i.e., the value of the unclaimed annual allowances,

(c) income tax (or corporation tax, if appropriate) is charged on

(i) the proceeds received on the stallion’s disposal or death, or

(ii) in the case of a disposal, the stallion’s market value if it is greater than the proceeds.

Section 669J Credit for tax paid

Amendments

Section 669J is now spent: from 31 July 2008.

Section 669K Miscellaneous (Chapter 4)

Can Revenue use outside help to value stallions?

(1) Revenue may consult with other persons to assist them in valuing stallions.

Can stock relief be claimed on trading stock comprising stallions?

(2) Trading stock comprising stallions is ignored for stock relief purposes.

Can a stallion loss be offset against other income?

(3) If a stallion fee trade produces a loss, that loss may only be carried forward for set off against future profits of that particular (Case IV) trade (and not Case IV profits in general).

Section 670 Mine development allowance

What is a “mine development allowance”?

(1) A mine development allowance is given where a mining trade is carried on and capital expenditure is incurred on:

(a) developing a mine,

(b) searching for, discovering or testing mineral deposits, or

(c) construction of mining works which will be worth little or nothing when the mine has ceased to be used.

In relation to capital expenditure incurred on or after 6 April 1960, a mine includes an underground or surface mine used to obtain scheduled minerals (section 672) or other materials within the meaning of the Minerals Development Act 1940 section 2.

The following costs do not qualify for the allowance:

(a) the cost of acquiring the site of the mine, or rights to such a site,

(b) expenditure on rights to mineral deposits,

(c) the cost of mining works for further processing of raw materials (but not works which prepare the raw material for such further treatment).

The allowance also applies to capital expenditure on information that results from searching for, discovering or testing deposits.

More than 70 qualifying minerals that are likely to be found in Ireland are listed in the Schedule to the Minerals Development Act 1940.

A stone quarry or gravel pit is not regarded as a “surface mine”.

The cost of sinking a mine is capital expenditure: Bonner v Basset Mines Ltd, (1912) 6 TC 146; Coltness Iron Co v Black (1881) 1 TC 287; United Collieries Ltd v IRC, (1929) 12 TC 1248; Addie (Robert) and Sons Collieries Ltd v IRC, (1924) 8 TC 671; Bean v Doncaster Amalgamated Collieries Ltd, (1946) 27 TC 296; Knight v Calder Grove Estate, (1954) 35 TC 447; Rorke (HJ) Ltd v IRC, (1960) 39 TC 194.

Does grant aided expenditure qualify?

(2) The allowance is given on the grant-exclusive cost of the expenditure. Any expenditure met by the State, or any person other than the claimant, does not qualify for a mine development allowance.

Who qualifies for this allowance?

(3) A trade of working a mine qualifies and the capital expenditure must be incurred on or after 6 April 1946.

What time limits apply to apply for the allowance?

(4) A trader must apply for a mine development allowance within 24 months of the end of the chargeable period in which the capital expenditure was incurred.

How is the mine development allowance calculated for a period?

(5) The mine development allowance is calculated, by reference to the mine’s estimated life (i.e., its useful life, which must not exceed 20 years), allocating the estimated difference between the mine development expenditure and the residual value of the assets to each chargeable period of that useful life.

Example

Your mining company incurred the following expenditure for its accounting period ended 31 December 2008:

Non-qualifying expenditure Qualifying expenditure
Cost of searching for minerals 10,000
Cost of acquiring gypsum mine site 50,000
Cost of excavations (the mine is open cast) 50,000
Cost of roads 30,000
50,000 90,000

The estimated life of the gypsum deposit is the 10 year period 2008 to 2017 inclusive.

The assets on which the qualifying expenditure was incurred are expected to be worth €10,000 (instead of €90,000) at the end of 2017.

The estimated difference is therefore €80,000.

You are therefore entitled to a mine development allowance of (€80,000/10) = €8,000 for each of the years 2008 to 2017 inclusive.

Can current period excess allowances be carried forward?

(6) Any excess mine development allowance that cannot be offset against taxable profits from the mine for the current chargeable period may be carried forward (section 304(4)) for set off against the taxable profits of the next and subsequent chargeable periods.

Can normal plant and machinery allowance also be claimed?

(7) Expenditure on machinery or plant included as an asset in a mine development allowance, does not also qualify for machinery or plant initial allowance (section 284).

Can the annual deduction in section 85 apply in a period when the mine development allowance is claimed?

(8) The annual deduction (equal to five-twelfths of the rateable valuation, see section 85) for an industrial building or structure built before 30 September 1956, is also not given for a chargeable period for which a mine development allowance is claimed.

How is pre-trading capital expenditure treated?

(9) Pre-trading capital expenditure (incurred on or after 6 April 1946) on a mine is treated as having been incurred on the first day of trading.

What happens when the mine ceases to be worked?

(10) When the mine ceases to be worked, the mine development allowance given is reviewed. If the residual value of the assets is lower than originally estimated, a further allowance is given for the excess in the final chargeable period. If the residual value of the assets is higher than originally estimated, the difference is treated as a trading receipt in the final chargeable period.

What happens if an asset which qualified for the allowance is sold to a person who does not carry on the mining trade?

(11) This deals with balancing adjustments. If the sale proceeds when added to the mine development allowance received are less than the capital expenditure, the vendor, may claim the unexhausted allowance.

If the sale proceeds, when added to the mine development allowance received exceed the capital expenditure, the difference is treated as a trading receipt of the vendor in the chargeable period before the sale.

What happens if a mining trade is sold or transferred?

(12) The successor is entitled to claim the residue of unused mine development allowance that would have been given to the original trader.

How is the allowance given for periods when the mining entity was tax exempt?

(13) A mine development allowance is deemed to have been made for any chargeable period in which the mining entity was exempt from tax under Income Tax Act 1967 Part XXV Ch II (Profits of certain mines) or III (Profits from coal mining operations).

What appeal procedures are available?

(14) A claimant who is in dispute with the inspector over mine development allowance may appeal to the Appeal Commissioners. They must hear and determine the matter as if it were an income tax appeal. Where necessary a case may be re-heard by a Circuit Court Judge. There is also a right to have a case stated for the opinion of the High Court on a point of law.

Section 671 Marginal coal mine allowance

What is a marginal coal mine?

(1) A marginal coal mine is a coal mine in the State which the Minister for Communications, Energy and Natural Resources certifies would be unworked if the profits from working it were taxed.

What rules apply to a marginal coal mine?

(2) The Minister for Finance may, after consulting with the Minister for Communications, Energy and Natural Resources, direct for a tax year that the tax on the profits from working a marginal coal mine be reduced to a specified amount (including nil).

How does the marginal coal mine allowance operate?

(3) A trader is then given a marginal coal mine allowance which exactly reduces the tax to the specified amount.

Can companies claim a marginal coal mine allowance?

(4) Companies chargeable to corporation tax may also claim a marginal coal mine allowance for an accounting period.

Section 672 Interpretation (sections 672 to 683)

What definitions apply to the taxation of certain mining profits?

(1) A qualifying mine is a mine being worked to obtain scheduled minerals:

barytes, copper ore, felspar, gold ore, iron ore, lead ore, manganese ore, molybdenum ore, quartz rock, serpentinous marble, silver ore, soapstone, sulphur ore, and zinc ore.

Scheduled mineral assets means a deposit of scheduled mineral assets, land comprising such a deposit, or an interest in or right over such land.

Development expenditure is capital expenditure on developing a qualifying mine or constructing mining works which will be worth little or nothing when the mine has ceased to be used.

Development expenditure includes interest on borrowings to meet such capital expenditure but does not include:

(a) the cost of acquiring the site of the mine, or rights to such a site,

(b) the cost of a deposit of such minerals, or a right to such a deposit, or

(c) the cost of mining works for further processing of raw materials (but not works which prepare the raw material for such further treatment).

Exploration expenditure is capital expenditure on searching in the State (including by drilling) for scheduled mineral deposits, testing, and winning access to such deposits.

Is the mining capital allowance given for expenditure met by a grant or third party?

(2) No. Mining capital allowances in sections 673683 are given on the grant-exclusive cost of the expenditure. Any expenditure met by the State or any person other than you as the claimant, does not qualify for a mine development allowance.

Can the list of scheduled minerals be amended?

(3) Yes – the Minister for Finance may make regulations to add to, or delete from, the list of scheduled minerals.

How are regulations regarding scheduled minerals brought into force?

(4) Such regulations must be laid before and passed by Dáil Éireann.

Section 673 Allowance in respect of development expenditure and exploration expenditure

How is development and exploration expenditure treated?

(1) Exploration expenditure (section 672) or development expenditure (section 672) incurred on or after 6 April 1974 by a person who carries on a trade of working a qualifying mine, qualifies for a mine development allowance equal to the amount of the expenditure, whether or not a scheduled mineral deposit is found.

In the case of development expenditure, the deemed mine development allowance is equal to the difference between the amount of the expenditure and the amount the inspector believes will be the residual value of the assets.

Any reference in income tax law to a mine development allowance (section 670) is to be read as including a deemed mine development allowance for exploration expenditure or development expenditure allowance.

This allows the operator of a qualifying mine, to write off exploration expenditure, including abortive expenditure, in connection with that trade (i.e., that mine).

What expenditure does not qualify?

(2) Abortive exploration expenditure incurred before 1 April 1990, which was also incurred more than 10 years before the mining trade eventually commenced, does not qualify for a deemed mine development allowance.

What is the earliest date for allowable expenditure to be incurred?

(3) No allowance is given for expenditure incurred before 6 April 1974 which may have been deemed to have been incurred after 6 April 1974.

Section 674 Expenditure on abortive exploration

How is abortive exploration expenditure treated?

(1) Abortive exploration expenditure incurred by the operator of a mine qualifies for a deemed mine development allowance even if the expenditure was not incurred in connection with the qualifying mine.

Abortive exploration expenditure incurred before 1 April 1990, which was also incurred more than 10 years before the mining trade eventually commenced, does not qualify.

This allows a write off of abortive exploration expenditure which is not necessarily related to the mine being worked.

How are unused abortive exploration expenditure allowances treated when a company changes ownership?

(2) This anti-avoidance provision prevents a company buying into another company’s unused abortive exploration expenditure allowances where a company changes ownership, i.e., when one person, or two or more persons each owning at least 5% of the shares and acting together, acquires more than half of the company’s share capital.

In this regard, ordinary shares owned by a government minister (in his/her capacity as Minister) are ignored in deciding whether there has been a change of ownership.

In such a case, the predecessor’s unrelieved trading losses cannot be carried forward for set off against liabilities of the successor.

If a qualifying mine is taken over can abortive expenditure incurred on another mine be written off?

(3) A person who takes over working a qualifying mine write off accumulated abortive exploration expenditure incurred before the takeover.

Can expenditure qualifying for abortive exploration allowance qualify for other allowances?

(4) Apart from transitional relief (Schedule 32 paras 16 and 18), expenditure that qualifies for an abortive exploration expenditure allowance cannot also qualify for any other allowance.

Section 675 Exploration expenditure incurred by certain bodies corporate

Can exploration expenditure of a parent company or subsidiary be be claimed by another group member?

(1) A parent exploration company that incurs exploration expenditure may elect to deem the expenditure to be incurred by a owned subsidiary.

A wholly owned subsidiary exploration company that incurs exploration expenditure may elect to deem the expenditure to be incurred by its parent company, or another of the parent’s wholly owned subsidiaries.

A limited form of group relief for exploration expenditure.

Can the same expenditure be taken into account for more than one trade or for another relief?

(2) Exploration expenditure incurred is only allowed against one trade.

Apart from transitional relief (Schedule 32 paras 16 and 18), expenditure that qualifies for an exploration expenditure allowance cannot also qualify for any other allowance.

Either the parent or the subsidiary gets the allowance, but not both.

What is a wholly owned subsidiary?

(3) A wholly owned subsidiary is a company all of whose ordinary shares are owned directly or indirectly, by another company. In this regard, ordinary shares owned by a government minister in his capacity as Minister are ignored.

How is share ownership by a company in another company determined?

(4) Whether, and how many, shares are owned by a company in another company is to be determined using the ownership rules in section 9.

Section 676 Expenditure incurred by person not engaged in trade of mining

Can a purchaser get an allowance for exploration expenditure incurred by a person who sells a mining deposit?

(1) Where a person sells assets representing successful exploration expenditure (i.e., incurred in finding a scheduled mineral deposit, a buyer (who does mine it) is deemed to have incurred the expenditure (or if lower, the price paid for the assets) on the date mining begins.

Is production of certain amount of minerals required to get the allowance?

(2) A purchaser does not get the allowance unless scheduled minerals are produced in reasonable commercial quantities.

Can an allowance be obtained under any other section?

(3) Apart from transitional relief (Schedule 32 paras 16 and 18), expenditure that qualifies under this section cannot also qualify for any other allowance.

Does this expenditure qualify for the additional 20% investment allowance?

(4) No. This type of exploration expenditure does not qualify for an additional 20% investment allowance (section 677).

Section 677 Investment allowance in respect of exploration expenditure

What other allowances apply for exploration expenditure incurred in operating a qualifying mine?

(1) Exploration expenditure incurred (before 1 January 2011) in the course of working a qualifying mine qualifies for a supplementary exploration investment allowance equal to 20% of the expenditure, whether or not a scheduled mineral deposit is found.

In what cases are the allowances not given?

(2) No allowance is given for expenditure incurred before 6 April 1974 which may have been deemed to have been incurred after 6 April 1974.

The investment allowance is not given for expenditure incurred by another person (section 676), but it is given where a parent exploration company is deemed to have incurred exploration expenditure incurred by its wholly owned subsidiary (section 675).

Section 678 Allowance for machinery and plant

Can expenditure on plant and machinery for use in a qualifying mine qualify for accelerated capital allowances?

(1) Expenditure incurred after 6 April 1974 on new machinery or plant (other than road vehicles) to be used in a trade of working a qualifying mine may, in very limited circumstances, (see section 284) qualify for accelerated capital allowances.

Does the supplementary investment allowance apply for expenditure on plant and machinery?

(2) Expenditure incurre after 6 April 1974 and before 1 January 2011 on new machinery or plant (other than road vehicles) to be used in a trade of working a qualifying mine qualifies for a supplementary investment allowance equal to 20% of the expenditure.

What limit applies to the capital allowances given for an asset?

(3) In general, the total machinery or plant capital allowances to be given for an asset (initial allowance and annual allowances) cannot exceed the price you paid for the asset (section 284(4)).

The 20% investment allowance is not taken into account for this purpose.

What are the consequences of selling or ceasing to use the machinery or plant?

(4) If machinery or plant is sold or ceases to be used within two years of the day it began to be used, the investment allowance is withdrawn. Any tax overclaimed is to be collected by an assessment, or by adjusting an existing assessment, on the claimant.

What rules apply to mining machinery or plant investment allowances?

(5) The following rules apply to mining machinery or plant investment allowance:

(a) Expenditure is treated as incurred on the day on which it becomes payable.

(b) The allowance is given on the grant-exclusive cost of the expenditure. Any expenditure met by the State, or any person other than the claimant, does not qualify for a mining machinery or plant investment allowance.

(c) Pre-trading capital expenditure is treated as having been incurred on the first day of trading.

(d) Capital expenditure does not include revenue type expenditure that is deductible in the normal way in the claimant’s profit and loss account.

(e) The rules for deciding which basis period expenditure is incurred in (section 306) apply for mining machinery or plant investment allowance:

Where two basis periods overlap, the overlap belongs to the first basis period. If two basis periods coincide, or if one basis period is wholly included inside the other, the periods overlap.

If there is a gap between two basis periods, unless the second year is the year in which the trade permanently ceases, the interval belongs to the second basis period. If there is a gap between two basis periods and the second year is the year in which the trade permanently ceases, the interval belongs to the first basis period.

How is an investment allowance claimed?

(6) A claim for investment allowance is to be included with the income tax or corporation tax return. The claim must include a signed certificate stating that the expenditure was incurred on new machinery or plant.

How can excess allowances of the current period be used?

(7) Any excess investment allowance that cannot be offset against taxable profits of the current chargeable period may be carried forward (section 304(4)) for set off against the taxable profits of the next or subsequent chargeable periods.

Section 679 Exploration expenditure

Can a exploration company which does not mine claim any allowances?

(1)-(2) An exploration company is a company whose main activity is exploring in the State (including by drilling) for scheduled mineral deposits, testing, and winning access to such deposits.

An exploration company which does not carry on a trade of working a qualifying mine and incurs capital expenditure after 1 April 1990 on such exploration, or on related machinery or plant is deemed to be carrying on a trade of working a qualifying mine and may therefore claim an allowance for:

(a) development and exploration expenditure (section 673),

(b) abortive exploration expenditure (section 674(3)),

(c) exploration investment allowance (section 677),

(d) mining machinery or plant investment allowance (section 678).

The company is treated as:

(a) being within the charge to corporation tax from the time it first incurs such expenditure,

(b) having incurred the expenditure for the purposes of your deemed mining trade.

This deems a pure exploration company (which does not mine) to be carrying on a mining trade.

How can a company’s exploration losses be used?

(3) A company’s exploration losses may be treated:

(a) as a trading loss (section 396) and available for set off against total profits of the current and immediately preceding accounting periods,

(b) as a terminal loss, if incurred in the final accounting period (section 397).

The loss may not be surrendered by way of (general) group relief (section 420(1)).

What happens if an exploration company begins a mining trade or has a change of ownership?

(4) If you sell an asset representing exploration expenditure, the balancing adjustment rules (section 670(11)) that apply to mine development allowance claimed by an exploration company (section 673) apply also for an exploration allowance claimed under (2) by a deemed exploration company.

The deemed mining trade does not cease if such an adjustment occurs.

If an exploration company that is deemed to be carrying on a mining trade begins actually to carry on a mining trade, the deemed trade and the actual trade are to be regarded as the same trade.

Capital allowances of the deemed trade are treated as belonging to the actual trade. Unrelieved losses of the deemed trade may be carried forward against trading income (i.e., mining income) of the actual trade.

A company changes ownership if a person acquires or two or more persons each owning at least 5% of the shares acting together acquire, more than half of the company’s share capital (Schedule 9). If the exploration company changes ownership within 12 months before or within 24 months after it actually begins to trade, unrelieved trading losses of the deemed trade may not be carried forward for set off against liabilities of the actual trade.

Can expenditure under this section qualify for other deductions or allowances?

(5) Expenditure that qualifies under this section cannot also qualify for any other allowance or deduction.

A non-resident exploration company that is deemed to be carrying on a mining trade does not thereby become an Irish resident company (and therefore entitled to repayment of deposit interest retention tax under section 261(b)).

Section 680 Annual allowance for mineral depletion

What is the treatment of pre-trading expenditure in relation to a qualifying mine?

(1)A person carrying on a trade of working a qualifying mine who incurs pre-trading capital expenditure after 31 March 1974 on scheduled mineral assets (section 672), qualifies for a mine development allowance (section 670) as if it were a cost of developing the mine.

Such expenditure may not also qualify as development expenditure or exploration expenditure under section 673.

Pre-trading expenditure on acquiring a deposit of scheduled minerals qualifies for a mine development allowance.

How is capital expenditure incurred before 6 April 1974 treated?

(2) If, in beginning a mining trade after 6 April 1974, you work scheduled mineral assets which you bought before that date, the expenditure on the assets is deemed to have been incurred on the date the mining trade begins.

Section 681 Allowance for mine rehabilitation expenditure

What is a “mine rehabilitation allowance”?

(1) A qualifying mine is a mine being worked to obtain scheduled minerals (section 672(1)), calcite, coal, dolomite, dolomitic limestone, fireclay or gypsum.

Rehabilitation expenditure is expenditure on landscaping and any other activities after the mine ceases to be worked which were included as a conditions under which the mining licence, pollution control licence, or planning permission were granted.

A mine rehabilitation fund is a fund the mining company must maintain under the terms of its State mining licence. The purpose of the fund, which consists of payments by the mining company to an unconnected fund holder, is to have available, when the mine ceases to be worked, the amount certified by the Minister for Communications, Energy and Natural Resources needed to pay the environmental rehabilitation expenditure.

No funds must be paid out to the mining company, or a connected person, unless authorised by the Minister and the local authority or the Environmental Protection Agency as rehabilitation expenditure.

The rules for deciding in which basis period expenditure is incurred (section 306) apply for the mining rehabilitation expenditure allowance:

(a) Where two basis periods overlap, the overlap belongs to the first basis period. If two basis periods coincide, or if one basis period is wholly included inside the other, the periods overlap.

(b) If there is a gap between two basis periods, unless the second year is the year in which the trade permanently ceases, the interval belongs to the second basis period. If there is a gap between two basis periods and the second year is the year in which the trade permanently ceases, the interval belongs to the first basis period.

Rehabilitation expenditure can include: the physical closing of the mine, longer term underground monitoring, and the provision of a water system where wells used before mining began have dried up.

What are the requirements for a certificate given to a mine rehabilitation fund?

(2) A certificate, given by the Minister for Public Enterprise to a mine rehabilitation fund that is sufficiently funded to finance the mine’s rehabilitation expenditure, must state:

(a) the remaining years of the mine’s estimated life,

(b) the rehabilitation expenditure required, and

(c) the scheduled payments needed to create the rehabilitation fund.

The Minister may at any time write to a company to amend the certificate given to the company.

How much of a mine rehabilitation allowance can be given?

(3) As a mining company, you are to be given a mine rehabilitation allowance for the net cost of the rehabilitation (the excess of rehabilitation expenditure over any receipts from the rehabilitation for spoil or other assets from the mining site).

Rehabilitation expenditure incurred after the mining trade ceases is treated as having been incurred on the last day of trading.

What are the computation rules for the allowance given in each chargeable period?

(4) A company is given the mine rehabilitation allowance for scheduled payments it must make in each chargeable period in the funding period, i.e., the period which begins on the date the Minister certifies the fund, and finishes when the mine’s estimated life ends.

This is done by allocating the total amount of the scheduled payments (E) over the number of years in the estimated life (L) of the mine: E x (1/L). The figure apportionable to the first or last year of the mine (where the chargeable period may be less than 12 months) is scaled back to match the number of months (N) in the chargeable period, by multiplying the result by N/12.

The allowance given in any year, when added to the cumulative allowances given for previous years, cannot exceed the cumulative allowances due for that year and the previous years under the payments schedule.

Where the cumulative allowances fall short of the cumulative allowances due under the payments schedule, the shortfall, if it cannot be relieved in the current period, may be carried forward for relief against profits of the next and subsequent chargeable periods.

What happens if the Minister amends the scheduled payments in a certificate?

(5) If the Minister amends a certificate and the cumulative payments made to date exceed the scheduled payments in the amended certificate, the excess is to be treated as a trading receipt of the period in which the certificate was amended.

If the cumulative payments made to date fall short of the scheduled payments in the amended certificate, the shortfall is to be added to the allowance for the period in which the certificate was amended.

How is a repayment from the fundholder to a mining company treated ?

(6) A repayment from the fundholder to a mining company (or to a person connected with it) is to be treated as trading income, to the extent that it creates an excess of payments made into the fund over scheduled payments to date.

The repayment is to be treated as trading income of the period in which it is received.

If the mine is no longer worked, the repayment is treated as trading income of the last period in which the mine was worked, and the receipt must be included in the self-assessment return for the chargeable period in which it was received.

Can the mine rehabilitation allowance be obtained by a person who takes over the obligations of another person?

(7) Where a mining trade is transferred, a transferee who takes over the scheduled mine rehabilitation payments is entitled to the mine rehabilitation allowance (if any) of the transferor.

Does mine rehabilitation expenditure qualify for other reliefs?

(8) No. Receipts taken into account in calculating the net cost of the rehabilitation expenditure (see (3)) are not to be taken into account as trading receipts.

What happens to an excess allowance that cannot be used in the current period?

(9) An excess allowance that cannot be offset against your taxable profits of the current chargeable period may be carried forward (section 304(4)) for set off against the taxable profits of the next or subsequent chargeable periods.

Section 682 Marginal mine allowance

What is meant by a “marginal mine”?

(1) A marginal mine is a mine in the State, used to work scheduled minerals, which the Minister for Communications, Energy and Natural Resources certifies would be unworked if the profits from working it were taxed.

What are the consequences of having a marginal mine?

(2) The Minister for Finance may, after consulting with the Minister for Communications, Energy and Natural Resources, direct for a tax year that the tax on the profits from working a marginal mine be reduced to a specified amount (including nil).

How is the allowance given?

(3) The trader is then given a marginal mine allowance which exactly reduces the tax to the specified amount.

Do the marginal mine provisions apply to companies?

(4) A marginal mine allowance for an accounting period may be claimed by a company chargeable to corporation tax.

Section 683 Charge to tax on sums received from sale of scheduled mineral assets

What are the consequences of selling scheduled mineral assets?

(1)-(2) The sale of scheduled mineral assets, or the granting of a licence to work such assets, for a capital sum is charged to tax under Schedule D Case IV for the chargeable period (accounting period or tax year) in which the sum is received.

A resident of the State may elect, within 24 months of the end of the tax year in which the sum is paid, to be charged to tax as if the capital sum had been received in six equal instalments. The first instalment is treated as received in the tax year the payment was received, and remaining five instalments are treated as received in the five succeeding tax years.

If mineral rights in land are disposed of, but ownership of the landis retained, the proceeds are taxed under Schedule D Case IV (Revenue Precedent IT94-3033, 22 April 1994).

What rules apply to non-residents on the sale of scheduled mineral assets?

(3) A non-resident individual is also charged to tax under Schedule D Case IV on the sale of scheduled mineral assets for a capital sum. However, because the payment is to be treated as an annual payment, the purchaser must deduct tax at the standard rate from the amount of the payment and pay over that tax to Revenue (section 238).

The seller may also elect, within 24 months of the end of the tax year in which the sum is paid, to be charged to tax in six equal instalments. The first instalment is treated as received in the tax year the payment was received, and remaining five instalments are treated as received in the succeeding tax years.

Nevertheless, the purchaser remains obliged to deduct tax at the standard rate from the amount of the payment and pay over that tax to Revenue (section 238). If the tax initially deducted from the capital sum is excessive, it may be repaid on a year by year basis, as the instalments fall due.

What amount is taxable where scheduled mineral assets are sold?

(4) If a scheduled mineral asset purchased for a capital sum is sold, tax is charged on the net amount received after deducting the purchase cost. However where the seller is non-resident (see (3)), withholding tax must be applied to the gross sale proceeds. If tax is excessively deducted it must be repaid.

How is compensation received for the acquisition of scheduled minerals or the right to work them treated?

(5) Compensation received from the Minister for Public Enterprise under the Minerals Development Act 1940 section 14 for the acquisition of scheduled minerals, or the right to work such minerals, is to be treated as a capital sum received from the sale of the assets.

Section 684 Interpretation (Chapter 2)

What definitions apply in relation to petroleum taxation?

(1) Petroleum resources are reserves of offshore oil or gas. Reserves in a designated area on the Continental Shelf are vested in the Minister for Public Enterprise (Petroleum and Other Minerals Development Act 1960, section 4). The Minister may licence companies to explore for offshore reserves, and develop any reserves they find.

An offshore company’s petroleum trade is its trade (or part of a trade) that consists of petroleum activities:

(a) exploration: petroleum exploration activities (see below),

(b) extraction: petroleum extraction activities (see below),

(c) acquisition or exploitation of petroleum rights, i.e., the rights to reserves, including an interest in a licence.

A company’s profits from petroleum activities are petroleum profits. Petroleum profits that derive from a relevant field, i.e., a field discovered under a licence issued on the terms in the Notice entitled Ireland: Exclusive Offshore Licensing Terms, presented to the Oireachtas on 29 April 1975, or Notices after that date are:

(a) to be taxed at a reduced 25% rate (section 686), and

(b) isolated (or “ring-fenced”) as regards the set off of losses, capital allowances etc (section 687691).

A licence, in this context, means:

(a) an exploration licence,

(b) a lease undertaking,

(c) a licensing option,

(d) a petroleum prospecting licence,

(e) a petroleum lease,

(f) a reserved area licence.

Petroleum exploration activities means searching for petroleum in a licensed area, testing, appraising and winning access to deposits found, under a licence other than a petroleum lease.

Petroleum extraction activities are the activities of the holder of a petroleum lease in:

(a) winning petroleum from a relevant field,

(b) transporting the petroleum to dry land,

(c) initial treatment and storage of that petroleum (before it is refined), i.e.:

(i) enabling the petroleum to be safely loaded and stored in a tanker, or safely accepted for refining,

(ii) separating gas from oil,

(iii) separating saleable from non-saleable gas,

(iv) liquefying gas for transport purposes,

(v) other processes needed to make crude petroleum saleable,

(vi) storing, or transporting to shore, of oil or gas before it is refined.

Exploration expenditure means capital expenditure on petroleum exploration activities, and payments made to the Minister for Transport, Energy and Communications for a licence. The term does not include interest (see section 693).

Development expenditure means capital expenditure on petroleum extraction activities, i.e., machinery, plant and buildings or structures used to extract or transport petroleum from the well (see section 692).

Abandonment expenditure means expenditure on abandonment activities, i.e., closing down a well (see section 695).

Petroleum trade, petroleum activities, petroleum extraction activities, initial treatment and storage: These definitions are used to “ring-fence” the petroleum trade so that its profits and gains are considered in isolation. These special tax rules do not apply to the Marathon Lease Acreage.

Petroleum rights: would include, for example, royalties.

Licence: An exploration licence and a petroleum prospecting licence entitle the holder to search for oil and gas. Only apetroleum lease entitles the holder to extract oil and gas. A reserved area licence is an exploration licence that allows the holder of a petroleum lease to search in areas adjacent to the areas covered by the lease.

When is a company considered to be an associate of another?

(2) A company is an associate of another company if one is a 51% subsidiary of the other, if both are 51% subsidiaries of a third company, or if one is a member of a consortium (consisting of five or fewer member companies) that owns the other.

Section 685 Separation of trading activities

Are petroleum activities treated as a separate trade?

(1) Petroleum activities carried on as part of another trade are to be treated as a separate trade.

The receipts and expenses of the petroleum trade are to be separated from the general trading receipts and expenses, so that the net income from the petroleum trade may be correctly calculated.

This confines loss relief (section 687) and group relief (section 688) to the separate trade.

Is the working of a qualifying mine also treated as a separate trade?

(2) The working of a qualifying mine, as part of another trade, is also to be treated as a separate trade for the purposes of this Chapter. The receipts and expenses of the larger trade must be apportioned between the main trade and the mining trade.

Section 686 Reduction of corporation tax

What definitions apply in relation to corporation tax rates for petroleum activities?

(1) A relevant petroleum lease is a petroleum lease for a relevant field, i.e., a field discovered under the 1975 licensing terms, or subsequent licensing terms. The three types of relevant petroleum lease are:

Original licence period Area Lease granted before
Not longer than 10 years basic area 1 June 2003
10 – 15 years deep water area 1 June 2007
Longer than 15 years frontier area 1 June 2013

The amount of petroleum profits on which corporation tax falls finally to be borne ((F) in (3), see subsection (4)), means the amount on which tax is charged, after allowing all deductions and reliefs.

The 25% rate is an incentive to encourage oil or gas wells to be brought into production before the appropriate cut-off date. The licence period and the corresponding time period for deeper waters is longer due to the greater difficulty in discovering oil in such waters.

How is the effective rate of corporation tax for petroleum income calculated?

(2) A 25% effective rate of corporation tax rate applies to petroleum income. The formula used to achieve this is:

I  x  R – 25
100

where-

I is the income and R is the current corporation tax rate.

((R – 25))/100) is the difference between the current rate and 25%.

25% remains the effective rate when the rate of corporation tax changes during the accounting period because the figure for R is time-apportioned to the part of an accounting period falling in the financial year in which the old rate applied, and the part of the accounting period falling in the financial year in which the new rate applies.

The 25% rate does not apply to capital gains. See section 78.

How is a company’s petroleum income calculated?

(3) In (2), I is calculated by using the formula:

(F – G)  x  S
T

where-

F is a company’s petroleum profits,

G is the corporation tax figure for chargeable gains accruing from petroleum related assets,

S is the trading income from petroleum sales your non-trading income from petroleum rights under a relevant petroleum lease, and

T is total income for the accounting period from a petroleum trade or other petroleum activities.

The fraction S/T ensures that only income from a relevant petroleum lease is taxed at 25%.

What other computation rules apply?

(4) In (3), a company’s trading income from petroleum sales is calculated using the formula:

O  x  P
Q

where-

O is petroleum trade income,

P is sales of petroleum under a relevant petroleum lease, and

Q is the total petroleum sales of the trade.

This generates a figure to be used in (3). (3) then generates a figure to be used in (2).

Section 687 Treatment of losses

How are petroleum losses used?

(1) Petroleum trade losses may only be set off against income from petroleum activities. In other words, petroleum trade losses are “ring-fenced” against the petroleum trade income. Such losses cannot be set off (under sections 381,396(2)) against general trading profits.

Trading losses incurred in other activities may not be set off against income from petroleum activities. In other words, general trading losses are “ring-fenced” away from petroleum trade income and may only be set off against general trading profits.

Can other Case IV losses be used against petroleum gains?

(2) Schedule D Case IV petroleum trade losses may only be set off against Schedule D Case IV petroleum trade income. Such losses are “ring-fenced” against the petroleum trade Schedule D Case IV income and may not (under sections 383, 399(1)) be set off against other Schedule D Case IV income profits.

Schedule D Case IV trading losses may not be set off against Schedule D Case IV petroleum trade income. Such losses are “ring-fenced” away from Schedule D Case IV petroleum trade income and may only be set off against other Schedule D Case IV profits.

The “two way ring-fence” effectively isolates petroleum trade profits and losses.

What rules apply to loss created by excess capital allowances under Case V?

(3) A loss created by excess Schedule D Case V capital allowances may not (under sections 305, 308(4)) be set off against income from petroleum activities.

This is a “one way” ring-fence.

Section 688 Treatment of group relief

What definitions apply in relation to the treatment of group relief?

(1) In a 75% group (where a resident company is a 75% subsidiary of another, or both are 75% subsidiaries of a third resident company), one company (the surrendering company), may surrender an unused trading loss or excess management expenses to another group member (the claimant company) (section 411).

How is group relief allowed for petroleum or mining losses?

(2) Petroleum trade losses, mining trade losses, or excess charges of the surrendering company may only be offset against petroleum trade profits or mining trade profits of the claimant company.

Section 689 Restriction of relief for losses on certain disposals

What are the capital losses offset rules in relation to a petroleum trade?

(1) An allowable loss on a petroleum trade asset may only be set off against a gain on the disposal of a petroleum trade asset. Petroleum trade capital losses are “ring-fenced” against the petroleum trade gains and may not be set off against general chargeable gains.

Similarly, allowable capital losses on non-petroleum trade assets may not be set off against gains on petroleum trade assets. In other words, general allowable capital losses are “ring-fenced” away from gains on petroleum trade assets.

The “two way ring-fence” effectively isolates petroleum trade chargeable gains and allowable losses.

Does rollover relief apply to petroleum trade assets?

(2) A petroleum trade carried on at two or more different locations may be treated as a single trade for the purposes of rollover relief.

If an old petroleum trade you carried on for at least 10 years ceases and, within two years, a new petroleum trade begins, rollover relief applies if the disposal proceeds for the old petroleum trade assets are used to acquire new petroleum trade assets (section 597).

This allows limited rollover relief, “ring-fenced” to petroleum trade assets.

Section 690 Interest and charges on income

In computing petroleum trade profits, are there restrictions on deductible interest?

(1) In computing petroleum trade profits, deductible interest is restricted as follows:

(a) Interest paid to a connected person is disallowed to the extent that it exceeds the interest that would be payable by a borrower to a lender at arm’s length.

(b) Interest paid to finance petroleum exploration activities is disallowed.

(c) Interest paid to finance the purchase of petroleum rights from a connected person is disallowed.

Interest paid to finance exploration expenditure would not qualify as a trading expense on the basis that it is “pre-trading” expenditure.

How is interest paid on a loan from a 75% parent to be treated?

(2) Interest paid on a loan from a 75% parent company resident in a tax treaty country may be treated as a business expense and not as a distribution (section 130(2)(d)(iv)) if it would otherwise be deductible and is not disallowed by (1).

How are charges on income treated for a petroleum trade?

(3) A charge paid to a connected person is disallowed.

A charge is also disallowed if it does not relate wholly and exclusively to the petroleum or mining trade.

Charges (section 243) on non-petroleum trade activities may not be set off against petroleum trade profits. General charges are “ring-fenced” away from petroleum trade profits and may only be set off against general trading profits.

This ring-fences non-petroleum trade charges for corporation tax purposes.

How are annual payments under section 237 treated?

(4) An annual payment (section 237) paid to a connected person is disallowed.

An annual payment is also disallowed if it does not relate wholly and exclusively to a petroleum or mining trade.

Annual payments on non-petroleum trade activities may not be set off against petroleum trade profits. In other words, general annual payments are “ring-fenced” away from petroleum trade profits and may only be set off against general trading profits.

Ring-fences non-petroleum annual payments for income tax purposes.

Can disallowed charges or annual payments made to a connected person be carried forward?

(5) Charges disallowed, because they were paid to a connected person, may not be carried forward (section 396(7)) to reduce petroleum profits of a later period.

Annual payments disallowed, because they were paid to a connected person, may not be allowed by way of section 238 assessment against a loss (section 390).

How are excess petroleum trade charges treated for group relief?

(6) Excess charges disallowed under (3), may, to the extent that they exceed non-petroleum profits, be offset by group relief (section 420(6)).

Otherwise, group relief would only allow excess charges disallowed under (3) to be offset against profits to the extent that they exceed your total (petroleum and non-petroleum) profits.

Section 691 Restriction of set-off of advance corporation tax

Amendments

Section 691 deleted by Finance Act 2003 section 41(1)(q) as respects accounting periods ending on or after 6 February 2003.

Section 692 Development expenditure: allowances and charges

What special allowances apply to development expenditure used in a petroleum trade?

(1)-(3) Once oil or gas begins to be produced in commercial quantities from a relevant field (section 684(1)), the development expenditure on the well qualifies for a 100% deemed machinery or plant wear and tear allowance (section 284(2)).

Development expenditure means capital expenditure on machinery or plant, buildings or structures, or other assets used to extract petroleum from a relevant field. The value of the assets must diminish to nil as the well approaches exhaustion. The term does not include expenditure on:

(a) Road vehicles.

(b) Any building or structure in use as a residence.

(c) Exploration (a separate allowance) and a licence bought from the Minister.

(d) The site.

(e) A licence purchased from another trader.

(f) Machinery, plant or buildings used to process petroleum.

(g) Interest.

This 100% write off is not available to a supplier of services to petroleum producers.

Note

Development expenditure, para (b): includes fixed platforms, pipelines, storage tanks, jetties, and onshore structures for initial treatment or storage.

Para (d) excludes the site cost of onshore installations.

Normal capital allowances continue to apply to assets not used for development.

Can assets which qualify for development expenditure allowances also qualify for other allowances?

(4) No. Assets that qualify for development expenditure allowance cannot also qualify for industrial building allowance (Part 9 Chapter 1), dredging allowance (Part 9 Chapter 3), machinery or plant initial allowance (section 283), mine development allowance (section 670), patent allowance (Part 29 Chapter 1), scientific research allowance (sections763765), or know-how allowance (section 768).

This prevents double allowances.

Is a lessor of development expenditure assets eligible for the special plant and machinery allowances?

(5) A lessor of assets representing development expenditure is also given a 100% deemed machinery or plant allowance, but the allowance may only be set off against leasing income from those assets (section 403).

Section 693 Exploration expenditure: allowances and charges

What exploration expenditure is allowed to a petroleum trade?

(1) A petroleum trade is entitled to a 100% exploration expenditure allowance for the chargeable period in which the exploration expenditure was incurred. Any part of the expenditure that has been subsidised (i.e., grant-aided or paid for by some other person) does not qualify for relief.

What happens on disposal of an asset representing exploration expenditure?

(2) If an exploration expenditure allowance is obtained and subsequently an asset representing exploration expenditure is disposed of, the net disposal proceeds are to be recovered by way of a balancing charge for the chargeable period in which the disposal occurred. If the disposal occurred after the trade ceased, the balancing charge is made for the final trading period.

The balancing charge can never exceed the actual allowances given.

What is the treatment of an exploration asset which is destroyed?

(3) An exploration asset that is destroyed is treated as having been disposed of before its destruction, and any insurance or other compensation received for the asset is treated as the disposal proceeds.

Can an exploration expenditure allowance be claimed on assets bought in connection with a relevant field?

(4) A person who buys assets representing exploration expenditure in connection with a relevant field and who works that field is entitled to an exploration expenditure allowance. The allowance is given for the exploration expenditure incurred or, if less, the price paid for the assets.

Note

The exploration expenditure is deemed to be incurred on the day the asset is acquired or, if later, the day working the field begins.

How is pre-trading exploration expenditure treated?

(5) Pre-trading exploration expenditure is deemed to have been incurred on the first day of trading.

Expenditure incurred more than 25 years before the trade begins, on an area other than a relevant field (section 684(1)), does not qualify for the allowance.

Expenditure on a relevant field (section 684(1)) is not subject to the 25 year limit.

What happens if an asset representing exploration expenditure is sold before trading begins?

(6) The allowance for pre-trading exploration expenditure is to be reduced by the disposal proceeds for the asset.

At what time is expenditure considered to be incurred?

(7) Expenditure is incurred on the day on which it becomes payable.

Can an exploration allowance be claimed for more than one petroleum trade?

(8) An exploration allowance or balancing charge is given in charging to tax the profits of a petroleum trade. An allowance for the same expenditure can only be given for one such trade.

How can excess exploration expenditure that cannot be used in the current period be used?

(9) Excess exploration expenditure allowances that cannot be offset against taxable profits of the current chargeable period may be carried forward (section 304(4)) for set off against the taxable profits of the next and subsequent chargeable periods.

Do the carry forward rules apply to a trade chargeable to corporation tax?

(10) This applies (9) where a trade is chargeable to corporation tax.

What is the basis period for an income tax year?

(11) The basis period for an income tax year is the period the profits or gains of which are used to compute an income tax liability.

Where two basis period overlap, the overlap belongs to the first basis period. If two basis periods coincide, or if one basis period is wholly included inside the other, the periods overlap.

If there is a gap between two basis periods, unless the second year is the year in which the trade permanently ceases, the interval belongs to the second basis period. Where the second year is the year in which the trade permanently ceases, the interval belongs to the first basis period.

Can other allowances be obtained for expenditure that qualifies for an exploration allowance?

(12) Expenditure that qualifies for machinery or plant allowance, industrial building allowance, dredging allowance (Part 9), mine development allowance (section 670), patent allowance (Part 29 Chapter 1), scientific research allowance (sections 763765), or know-how allowance cannot also qualify for an exploration expenditure allowance.

This prevents double allowances.

What other rules apply for exploration expenditure allowances?

(13) The following rules apply for exploration expenditure allowance:

(a) The Revenue may disregard any fictitious allocation where different assets are sold together for a single price (section 312).

(b) Capital expenditure does not include revenue type expenditure that is deductible in the normal way in your profit and loss account (section 316(1)-(2)).

(c) The allowance is calculated on the expenditure net of grants. Any expenditure met by the State, the European Union, or any person other than you as the claimant does not qualify for capital allowances (section 317(2)).

(d) Compensation proceeds for the loss or destruction of an asset includes any capital sum received as compensation for the loss of the asset, but not any revenue sum received as compensation for loss of income from the asset if such revenue has been taken into account as revenue in your profit and loss account (section 318).

(e) An asset is regarded as sold when the sale is complete or when the buyer takes possession of the asset, whichever is the earlier event. A cessation of trade includes a “deemed” cessation of trade, for example, when a successor takes over a business (section 320(4)-(5)).

How are exploration balancing charges treated in a CGT computation?

(14) In a CGT computation (Part 19), although revenue receipts are not generally treated as capital proceeds, an exploration allowance balancing charge (see (2)) may be taken into account as consideration (section 555).

Are capital allowances different for a VAT registered trader?

(15) A trader who is registered for value added tax (or who, although unregistered, can reclaim the value added tax), is given capital allowances on the basis of the VAT-exclusive cost of the asset.

An unregistered trader is given capital allowances on the basis of the VAT-inclusive cost of the asset.

At what time is the exploration expenditure allowance granted?

(16) The exploration expenditure allowance is not given until oil or gas production from the relevant field (section 684(1)) is about to begin.

A petroleum lease is not given for a relevant field unless oil or gas production is assured.

Do the exploration expenditure rules apply where only a part share in an asset is disposed of or acquired?

(17) An asset representing exploration expenditure includes a part or share in such an asset.

This ensures that part disposals of assets representing exploration expenditure are taxed.

Section 694 Exploration expenditure incurred by certain companies

Is group relief available for exploration expenditure?

(1) This is a limited form of group relief for exploration expenditure.

Exploration expenditure incurred by a parent exploration company may, on election, be deemed to have been incurred by one of its wholly owned subsidiaries.

Exploration expenditure incurred by an exploration company that is a wholly owned subsidiary may, on election, be deemed to have been incurred by its parent or another of the parent’s wholly owned subsidiaries.

What rules apply where the exploration expenditure is transferred between a parent and subsidiary?

(2) The transferred exploration expenditure is deemed to have been incurred by the transferee company for the purposes of its trade at the time the expenditure was incurred by the transferor.

The transferee company is deemed to have been incorporated if it was not so incorporated at the time the expenditure was incurred.

Either the parent or the subsidiary gets the allowance, but not both. If, for example, the subsidiary claims the allowance, the parent cannot claim the expenditure by disguising it as a different kind of allowance or deduction.

Can exploration expenditure be allowed against more than one trade?

(3) No.

Can exploration expenditure that qualifies for an allowance under this section also qualify for other allowances?

(4) Exploration expenditure that qualifies under this section cannot also qualify for any other allowance or deduction.

What is a “wholly owned subsidiary”?

(5) A company is a wholly owned subsidiary if all of its ordinary shares are owned, directly or indirectly, by another company.

Whether, and how many, shares are owned by a company in another company is to be determined using the ownership rules in section 9.

Section 695 Abandonment expenditure: allowances and loss relief

How is “abandonment expenditure” defined?

(1) Abandonment expenditure means expenditure on abandonment activities; the closing down, decommissioning or abandonment of a commercial well in a relevant field. The term includes the dismantling or removal of the platform rig, and pipelines used to bring the oil or gas ashore.

The abandonment activities may be carried out by, or on behalf of, the holder of the petroleum lease.

Abandonment losses: see (3).

What allowance is available for abandonment expenditure?

(2) A petroleum trade is entitled to a 100% abandonment expenditure allowance, for the chargeable period in which the abandonment expenditure was incurred.

What is an abandonment loss?

(3) An abandonment loss arises if abandonment expenditure exceeds income for the chargeable period in which the well is abandoned. The abandonment loss may not exceed the amount of the abandonment expenditure.

In such a case, the abandonment loss may, insofar as it cannot be carried forward, be set off against the trading profits of the three chargeable periods immediately preceding the period in which the well was abandoned.

The income tax loss rules (section 381) are applied so that:

(a) Where incurred by a body corporate, the loss is firstly applied against the income from the trade, then against its other income (section 381(3)(b)(iii).

(b) The same rules are used to compute a loss as are used in computing taxable profits (section 381(4)).

(c) Once loss relief has been claimed, the same loss cannot be claimed again (section 381(5)).

(d) Loss relief is not automatic: it must be claimed (section 381(6)).

(e) In the event of a dispute, the income tax appeal procedures must be used (section 381(7)).

Can unrelieved abandonment losses be used when one petroleum trade ceases and another begins?

(4) Unrelieved abandonment losses incurred following the permanent cessation of a petroleum trade may be deducted in the first chargeable period of a new petroleum trade carried on by the same person.

How is post-cessation abandonment expenditure treated?

(5) Where a petroleum trade has permanently ceased, post-cessation abandonment expenditure is treated as having been incurred on the last day of trading.

When is expenditure considered to have been incurred?

(6) Expenditure is incurred on the day on which it becomes payable.

How is the abandonment allowance granted?

(7) An abandonment allowance is given to a trader in charging to tax the profits of a petroleum trade. The allowance is only given for one such trade.

What rules apply to abandonment expenditure allowances?

(8) Expenditure that qualifies for machinery or plant allowance, industrial building allowance, dredging allowance (Part 9), mine development allowance (section 670), patent allowance (Part 24 Chapter 1), scientific research allowance (sections 763765) cannot also qualify for an abandonment expenditure allowance.

The following rules apply for abandonment expenditure allowance:

(a) Capital expenditure does not include revenue type expenditure that is deductible in the normal way in your profit and loss account (section 316(1)-(2)).

(b) The allowance is calculated on the expenditure net of grants. Any expenditure met by the State, the European Union, or any person other than the claimant, does not qualify for capital allowances (section 317(2)).

(c) An asset is regarded as sold when the sale is complete or when the buyer takes possession of the asset, whichever is the earlier event. A cessation of trade includes a “deemed” cessation of trade, for example, when a successor takes over a business (section 320(4)-(5)).

What other rules apply?

(9) For a trader chargeable to income tax excess abandonment expenditure allowances that cannot be offset against taxable profits of the current chargeable period may be carried forward (section 304(4)) for set off against the taxable profits of the next and subsequent chargeable periods (section 693(9)).

For a trader chargeable to corporation tax, any excess abandonment expenditure allowances that cannot be offset against taxable profits of the current chargeable period may be carried forward (section 307) for set off against the taxable profits of the next and subsequent chargeable periods (section 693(10)).

The basis period for an income tax year is the period the profits or gains of which are used to compute the income tax liability.

Where two basis periods overlap, the overlap belongs to the first basis period. If two basis periods coincide, or if one basis period is wholly included inside the other, the periods overlap.

If there is a gap between two basis periods, unless the second year is the year in which the trade permanently ceases, the interval belongs to the second basis period. Where the second year is the year in which the trade permanently ceases, the interval belongs to the first basis period (section 693(11)).

A trader who is registered for value added tax (or who, although unregistered, can reclaim the value added tax), is given capital allowances on the basis of the VAT-exclusive cost of the asset.

A trader who is not registered for value added tax is given capital allowances on the basis of the VAT-inclusive cost of the asset (section 693(15)).

Section 696 Valuation of petroleum in certain circumstances

How is a disposal of petroleum other than at arm’s length valued?

(1) A disposal of petroleum other than by an arm’s length sale is treated as having been made at market value.

What valuation rules apply where there is a relevant appropriation of petroleum to further processing?

(2) Once petroleum has been extracted and initially treated or stored, any relevant appropriation of the petroleum to refining or further processing is treated as sold at market value at that time, into a separate trade.

What is taken to be the market value of petroleum?

(3) Market value means the price the petroleum would have fetched in a sale between independent parties dealing at arm’s length.

Section 696A Treatment of certain disposals

What is a relevant period?

(1) A relevant period for a disposal is the period beginning one year before and ending three years after a disposal, or such longer period as the Minister for Communications, Energy and Natural Resources allows.

When do these disposal rules apply?

(2) These rules apply to a disposal or exchange of an interest in one licensed area in return for an interest in another such area if the Minister is satisfied that the disposal will ensure the proper exploration of any licensed area.

What is the CGT treatment where disposal proceeds are used to explore for petroleum in a licensed area?

(3) If the disposal proceeds are used to explore for petroleum in a licensed area, the disposal may, on a claim being made, be treated as giving rise to no gain/no loss. However, in a CGT computation on a later disposal of the acquired asset, the consideration is not deductible.

A “farm out” of an interest in an exploration licence before production begins does not give rise to a chargeable gain, provided the Minister is satisfied it is solely for exploration.

What CGT rules apply where a licence interest in one area is exchanged for an interest in another?

(4) If a licence interest in one area is exchanged for an interest in another area, an election to treat the new interest as the old interest may be made.

However, if any additional consideration is received, the transaction may still be treated as if no disposal or exchange has taken place, provided the additional consideration is used to explore for petroleum in a licensed area (see (3)).

A person who gives any additional consideration is treated as having acquired a proportionate part of the interest received (equal in value to the interest given, exclusive of the additional consideration).

Note

Giving additional consideration: On a later disposal, that part’s acquisition cost is the additional consideration.

Section 697 (Renumbered)

Note: See section 696A.

Section 696B Interpretation and application (Chapter 3)

What definitions apply in relation to tonnage tax?

(1) A company’s profit ratio in respect of a taxable field for an accounting period is:

A
B

where

A is the company’s cumulative field profits from the taxable field, and

B is the company’s cumulative field expenditure from the taxable field.

A company’s cumulative field expenditure for a taxable field means the aggregate not taxable field expenditure for the current accounting period and preceding accounting periods since 1 January 2007.

A company’s cumulative field profits from a taxable field means the aggregate net taxable field profits for the current accounting period and preceding accounting periods since 1 January 2007, after deducting any loss incurred in respect of that field in that period.

A company’s net taxable field profits are its taxable field profits net of corporation tax.

A specified license is an exploration licence or a reserved area licence issued before 1 January 2007, or a licensing option.

A taxable field is an area for which a petroleum lease (following on from a specified licence) is in force.

A company’s taxable field expenditure means the aggregate of the

(a) abandonment expenditure,

(b) development expenditure, and

(c) exploration expenditure

incurred by the company for the accounting period in respect of a taxable field.

A company’s taxable field profits are its petroleum profits from a taxable field after taking into account all deductions and reliefs for corporation tax purposes.

How is capital expenditure incurred prior to an area becoming a taxable field treated?

(2) Capital expenditure incurred prior to an area becoming a taxable field is treated as incurred on the day the area first becomes a taxable field.

What rules apply to petroleum activities carried out under a specified licence?

(3) Petroleum activities carried out under a specified licence are treated as separate in respect of each taxable field, i.e., the activities for each taxable field are ring-fenced.

The proportion of profits and expenditure attributable to a taxable field is the amount which the inspector (or on appeal, the Appeal Commissioners) decides is just and reasonable.

The petroleum trade ring-fencing rules apply in ring-fencing profits and expenditure attributable to a taxable field.

The ring-fence ensures that charges, interest, and losses incurred by the company, or any other company, may not be used against profits from taxable field activities.

Section 696C Charge to profit resource rent tax

What is a profit resource rent tax (PRST)?

(1)-(2) From 1 January 2007, profits derived from petroleum activities (already taxed at 25%) are subject to an additional tax (profit resource rent tax – PRST), depending on the field’s profit ratio:

Profit Ratio PRST
4.5 or more 15%
3 to 4.5 10%
1.5 to 3 5%
less than 1.5 nil

How is profit calculated?

(3) If your profit ratio of a taxable field for an accounting period is greater than or equal to 1.5, and the profit ratio for the preceding period was less than 1.5, your profits are determined by the formula

(A – (B x 1.5))   x       100    
100 – R

where

A is cumulative field profits for the taxable field,

B is cumulative field expenditure, for the taxable field,

and

R is 25%.

For all other accounting periods, the profits are the taxable field profits.

Section 696D Provisions relating to groups (Chapter 3)

How can taxable field expenditure be used between parents and subsidiaries?

(1) Taxable field expenditure incurred by a company which is or has a 100% subsidiary, may, at its election, be treated as incurred by a subsidiary or parent.

What are the consequences of electing to have expenditure treated as incurred by a parent or subsidiary?

(2) Where an election in (1) is made, the expenditure is treated as having been incurred by the subsidiary (or parent, as appropriate) at the time it was incurred.

The expenditure is also treated as incurred by the subsidiary/parent (and not by the company) for the purposes of determining cumulative field expenditure.

Can expenditure be taken into account to determine cumulative field expenditure for more than one taxable field?

(3) Expenditure may not be double-counted in determining cumulative field expenditure for more than one taxable field.

Section 696E Returns (Chapter 3)

What is meant by a “prescribed form”?

(1) A prescribed form means a form prescribed by Revenue, including an electronic form.

What special filing requirements apply to a company carrying on petroleum activities under a specified licence?

(2) In addition to its self-assessment corporate tax return, a company carrying on petroleum activities under a specified licence must file, on or before the return filing date, a prescribed form detailing:

(a) the aggregate cumulative field expenditure for each field,

(b) the aggregate cumulative profits for each field,

(c) the breakdown of (a) and (b),

(d) the profit resource rent tax, if any, payable in respect of each field.

What powers do Revenue have in relation to details provided on the prescribed form?

(3) A Revenue Officer may make such enquiries, or take such actions, as he/she considers necessary to check the accuracy of the details reported on the prescribed from mentioned in (2).

What are the consequences of failing to file in the prescribed form?

(4)-(5) Where a company fails to file in the prescribed form, it is subject to penalties (see section 1052).

Section 696F Collection and general provisions

Do the collection and other rules for CT apply to profit resource rent tax?

(1) The corporation tax provisions relating to assessments, appeals and collection of tax apply in relation to profit resource rent tax as they do for corporation tax purposes.

What interest applies to unpaid profit resource rent tax?

(2) Unpaid profit resource rent tax carries interest at 0.0273 per cent for each day the tax remains unpaid.

Such interest is due and payable and collectible as if it were tax.

Section 696G Interpretation and application (Chapter 4)

What definitions apply to this chapter?

(1) Cumulative field costs are all the costs of a filed since 18 June 2014;

 Cumulative field gross revenue means all the revenues of a field since 198 June 2014;

Eligible expenditure is all expenditure incurred on a taxable field in a relevant period. it includes exploration and development expenditure in respect of the field and expenditure for a previous period that had not previously been allowed. It includes abandonment expenditure as defined in section 695.

Field costs is the total costs including exploration and development expenditure and transportation expenditure wholly and exclusively incurred in carrying on petroleum activities in the field.

Gross revenue” is all revenue from sales of petroleum from the field including from the sale, assignment or disposal of any assets, rights or options related to the filed.

Relevant period is an accounting period or part of an accounting period commencing on or after 18 June 2014.

R factor is an amount determined by dividing the cumulative field gross revenue by the cumulative field costs for a relevant period.

Taxable field is a field which was the subject of a specified licence.

Transportation costs is the cost of bringing petroleum ashore or to a carrier for export.

 Are other definitions relevant?

(2) Yes. The definitions in section 684 can be applied to this chapter with any necessary modifications.

What happens if an accounting period straddles a relevant period?

(3) The expenditure is apportioned. If a field does not become a taxable field until after 18 June 2014 because the petroleum lease was not issued until later expenditure incurred after 18 June 2014 but before the grant of the lease is allowed from the date of the grant.

Section 696H Charge to petroleum production tax

How is petroleum production tax applied?

(1) There is a minimum charge of 5% of the gross revenue less transportation costs. Thereafter the rate depends on the”R factor”

If R is 1.5 the rate of PPT is 10%.

If R is greater than 1.5 and up to 4.5 PPT is determined by the formula –

 10% + [(R – 1.5)/(4.5 – 1.5) x (40% – 10%)] x net income.

 If R is greater than 4.5 PPT is 40% of net field income.

How is the disposal or acquisition of petroleum or petroleum related assets treated?

(2) It is treated as having been acquired or sold at open market value.

Can profit resource tax apply to the same field?

(3) No.

Section 696I Petroleum production tax and corporation tax

Is petroleum production tax deductible for corporation tax purposes?

Yes, a deduction for PPT can be claimed for the purpose of calculating corporation tax.

Section 696J Provisions relating to groups

How are groups treated?

(1) Where eligible expenditure is incurred by a company that has a subsidiary or that has a parent the first company may elect that the expenditure be deemed to have been incurred by the other company.

When is expenditure that is the subject of an election deemed to have been incurred?

(2) It is deemed to have been incurred at the time the first company incurred it and for the purpose of determining the cumulative field costs of the other company.

Can the same expenditure be claimed for more than one field?

(3) No.

Are any other definitions relevant to this section?

(4) The definitions in section 694(5) apply to subsection (1) of this section.

Section 696K Returns

What is a “prescribed form”?

(1) It is a form prescribed by the Revenue Commissioners.

When must a return be made?

(2) A company carrying on petroleum activities must file a PPt return at the same time as it files its corporation tax return. The returm must give a breakdown of the cumulative field costs and of the cumulative field gross revenue. It must show the petroleum production tax (PPT) for each field and such other information as Revenue may require.

How must the return be filed?

(3) It must be filed via ROS.

Can Revenue make enquiries as to the accuracy of the return?

(4) Yes, an officer of Revenue may make such enquiries.

Can a PPT return be required earlier than a CT return?

(5) No a PPT return cannot be required earlier than the specified return date for a CT return.

Do penalties apply?

(6)-(7) The same penalties apply to failure to make a PPT return or for an incorrect return as apply to CT returns.

Section 696L Payment of tax

When is payment of the tax due?

Tax is due on or before the date the PPT return and the CT return are due to be submitted.

Section 696M Collection and general provisions

What collection provisions apply to PPT?

(1) the same provisions apply to PPT as apply to CT.

Is interest chargeable on late payment?

(2) Yes.

Can an appeal be made against a PPT assessment?

(3) A company aggrieved by an assessment can appeal to the Appeal Commissioners within 30 days of the date of the notice of assessment but must first have made a return and paid any PPT due on foot of that return.

Section 697A Interpretation

What definitions apply to the tonnage tax regime?

(1) This Part allows a qualifying company (a company which operates qualifying ships, and is strategically and commercially managed in the State) to elect to calculate its corporation tax on notional profits (relevant shipping profits, i.e., its relevant shipping income and gains). On election, it is referred to as a tonnage tax company. A group of companies (qualifying group) which so elect is referred as a tonnage tax group.

This calculation produces a different profits figure, i.e., the tonnage tax profits and corporation tax is applied to such profits at 12.5%.

The tonnage tax system is “ring-fenced”, so that losses from a tonnage tax trade (from tonnage activities) cannot be used against profits from other activities.

A qualifying ship means a certified sea-going vessel of 100 tons or more, but does not include:

(a) a fishing vessel,

(b) a vessel primarily used for sport or recreation (but this does not include a ship with an overnight passenger capacity, excluding crew, of not less than 50 – in other words, such ships can qualify),

(c) a harbour, estuary or river ferry,

(d) an offshore rig,

(e) a tanker,

(f) a dredger,

(g) a tug which has not been certified as being capable of operating in seas outside the maritime territorial limit.

Relevant shipping income means a tonnage tax company’s income from:

(a) passenger transport by sea in a qualifying ship,

(b) cargo transport by sea in qualifying ship,

(c) towage, salvage or other marine assistance by a qualifying ship (but not income from any such work in a port area),

(d) transport in relation to services “necessarily provided” by a qualifying ship,

(e) the provision on board the qualifying ship of services ancillary to passenger and cargo transport (but only to the extent such goods are provided for consumption on board the qualifying ship),

(f) the granting of a right to provide ancillary services mentioned in (e),

(g) other ship-related activities that are a “necessary and integral” part of the company’s shipping business,

(h) provision of research facilities on board a qualifying ship,

(i) letting on charter of a qualifying ship for passenger or cargo transport, provided the operation and crew of the ship remain controlled by the qualifying company,

(j) provision of ship management services for qualifying ships,

(k) a dividend from an overseas company in the group,

(l) gains treated as income (section 697J),

(m) activities incidental to the core activities mentioned in (a) to (j) provided the turnover from such activities not exceed 0.25% of the company’s turnover from core activities.

Are any ships excluded from being qualifying ships?

(2) A ship is not a qualifying ship if its main purpose is to provide goods or services normally provided on land (for example, storage).

What does it mean to enter, leave or become subject to tonnage tax?

(3) A company enters tonnage tax when it becomes a tonnage tax company or a member of a tonnage tax group.

A company “leaves” tonnage tax when it ceases to be a tonnage tax company or lease a tonnage tax group.

A company or group is “subject to” tonnage tax if it is entitled to calculate its profits using the tonnage tax method.

Are there rules to supplement the tonnage tax regulations?

(4) The rules in Schedule 18B supplement this Part.

Section 697B Application

How does a qualifying company compute its profits for CT?

A qualifying company must use the alternative method (tonnage tax) set out in Part 24A and Schedule 18B to compute its profits for corporation tax.

Section 697C Calculation of profits of tonnage tax company

What profits of a tonnage tax company are taxable?

(1) The profits as computed using the tonnage tax method (tonnage tax profits) stand in place of the profits computed using the usual method (relevant shipping profits).

How is a loss that would have arisen if profits were computed in the usual way treated?

(2) Any loss that would have arisen had the profits been computed in the usual way is ignored when computing corporation tax using the tonnage tax method.

On what basis are tonnage tax profits calculated?

(3) Tonnage tax profits are calculated based on the net tonnage (rounded up or down to the nearest 100 tons) of each qualifying ship.

How is the daily profit to be attributed to each qualifying ship determined?

(4) The daily profit to be attributed to each qualifying ship is determined by reference to the ship’s net tonnage:

(a) €1.00 for each 100 tons up to 1,000 tons,

(b) €0.75 for each 100 tons between 1,000 tons and 10,000 tons,

(c) €0.50 for each 100 tons between 10,000 and 25,000 tons,

(d) €0.25 for each 100 tons above 25,000 tons.

How is the profit attributable to each ship for an accounting period calculated?

(5) The profit to be attributed to each ship is calculated by multiplying the daily profit rate (4) by the number of days in the accounting period (or part of the accounting period where the ship was operated as qualifying ship for only part of the accounting period).

How is total tonnage tax profit for an accounting period calculated?

(6) Tonnage tax profit for each accounting period is calculated by aggregating the profit determined for each qualifying ship.

Example

X is a shipping company with two qualifying ships, one of 30,000 tons, the other 20,000 tons.

Ship 1
1,000 tons, at €1 per 100 tons 10.00
10,000 tons, at €0.75 per 100 tons 75.00
15,000 tons, at €0.50 per 100 tons 75.00
4,000 tons, at €0.25 per 100 tons 10.00
30,000 tons, daily rate: 160.00
Tonnage tax profits for 365 day period 58,400
Ship 2
1,000 tons, at €1 per 100 tons 10.00
10,000 tons, at €0.75 per 100 tons 75.00
9,000 tons, at €0.50 per 100 tons 45.00
20,000 tons, daily rate: 130.00
Tonnage tax profits for 365 day period 47,450
Aggregate Ship 1 and Ship 2 105,850
Corporation tax at 12.5% 13,231

How are tonnage tax profits treated where two or more companies jointly operate and have an interest in a qualifying ship?

(7) Where a company jointly operates and has a joint interest in or a joint agreement to use a qualifying ship with at least one other company, the tonnage tax profits are divided in proportion to its share in the joint interest.

How do the tonnage tax rules work where companies jointly operate a ship without a joint interest or agreement?

(8) Each company is treated for tonnage tax purposes as if it was the sole operator.

Section 697D Election for tonnage tax

What is a tonnage tax election?

(1) To qualify for tonnage tax a tonnage tax election must be made.

An election made by a single company is referred to as a company election.

An election made by a group of companies is referred to as a group election.

How does a tonnage tax election apply to a group of companies?

(2) A member of a group of companies cannot qualify for tonnage tax unless all the group members jointly elect for tonnage tax.

Once made, a group election applies to all qualifying companies in a group.

When is a tonnage tax election invalid?

(3) A tonnage tax election is not valid if the election is part of a tax avoidance scheme (section 697F).

What other rules supplement the tonnage tax regulations?

(4) The rules in Schedule 18B supplement the rules in this Part.

Section 697E Requirement that not more than 75 per cent of fleet tonnage is chartered in

Amendments

Section 697E deleted by Finance Act 2006 section 67(1)(c) from a day to be appointed by the Minister for Finance.

Section 697F Requirement not to enter into tax avoidance arrangements

Do anti-abuse provisions apply to the tonnage tax regime?

(1) Yes. To remain within the tonnage tax system a company must not be party to any transaction or arrangement which is an abuse of that system.

What is an abuse in this context?

(2) A transaction is an abuse within (1) if it results in:

(a) a tax advantage (section 811) accruing to a company other than a tonnage tax company, or a tonnage tax company in respect of its non-tonnage tax activities,

(b) tonnage tax profits being artificially reduced.

What can Revenue do if they find an abuse?

(3) Revenue may by notice exclude a single company or a group of which it is a member from tonnage tax.

When does the exclusion begin?

(4) The Revenue exclusion applies:

(a) to a single company, from the first day of the accounting period in which the transaction or arrangement was entered into,

(b) to a group, from the date specified in the notice, which may not be earlier than the first day of the earliest accounting period in which the group member entered into the transaction or arrangement.

Is tonnage tax relief withdrawn retrospectively when a company is excluded by Revenue?

(5) Tonnage tax relief is retrospectively withdrawn when a company is excluded by Revenue notice from tonnage tax.

Section 697G Appeals

Can a Revenue exclusion notice be appealed?

A Revenue notice excluding a company, or excluding a group, from tonnage tax may be appealed in writing within 30 days of the date on which the notice was given.

Only one appeal may be brought in the case of a group, but it may be brought by two or more members of the group concerned.

Section 697H Relevant shipping income: distributions of overseas shipping companies

If an overseas company receives a dividend, is this treated as relevant shipping income for tonnage tax?

(1) A dividend by an overseas company is treated as relevant shipping income for tonnage tax purposes, provided:

(a) the company operates qualifying ships,

(b) more than 50% of the voting power in the overseas company is held by a company, or companies, resident in an EU State,

(d) the company’s income would qualify as “relevant shipping income” for tonnage tax if it was a tonnage tax company,

(e) the distribution is paid from profits when conditions (a) to (d) were met and the tonnage tax company was subject to tonnage tax,

(f) the profits of the overseas company from which the dividend is paid are subject to tax in the country in which the company is resident, or elsewhere.

Does a dividend paid through a chain of companies qualify?

(2) If an overseas company pays the dividend from profits referable to a dividend which meets the conditions in (1), it is deemed to be a dividend which itself meets those conditions.

In other words, a dividend paid through a chain of companies qualifies, provided the original source income was “relevant shipping income”.

Does the close company surcharge apply to dividends received by a tonnage tax company?

(3) The surcharge on undistributed investment income of a close company (section 440) does not apply to dividends received by a tonnage tax company, as such income is treated as “relevant shipping income” for tonnage tax.

Section 697I Relevant shipping income: cargo and passengers

Amendments

Section 697I deleted by Finance Act 2003 section 62(1)(b) (as amended by Finance Act 2003 section 62) from 28 March 2003.

Section 697J Relevant shipping income: foreign currency gains

Do foreign exchange gains qualify as relevant shipping income?

(1)-(2) Foreign exchange gains, including gains made on currency forward contracts which are included in your trading income, qualify as “relevant shipping income” for tonnage tax purposes.

Section 697K General exclusion of investment income

Does investment income qualify as relevant shipping income?

(1) Income from investments, i.e., income chargeable under Schedule D Case III, IV or V or Schedule E, does not qualify as “relevant shipping income” for tonnage tax purposes.

Is an activity which gives rise to investment income part of a company’s tonnage tax activities?

(2) An activity which gives rise to income from investment is not regarded as part of a company’s tonnage tax activities.

Are there any exceptions to the exclusion for investment income?

(3) The investment income exclusion in (1) does not apply to:

(a) dividend income from an overseas company which qualifies as relevant shipping income (section 697H),

(b) income from activities incidental to the core activities, provided the turnover from such activities does not exceed 0.25% of the turnover from core activities.

Section 697L Tonnage tax trade

Are tonnage tax activities regarded as a separate trade for tax purposes?

(1) Yes.

Is a company’s accounting period affected when it enters or leaves tonnage tax?

(2) A company’s accounting period ends when it enters or leaves tonnage tax.

What other tax laws apply to tonnage tax activities?

(3) A tonnage tax company must comply with all laws relating to income tax, corporation tax and capital gains tax as regards:

(a) computing the profits from its tonnage tax activities, and

(b) keeping separate records in relation to its tonnage tax activities.

Section 697LA Transactions between associated persons and between tonnage tax trade and other activities of same company

What definitions apply to transactions covered by this section?

(1) A person who, either through holding shares or through special voting powers, can direct a company’s affairs (section 11) is regarded as having control of the company.

Losses include excess management expenses of an investment company (section 83(3)) and trading losses (Part 12).

A transaction includes any agreement, arrangement or understanding of any kind.

Do special valuation rules apply to transactions between a tonnage tax company and a related company?

(2) Because the tonnage tax calculation may reduce the tax liability of a tonnage tax activity (below the 12.5% rate that would otherwise apply to profits from that activity), there may be an incentive for a tonnage tax company to engage in transfer-pricing arrangements with a related company:

(a) a company which controls or is controlled by the company (in effect, its parent or subsidiary), or

(b) a company which is controlled by the same company that controls a company (in effect, a sister company).

This subsection counteracts such arrangements by ensuring that the transaction is treated as an “arm’s length” transaction.

Does the anti-transfer pricing rule apply between a tonnage tax trade and other activities?

(3) The anti-transfer-pricing rule in (2) also applies internally, i.e. between a tonnage tax trade and other activities, as if:

(a) the tonnage tax trade and the other activities were carried on by two different persons,

(b) those persons had entered into a transaction (see (1)), and

(c) they were both under the control of the same person when the transfer-pricing arrangement was made.

What records must a tonnage tax company keep in relation to prices?

(4) A tonnage tax company must keep for six years the back-up documentation which shows how its prices were arrived at.

What information powers do Revenue have under this section?

(5) A Revenue official may, by written notice, demand any information or documentation necessary to establish whether a company has engaged in transfer pricing arrangements.

Does a penalty apply?

(6) Yes. A penalty of €3,000 applies to a person who does not provide the information or documentation mentioned in (5).

What enforcement powers has Revenue?

(7) A Revenue official may, by written notice, require a person to produce for inspection any books, records or other documents and/or to provide any information or explanations which the officer may reasonably require in relation to tonnage tax pricing arrangements (section 900).

An authorised officer may apply to a judge of the High Court for an order requiring production for inspection of any books, records or other documents and/or provision of any information or explanations in relation to tonnage tax pricing arrangements (section 901).

Do the transfer pricing rules affect a company’s tonnage tax computation?

(8) The rules in this section relating to transfer pricing are not to be construed as affecting a company’s tonnage tax computation.

Section 697LB Treatment of finance costs

Because little or no tax is paid on the profits of a tonnage tax company, it has no use for interest as a tax deduction. Therefore, within the company (or group), it makes sense to finance the tonnage tax trade by means of shares (equity) and to finance the other activities in the company (or group) by borrowings. This practice, knows as “thick capitalisation”, maximises the interest tax deduction for the company (or group). This section counters such practice by restricting the interest deduction to “a fair proportion” of the total finance costs of the company (or group) (see (3)).

What definitions apply in relation to the treatment of finance costs?

(1) Finance costs means the cost of debt finance, including:

(a) tax-deductible interest on trading activities (section 81),

(b) tax-deductible interest on foreign exchange transaction (section 79),

(c) the finance cost implicit in a finance lease payment,

(d) the finance cost of debt factoring, and

(e) any other costs arising from what would be, in accounting terms, a financial transaction.

A finance lease is an arrangement which allows machinery or plant to be leased from a person (lessor) and which, in terms of generally accepted accounting practice, is regarded as a finance lease or loan.

The total finance costs of a tonnage tax company (or group) are the amount of finance costs that would be deductible for corporation tax purposes if the company (or group member) had not made a tonnage tax election.

The deductible finance costs outside the tonnage tax trade of a tonnage tax company (or group) are the part of its finance costs that would be deductible for corporation tax purposes but which do not relate to its tonnage tax activity.

What happens if a company’s deductible finance costs outside its tonnage tax trade exceed a fair proportion of total finance costs?

(2) If a tonnage tax company’s deductible finance costs outside the tonnage tax trade exceed a fair proportion of the company’s total finance costs, an adjustment must be made (see (3)) in computing its profits for corporation tax purposes.

How is a fair proportion determined?

(3) What is regarded as a fair proportion within (2) is to be determined on a basis which is just and reasonable by reference to the extent to which your debt finance relates to the total finance costs of tonnage tax activities.

How is the adjustment amount taken into account?

(4) The adjustment in (3) must be taken into account (i.e., is disallowed) in computing the trading income of non-tonnage tax activities.

Must an adjustment be made in the case of a tonnage tax trade group?

(5) If deductible finance costs outside the tonnage tax trade of a tonnage tax group company exceed a fair proportion of the group’s total finance costs, an adjustment must be made (see (6)) in computing its profits for corporation tax purposes.

How is a fair proportion determined in respect of an adjustment made for a tonnage tax trade group?

(6) What is regarded as a fair proportion within (5) is to be determined on a basis which is just and reasonable by reference to the extent of the group’s debt finance relates to the total finance costs of the group’s tonnage tax activities.

How is the group adjustment taken into account?

(7) The adjustment in (5) must be taken into account (i.e., is disallowed) in computing the trading income of the group’s non-tonnage tax activities.

Must an adjustment be made if the deductible finance costs exceed the profits of the tonnage tax trade?

(8) No adjustment within (3) or (5) is required if the deductible finance costs exceed the profits and gains of the tonnage tax trade.

Section 697M Exclusion of reliefs, deductions and set-offs

Is a tonnage tax company entitled to reliefs, deductions and set-offs?

(1) A tonnage tax company is not entitled to any relief, deduction or set-off against its tonnage tax profits.

Can pre-tonnage tax losses be set against tonnage tax profits?

(2) Pre-tonnage tax losses of a tonnage tax company are not available for loss relief against tonnage tax profits.

Any apportionment required to determine the amount of pre-tonnage losses must be made on a just and reasonable basis.

Can tax credit reliefs or set-offs be allowed against a tonnage tax liability?

(3) Tax credit reliefs or set-offs available to a company (for example, double tax relief) are not allowed against its tonnage tax liability.

This exclusion does not apply to income tax withheld from an annual payment made to the company.

Section 697N Chargeable gains

How is an asset which has only partly been used for tonnage tax activities treated?

(1) If part of an asset has been used wholly and exclusively for tonnage tax activities for a continuous period of at least 12 months, and part has not, the part so used is treated as a separate asset.

How is a gain or loss calculated on disposal of an asset that was only partly used for tonnage tax activities, ?

(2) If an asset mentioned in (1) is disposed of, any gain or loss arising must be apportioned justly and reasonably.

What capital gains rules apply to a disposal of a tonnage tax asset which was also used in a pre-tonnage tax period?

(3) On a disposal of a tonnage tax asset:

(a) Any gain or loss is a chargeable gain or allowable loss to the extent to which it relates to pre-tonnage tax periods, and is treated as arising outside the company’s tonnage tax trade.

(b) The proportion of the gain relating to the period when the asset was not a tonnage tax asset is calculated by the formula:

P – T
P

where P is length of time since the asset was created (or since its last third party disposal), and T is the length of time during which the asset was a tonnage tax asset.

Third party disposal, in this regard, means a disposal which gave rise to a gain or loss for the person making the disposal.

Can a pre-tonnage tax capital loss be offset against a pre-tonnage tax gain?

(4) A pre-tonnage tax capital loss nay be offset against a pre-tonnage tax capital gain arising on the disposal of a tonnage tax asset.

Section 697O Capital allowances: general

Are capital allowances available to a tonnage tax trade?

(1) A tonnage tax trade is not regarded as a trade for capital allowance purposes. No capital allowances are given for any assets used in a tonnage tax trade. This rule does not prevent a balancing charge being made, where necessary.

Can a lessor of plant or machinery used for a tonnage tax trade claim capital allowances?

(2) A lessor of machinery or plant to a tonnage tax trade is not entitled to capital allowances on that machinery or plant.

What other rules govern assets taken into a tonnage tax trade?

(3) The rules governing assets taken into a tonnage tax trade are set out in Schedule 18B Part 3.

Section 697P Withdrawal of relief etc. on company leaving tonnage tax

When do the withdrawal of relief rules apply?

(1) The rules in this section apply when a company:

(a) ceases to qualify for tonnage tax for reasons relating wholly or mainly to tax,

(b) has been excluded by Revenue from tonnage tax (section 697F).

What are the consequences of the withdrawal of relief where a company leaves tonnage tax?

(2) Where the rules in this section apply (see (1)), it becomes liable in respect of chargeable gains arising:

(a) on or after the day on which it ceased to be a tonnage tax company,

(b) during the six year period immediately preceding the day on which it ceased to be a tonnage tax company.

How is a gain arising in the six years before a company ceased to be a tonnage tax company treated?

(3) A gain arising under (2)(b) is treated as arising on the day before a company ceased to be a tonnage tax company, and is not treated as relevant shipping profits, i.e., it does not qualify for the tonnage tax regime.

Can a gain arising on the withdrawal qualify for other reliefs or set-offs?

(4) A gain arising as a result of withdrawal of tonnage tax does not qualify for any relief or deduction set-off.

What happens where a company that had a balancing charge reduced leaves the tonnage tax regime?

(5)-(6) Where a company leaves the tonnage tax regime and previously had a balancing charge reduced (Schedule 18Bpara 16, 17) within the six year period ending when the company ceased to be a tonnage tax company, it is treated as having received an additional amount of profits chargeable to corporation tax equal to the aggregate of the amounts by which those balancing charges were reduced.

How are the additional profits treated?

(7) Those additional profits are treated:

(a) as arising immediately before the company ceased to be a tonnage tax company, and

(b) as not qualifying for the tonnage tax regime.

Can any relief, deduction or set-off be claimed against these profits?

(8) A tonnage tax company is not entitled to any relief, deduction or set-off against such profits.

Section 697Q Ten year disqualification from re-entry into tonnage tax

When do the disqualification from re-entry rules apply?

(1) These rules apply where a company is ejected from the tonnage tax system.

When can a company elect back into the tonnage tax regime after leaving it?

(2) A former tonnage tax company or group member (see (4)), cannot elect back into the tonnage tax regime until 10 years have expired from the date it ceased to be a tonnage tax company.

Does the disqualification rule apply if a company comes into the tonnage tax regime due to a merger or takeover?

(3) The exclusion in (2) does not prevent a company coming into the tonnage tax regime as a result of a merger or takeover (Schedule 18B Part 4).

What is meant by a “former tonnage tax company”?

(4) A former tonnage tax company is a company that was previously, but is no longer, a tonnage tax company.

Section 698 Interpretation (Chapter 1)

What is the difference between loan interest and share interest?

Loan interest payable by an industrial and provident society includes interest on a mortgage, loan, loan stock or deposit.

Share interest payable by an industrial and provident society means interest, dividends or bonus payable to a shareholder in the society by reference to the shareholder’s holding.

Loan or share interest credited to a shareholder’s account is treated as paid.

The Revenue view is that “bonus shares” issued by credit unions come within the definition of share interest, and should be included in tax returns (Inspector Manual 25.1.1).

Section 699 Deduction as expenses of certain sums, etc

What sums can be treated as deductible expenses in computing trading profits of an industrial and provident society?

(1) In computing trading profits of an industrial and provident society, the following payments may be treated as deductible expenses:

(a) A discount or rebate given to a member calculated by reference to the size of a transaction with the society (and not by reference to the size of the member’s holding).

(b) Loan interest or share interest (section 698) paid by the society wholly and exclusively for the purposes of its trade.

Example

In the 12 month accounting period to 31 March 2010, a co-operative society-

(a) pays share interest of €800,000 and loan interest of €300,000,

(b) has a trading income (before deduction of interest) of €900,000 and other corporation tax profits of €150,000.

The net corporation tax profits of the preceding accounting period (12 months to 31 March 2009) are nil.

The corporation tax computation for the accounting period to 31 March 2010 is:

Trading income 900,000
Less share and loan interest 1,100,000
Loss 200,000

The loss may be used to reduce the profits of the accounting period (€200,000) to nil under section 396(2), leaving a balance of €50,000 to carry forward under section 396(1). Alternatively, if there is no claim under section 396(2), the whole of the loss (€200,000) may be carried forward under section 396(1) against future trading income.

Source: Inspector Manual 25.1.3 (updated)

Section 700 Special computational provisions

What tax rules apply to loan or share interest paid by a society?

(1) Loan or share interest paid by an industrial and provident society (except where it is a credit union which is operating DIRT on the account), is chargeable to tax in the hands of the recipient under Schedule D Case III.

Such interest is not treated as a distribution, and must be paid without deduction of income tax. However, income tax must be deducted if the interest is paid to a non-resident.

Do these rules apply to credit unions?

(1A) The rules in (1) also apply to a credit union which is registered under the Credit Union Act 1997 (or deemed to be registered under that Act).

How are charges paid by a society treated?

(2) Charges (section 243) paid by a society in an accounting period may be offset against its total income from all sources for that period.

What returns must be made by the society?

(3) Every industrial and provident society must make a return, before 31 January in each tax year, of share interest and loan interest payments made.

The return must state the payee’s name and address and the amount paid where the amount paid in the immediately preceding tax year was:

(a) £52 or more in short tax year 2001, or

(b) €90 or more in 2002 and later calendar tax years.

If this return is not filed, the society is not entitled to a deduction for the interest paid.

Any tax underpaid may then be collected by means of an additional assessment.

Section 701 Transfer of shares held by certain societies to members of society

What tax rules apply where an agricultural or fisheries cooperative transfers shares in a subsidiary to members?

(1)-(2) If, on or after 6 April 1993, an agricultural or fisheries cooperative (a society) transfers shares it owns in a subsidiary to the cooperative members, and:

(a) the transfer is made in proportion to each cooperative member’s original holding of shares,

(b) the transaction is “paper for paper”, i.e., the only consideration given by the member in return for the shares in the subsidiary is the cancellation of his cooperative shares,

(c) the member’s shares in the cooperative are cancelled as soon as possible after the transfer (shares issued earlier being cancelled before shares issued later),

the rules in (3) and (4) apply.

This section allows an agricultural or fishery cooperative to transfer shares in a subsidiary to a member in exchange for the member’s existing holding in the cooperative. Without special legislation, the transfer would be treated as a distribution. The cancellation by a cooperative member of his/her holding in the cooperative in exchange for the holding in the subsidiary could give rise to a capital gains tax liability.

The section ensures that in the case of bona fide paper-for-paper share transfers, no advance corporation tax or capital gains tax liability will arise.

How is the transfer treated for the purposes of the Corporation Tax Acts?

(3) The transfer is not regarded as a distribution by the cooperative, and the disposal of the shares in the subsidiary is regarded as made for a sum that gives rise to no gain/no loss for the cooperative.

Is the transfer treated as a capital gains tax disposal?

(4) The member is not to be treated as having disposed of his/her original shares, or where appropriate, theappropriate number of his/her referable shares, calculated as:

A x B  x  D
C        B

where, taken immediately before the transfer:

A is the market value of the cooperative’s shares in the subsidiary,

B is the total number of issued shares in the cooperative,

C is the market value of the society’s total assets (including its shares in the subsidiary),

D is the number of shares owned by the member in the cooperative.

The new shares stand in place of the old shares, and the person is treated as having acquired the new shares when he/she acquired the old shares for the same consideration as was paid for those old shares.

If some of the old shares were acquired at different times, the consideration appropriate to the shares must be apportioned on a just and reasonable basis.

A cooperative’s assets may consist of more than just a shareholding in the subsidiary. In such a case, only the part of the cooperative members’ shares referable to the cooperative assets represented by the shareholding in the subsidiary (the referable shares) are to be cancelled.

Do specific anti-avoidance provisions apply to this section?

(5) This relief is not given unless the transfer is made for bona fide commercial purposes and not as part of a tax avoidance scheme.

If a cooperative transfers shares to members, do Revenue have to be informed?

(6) An agricultural or fishery cooperative that transfers shares in a subsidiary to its members in return for the cancellation of the members’ shares in the cooperative must include details of the shares cancelled in its self assessment return.

Section 702 Union or amalgamation of, transfer of engagement between, societies

What are the consequences where assets are transferred on the merger of two or more building societies?

(1)-(2) Where two or more building societies merge, a transfer of assets from one to the other does not give rise to a chargeable gain or allowable loss.

A lending company was not regarded as a building society in Property Loan and Investment Co Ltd v Revenue Commissioners, 2 ITR 25.

Section 703 Change of status of society

What rules apply where a building society converts to a limited company?

(1)-(2) Where a building society converts from a mutual society to a limited company, the rules in Schedule 16 apply.

A building society may convert itself into a limited company by having a conversion scheme (that has been approved by its members) confirmed by the Central Bank (Building Societies Act 1989). The society may then register itself as a company, and it then ceases to be a building society (registered under the Building Societies Acts).

The rules in Schedule 16 ensure that the successor company and the building society are treated as the same entity. No balancing adjustments arise, and the assets acquired by the successor are treated as having been acquired when they were acquired by the predecessor.

Section 704 Amalgamation of trustee savings banks

What are the consequences where two or more trustee savings banks merge?

(1)-(2) Where two or more trustee savings banks merge into a single bank, the merging banks are treated as if they were the same person.

This means that a transfer of assets from one to the other does not give rise to a chargeable gain or allowable loss.

Section 705 Reorganisation of trustee savings banks into companies

What tax consequences arise where a trustee savings bank converts to a limited company?

Where a trustee savings bank converts to a limited company, the rules in Schedule 17 apply.

No balancing adjustments will arise, and the assets acquired by the successor are treated as having been acquired when they were acquired by the predecessor.

Section 705A Interpretation and application

What definitions apply to Real Estate Investment Trusts (REITS)?

A Real Estate Investment Trust (REIT) is a company which has given notice under section 705E and meets the conditions set out in section 705B(1). A group Real Estate Investment Trust is a group whose principal company has given notice and meets the conditions.

aggregate income is the profits of the REIT adjusted to exclude gains or losses form the revaluation or disposal of assets,

aggregate net gains and aggregate net losses are net gains and losses from the revaluation or disposal of assets,

aggregate profits are the profits per the accounts of a company or group determined in accordance with Irish and international accounting standards,

residual business is any business carried on by the REIT that is not property rental,

property net gains and property net losses are gains and losses arising from the revaluation or disposal of rental properties of the REIT,

property profits are the lesser of the aggregate profits and the profits from the property rental business which is the business of generating rental income in and outside the State,

qualifying investor means a unit trust, UCIT,investment company, investment limited partnership, pension scheme,life company, charity or NAMA.

Section 705B Conditions for notice under section 705E

What conditions must be satisfied to qualify as a REIT or a group REIT?

(1)(a) the company or principal company of a group must, in its notice to the Revenue Commissioner, state that,

(i) it is resident only in the State

(ii) it is incorporated in Ireland

(iii) its shares are listed on a recognised EU stock exchange, and

(iv) it is not a close company

The following conditions must be expected to be met by the end to the specified accounting period –

(i) at least 75& of the income must derive from a property rental business,

(ii) there must be at least 3 properties none of which accounts for more than 40% of the total market value of the rented properties,

(iii) a financing cost ratio of at least 1.25.1 must be maintained,

(iv) at least 75% of the market value of the REIT’s assets must be rental properties

(v) the specified debt must not exceed 50% of the market value of the REIT’s total assets

(vi) as long as it has sufficient reserves the REIT must pay out at least 85% of its property income by way of dividend on or before its tax return date.

Must these conditions be met immediately?

(2) The requirements to have the shares listed on a stock exchange and to not be a close company are satisfied if they are met within 3 years of the company or group becoming a REIT.

Must the REIT have three properties from the start?

No. The condition regarding the number and value of the properties is satisfied if it is met within three years of the date the company or group becomes a REIT.

Is there any exception to the close company rule?

(4) the requirement not to be a close company does not apply when the REIT is under the control of a qualifying investor.

Section 705C Conditions regarding shares

What conditions apply to shares in a REIT or a REIT group?

(1)-(3) shares issued by a REIT must be either ordinary shares or preference shares with no voting rights. Only one class of ordinary shares may be issued.

Section 705D Conditions regarding an accounting period

What conditions apply to accounting periods?

All the conditions in section 705B(1) must continue to be satisfied until the company or group ceases to be a REIT.

Section 705E Notice to become a Real Estate Investment Trust

What must a company do to become a REIT?

(1) The company must give a notice to the Revenue Commissioners in accordance with this section.

What must a group do to become a REIT?

(2) The principal company of the group must give notice to the Revenue Commissioners.

What must the notice to the Revenue Commissioners contain?

(3) The notice must specify the date, after 1 January 2013 and after the date of giving the notice, from which the company or group is to be a REIT. In the case of a group REIT the notice must list all of the members of the group to which the REIT designation will apply.

What must be doen when a new company joins a REIT group?

(3A) When a new company joins a REIT group the principal company must notify Revenue within 30 days. The notice must specify the date from which the new company is to to be a member of the group REIT which cannot be earlier than the date of the notice. It must confirm that all the conditions for a group REIT will be met by the end of the accounting period and must list all the members of the group to which the group REIT designation will apply. If the company fails to give such a notice it will be deemed to have ceased to be a group REIT.

When will a company or group become a REIT?

(4) A company or group will become a REIT on s date, after 1 January 2013, specified in the notice and from which the conditions in section 705B are satisfied.

Section 705F Duration of Real Estate Investment Trust

For how long will a company or group be a REIT?

a company or group will cease to be a REIT from a date specified in a notice under section 705O.

Section 705G Charge to tax

How is a REIT taxed?

(1) A REIT will not be liable to corporation tax on income of its property rentals or gains from the sale of its rental properties.

Is there any exception to the exemption?

(2) Yes. Where a REIT acquires a rental property, spends more than 30% of its market value on developing it and sells it within 3 years from the completion of the development it will be liable to corporation tax at 25%.

Does DIRT apply to deposits held by REITs?

(3) DIRT does not apply to interest on deposits held by REITs or members of group REITS.

Section 705H Profit financing cost ratio

Amendments

Section 705H inserted by Finance Act 2013 section 41(c) from 1 January 2013.

Section 705I Funds awaiting reinvestment

To what does this section apply?

(1) This section applies to the proceeds of a sale by a REIT of rental property where the proceeds are held pending reinvestment and to cash raises from the issue of ordinary shares.

How are profits from the investment of such proceeds treated?

(2) Interest on such proceeds held on deposit pending reinvestment is treated as exempt property profits for a period of 24 months from the date of disposal or the date of issue of the shares.

What happens after 24 months?

(3) After the expiry of 24 months any further interest is treated as income of the residual business and, therefore, subject to corporation tax in the normal way.

Section 705J Taxation of shareholders

To what does this section apply?

(1) The section applies to property income dividends paid by REITs.

How are dividends paid to companies taxed?

(2) Property income dividends paid to companies are chargeable to corporation tax under Case IV of Schedule D.

Is there an exception?

(3) Yes. A member of a REIT group receiving a property income dividend from another company in the group is not liable to corporation tax on the dividend.

How is a securitisation company treated?

(4) A property income dividend received by a securitisation company is chargeable to corporation tax under Case III of Schedule D.

How are companies whose dividends would be taxed under Case I treated?

(5) Companies, such as life companies, whose investment income is taxed under Case I of Schedule D will be taxed on property income dividends under taht Case.

Section 705K Taxation of certain shareholders

What is a “holder of excessive rights”?

(1) A holder of excessive rights is a person who is entitled to 10% or more of a property income distribution of a REIT and who directly or indirectly controls 10% or more of the share capital or voting rights of a REIT or the principal company of a REIT group.

What are the consequences of a distribution to a holder of excessive rights?

(2)-(3) If after three years from a company becoming a REIT it makes a distribution to a holder of excessive rights without having taken reasonable steps to prevent such a distribution being made the REIT will be treated as having received the amount of the distribution as income.

Will the that amount be taxed?

(4) Yes. The REIT will be charged to corporation tax under Case IV of Schedule D on the amount in the accounting period in which the distribution is made. No offsets will be allowed against that deemed income.

Section 705L Transfer of assets

How are assets held by a company or group before it becomes a REIT treated?

(1)-(2) Assets held by a company or group before it becomes a REIT are treated as sold and reacquired at market value at the date the company or group becomes a REIT.

How are assets that cease to be used for property rental treated?

(3) Where property which has been used for the purpose of a REIT’s property rental business ceases to be so used it is deemed to have been sold to the REIT’s residual business at the date it ceases to be used.

Does such a transfer give rise to CGT?

(4) Yes. The asset is deemed to be sold for market value at the date of its ceasing to be used. A gain arising to the property rental business is a chargeable gain.

How is a property transferred to the property rental business treated?

(5) If an asset is transferred from a REIT’s residual business to its property rental business it is deemed to be sold by the residual business to the property rental business for its market value at the date of transfer.

Section 705M Annual statement to Revenue

What information must a REIT provide to Revenue?

(1) A REIT or the principal company of a REIT group must provide a statement to Revenue on 28 February following the end of its accounting period confirming that it met the conditions for being a REIT throughout that period.

What happens if the REIT cannot provide the required statement?

(2) The REIT must notify Revenue of the date or dates on which any of the conditions ceased to be met and the dates on which they were met again. It must describe the nature of the failure and must state what steps have been taken to prevent a recurrence of the failure.

What happens if the failure is not rectified?

(3) If the REIT fails to rectify the failure in a reasonable time (determined by Revenue) or if it fails to provide the required annual statement Revenue may treat the REIT as having ceased to be a REIT at the end of the last accounting period before the failure occurred.

What happens if a REIT makes an incorrect or incomplete statement?

(4) If a REIT makes an incomplete or incorrect statement or fails, without a reasonable excuse, to provide the required statement it is liable to a penalty of €3,000.

Section 705N Breach of conditions regarding distributions

How is a failure to distribute 85% of the property income treated?

If a REIT fails to distribute at least 85% of its property income the difference between the amount distributed and 85% of the property income in the period will be charged to corporation tax under Case IV of Schedule D. No offsets will be allowed against the amount assessed.

Section 705O Cessation Notice

How does a company cease to be a REIT or a REIT group?

(1)-(2) A company or group shall cease to be a REIT from a date specified in a notice in writing given to Revenue.

What is the specified date?

(3) It is a date on or after the date of giving the notice.

Can Revenue issue a notice of cessation?

(4)-(5) Yes. If a company or group fails to meet the conditions for being a REIT Revenue may issue a notice in accordance with section 705M(3) and may specify the date on which it ceases to be a REIT.

Can a Revenue notice of cessation be appealed?

(6)-(7) Yes. The company or group may appeal in writing within 30 days. The appeal is given to the authorised officer. The Appeal Commissioners must deal with the appeal as if it were an appeal against an assessment.

Section 705P Effect of cessation

What is the effect of cessation?

(1) Where, in consequence of a notice given by the company or Revenue, a company or group ceases to be a REIT it is treated for corporation tax as ceasing to be a REIT or group REIT on the date specified in the notice.

How are the assets of the REIT treated?

(2) Where a notice of cessation has been given the assets are treated as sold and reacquired at market value on the date of cessation.

Section 705Q Anti-avoidance provision

Must a REIT’s transactions be bona fide?

(1)-(2) Yes. To benefit from the provisions of this part the transactions entered into by a REIT must be undertaken for bona fide commercial reasons and not for any tax avoidance purpose.

Section 706 Interpretation and general (Part 26)

What definitions apply in relation to life assurance companies?

(1) Annuity business is the business of granting annuities on human life.

A life assurance company’s annuity fund is the separate fund or the part of its life assurance fund which represents its liability under its annuity contracts.

Excluded annuity business is that part of a life assurance company’s annuity business which, not being pension business (from providing retirement annuities or pension schemes to Irish residents) or foreign pension business written by an Irish life assurance company, arises from annuity contracts made (or varied) after 6 April 1986, which do not meet all of these conditions:

(a) The annuity is payable until an individual dies, or for a period which may only be ascertained by reference to a person’s death.

(b) The annuity must not be capable of being reduced except by the death of the annuitant, or by reference to a bona fide index.

(c) The policy document expressly prevents the company from commuting the whole or part of the annuity.

Annuity business, see Stevenson Securities Ltd v IRC, (1959) 38 TC 459.

Excluded annuity business

Insurance linked investments known as guaranteed income bonds, which provide guaranteed short term investment returns, with no mortality risk, are not regarded as part of general annuity business. Such annuities may not be treated as charges (for offset against the total profits of the life assurance company (section 715(5)).

(a) Ensures the annuity must be a genuine life annuity which begins immediately or is deferred until the annuitant reaches a certain age.

(b) Excludes contracts which provide for a large “annuity” for one or two years followed by a much reduced sum for later years.

(c) Early commutation was a feature of guaranteed income bonds.

How can the business of a life assurance company be divided?

(2) The business of life assurance companies is to be divided into:

(a) pension business (arising from premiums payable under contracts mentioned in (3)),

(b) general annuity business (annuity business which is not excluded annuity business or pension business), and

(c) life assurance business (any business not included under (a) or (b)).

A further category is special investment business (section 707(2)). The different classes of business carried on by life assurance companies are treated as separate businesses.

What are pension business premiums?

(3) Pension business premiums are those payable under the following kinds of contract:

(a) A Revenue approved retirement annuity contract for person who is self-employed at the time the contract is made.

(b) A contract with the administrators of a Revenue-approved employee pension scheme.

(c) A contract with the administrators of a Revenue-approved retirement annuity contract scheme.

(d) A contract with a PRSA provider.

How are deductions, reliefs or offsets treated where a life assurance company has profits of more than one class?

(4) A deduction, relief or set off which may be made from a life assurance company’s overall profits is treated as reducing the profits of each class of business proportionately.

Ensures, for example, that group relief must be apportioned between each class of life business. It does not apply to management expenses, which are to be separately deducted from each class of life business. The apportionment is based on the profits of each class before deducting management expenses of that class.

Section 707 Management expenses

Can a life assurance company take a deduction for management expenses?

(1) In calculating its trading profits for corporation tax purposes, a life assurance company is entitled to deduct management expenses (section 83) but not expenses that are deductible in computing Schedule D Case V rental income, and not:

(a)(i) Management expenses, including commissions, that are reimbursed.

(ii) Reinsurance commissions earned in the period.

(iii) Fines, fees, and profits from reversions receivable in the period. In this regard, profits from reversions means the net amount after deducting unrelieved losses from reversions brought forward from previous accounting periods.

(b) Management expenses that would be disallowed (under section 81) if the income were taxed as trading income (Case I). A deduction given for management expenses may not also be used to reduce acquisition expenses (section 708).

Where a life assurance company is taxed on its gross investment income less its management expenses (the I – E basis), the resulting charge taxes all gains whether accruing to shareholders or policyholders.

Alternatively, a life assurance company may be charged to tax on the basis of its notional trading income under Schedule D Case I. This basis includes premium income, investment income and gains, reduced by payouts on policies, and usually results in a lesser tax charge than the I – E basis.

However, the tax charge on the I – E basis may be less than the tax charge on the Schedule D Case I basis (see (4)). If it is, management expenses are withheld to ensure that the I – E basis tax charge is not less than the Schedule D Case I tax charge. If the restriction of the management expenses does not increase the I – E tax charge to the Schedule D Case I charge, the inspector may charge the company on the Case I basis. This ensures that the shareholders’ profits are always fully charged to corporation tax.

Where a life assurance company is taxed on the I – E basis, the shareholders’ profits (the notional Case I profit) included in the I – E basis are first taxed at the appropriate rate of corporation tax (sections 2122). The balance of the income and gains (which are attributable to, and accrue for the benefit of, policyholders) are taxed at:

(a) 20% (section 723(6)) in the case of special investment business profits (the profits of the “special investment fund”). These funds invest in Irish equities. Returns received by the fund from venture capital investments are not taxed.

(b) the standard rate of income tax in the case of other profits or gains. This is intended to eliminate tax distortions in the savings and investment market by taxing life assurance companies at source, on the same basis as banks and unit trusts. All gains (including gains on government stocks) whether realised or unrealised, accrued on behalf of policyholders, are computed each year, with no adjustment for inflation.

Dividend income received on behalf of policyholders is also taxed at the standard rate of income tax, with a full set off for the tax credit attaching to the dividend. The taxation at source fully satisfies any tax liability of the non-corporate policyholder. The policyholder has no additional tax liability on his investment.

The I – E basis thus ensures the policyholder’s gains are taxed at source at 20% or the standard rate of income tax.

Although pension business investment income and management expenses, being exempt in the hands of the policyholder, are excluded from the I – E calculation, the shareholder’s profits derived from pension business must be added to the I – E calculation to ensure they are fully taxed at the appropriate rate of corporation tax.

Items deductible in the Schedule D Case I computation are not automatically excluded from the I – E computation:Johnson v The Prudential Assurance Co Ltd, [1998] STC 439.

EC (Insurance Undertakings: Accounts) Regulations 1996

Tax Briefing 24.

How is a deduction for management expenses treated where the life assurance business has different classes?

(2) Management expenses of a life assurance company may only be offset against the separate class of business to which they relate:

(a) pension business (arising from premiums payable under contracts mentioned in (3)),

(b) general annuity business (annuity business which is not excluded annuity business or pension business),

(c) basic life assurance business (any business not included under (a)-(c)).

Excess management expenses for each class may only be carried forward for offset against future profits of that class. However, unrelieved excess management expenses coming forward from an accounting period ending before 27 May 1986 may be offset against profits of any class (but not twice, i.e., against the profits of more than one class).

Furthermore, unrelieved excess management expenses relating to special investment business (business connected with special investment policies) for an accounting period ending in 2002, may be carried forward against profits of life assurance business.

In effect, a life assurance company can now merge its special investment fund with its general life assurance fund.

This ensures that the management expenses appropriate to each class of life assurance business may only be offset against investment income from that class. For example, pension business management expenses may not be offset against basic life assurance investment income.

Management expenses does not include:

(a) brokerage and stamp duty: Sun Life Assurance Society v Davidson, (1957) 37 TC 330, or

(b) discounts: North British and Mercantile Insurance Co v Easson, (1919) 7 TC 463.

Are there limits on the amount of relief allowed for management expenses?

(4) Although a life assurance company calculates its corporation tax liability on the basis of investment income minus management expenses (the “I – E” basis), its corporation tax liability may not be reduced below what it would have been, had it been taxed at the standard rate of corporation tax under the Schedule D Case I trading income basis (the “notional Case I” floor).

Where a life assurance company pays the minimum corporation tax required under the trading basis calculation, unrelieved expenses under the investment basis may be carried forward (section 83(3)) to the next and subsequent accounting periods.

See also: Inspector Manual 26.1.1.

What other rules apply in relation to the notional computation?

(5) The following rules also apply in connection with the notional Case I computation under (4):

(a) Where management expenses are restricted to ensure a minimum corporation tax payment (see (4)) by a life assurance company, the special investment business management expenses are the last to be restricted.

If a loss arises to the assurance company, investment income (including franked investment income of the life assurance fund) must be included as trading income (section 709(2)).

A life assurance company may opt to claim a deduction under Case I in respect of part of the profits allocated to policyholders (section 710).

Franked investment income is taken into account when calculating the restriction of management expenses relief, and the policyholders’ share of unrelieved profits to which a reduced rate of tax may apply (section 714).

(b) Expenses already allowed in an I – E computation are not (for that reason) disallowed in the notional Case I computation.

The order of restriction of management expenses ensures that the nominal 10% tax rate on special investment business is also an effective 10% rate.

Section 708 Acquisition expenses

What are a life assurance company’s acquisition expenses?

(1) A life assurance company’s acquisition expenses (including commissions, but excluding a payment of rent that qualifies for double rent allowance) are that part of its management expenses which is spent on acquiring basic life assurance business (i.e., excluding pension business and general annuity business), as reduced by:

(a) any part of such management expenses that has been repaid or refunded in the period,

(b) basic life assurance business reinsurance commissions.

Acquisition expenses are a life assurance company’s costs of acquiring new business, for example, broker commissions, paid “up front”, which result in additional premium income for the assurance company.

What rules apply to acquisition expenses incurred before 1 April 1992?

(2)-(3) Although the spreading provisions mentioned in (5) do not apply to acquisition expenses incurred before 1 April 1992, they may apply to a variation in the terms of, or the securing of increased premiums on, a life policy issued before that date. In this context, the exercise of rights conferred by a policy is regarded as a variation of the policy’s terms.

When do management expenses qualify as acquisition expenses?

(4) Management expenses only qualify as acquisition expenses if:

(a) they have been disbursed in the period (ignoring management expenses brought forward and treated as disbursed in that period), and

(b) they would otherwise be deductible as management expenses.

How much of the acquisition costs can be deducted in any current period?

(5) A life assurance company must spread its acquisition costs over seven years. In any current period (the base period) it may only deduct one-seventh of the acquisition expenses.

A life assurance company’s profits chargeable to corporation tax are calculated (on the I – E basis) by deducting management expenses from the company’s gross investment income and gains. However, management expenses which are acquisition expenses are not fully allowed in the current year. Such acquisition expenses must be spread over a seven year period. Only one-seventh of such expenses are allowed in the current year.

A rent payment that qualifies for double rent allowance is not subject to this seven year spreading rule. The life assurance company gets the benefit of the double rent allowance in the year in which the rent is paid.

What deduction is allowed in later accounting periods?

(6) A further one-seventh deduction is allowed in each succeeding accounting period after the base period until the full amount has been deducted. If any period is shorter than one year, the one-seventh deduction is proportionately scaled back for that year.

Do acquisition expenses relating to special investment business qualify as expenses relating to life assurance business?

(6A) Special investment business ceased from 31 December 2002. Acquisition expenses prior to that date relating to special investment business are to be treated as acquisition expenses relating to life assurance business.

What happens if the one seventh deduction calculated for an accounting period exceeds the unclaimed balance of the deduction?

(7) If (for example, in the eighth succeeding accounting period,) the one-seventh deduction exceeds the unclaimed balance of the deduction, only the unclaimed balance may be deducted (not the entire one-seventh).

This is a restriction to ensure that no more than the full amount is deducted over the write off period.

Section 709 Companies carrying on life business

Must a company’s life assurance business be treated as a separate business?

(1) If carried on in conjunction with general insurance business, a company’s life assurance business must be treated as a separate business.

Regulatory restrictions currently prevent this.

See Sun Insurance Office v Clark, (1912) 6 TC 59, Scottish Union and National Insurance Co v Smiles (1889) 2 TC 551; but note Imperial Fire Insurance Co v Wilson (1876) 1 TC 71 and General Accident Fire and Life Assurance Corpn Ltd v McGowan, (1908) 5 TC 308.

What income must be included in computing a trading loss of a life assurance business?

(2) In computing a trading loss of a life assurance business, the investment income of the life assurance fund (including franked investment income) must be taken into account.

See Norwich Union Fire Insurance Co v Magee (1896) 3 TC 457, but note Clerical, Medical and General Life Assurance Co v Carter (1889) 2 TC 437.

Section 710 Profits on life business

Can a life company deduct the part of profits allocated to or reserved for policyholders?

(1) A life assurance company, in computing its trading income under Schedule D Case I, may claim a deduction for the part of its profits allocated to, or reserved for, policyholders.

Meaning of life business: Fuji Finance Inc v Aetna Life Assurance, UK High Court, [1997] STI 34, p. 16.

What rules apply to IFSC based life companies?

(2) Profits from IFSC foreign life assurance business (section 451):

(a) Were (to 31 December 2005) chargeable to tax (at 10%) under Schedule D Case I.

The 10%-taxed profits may not be reduced by amounts reserved for (but not allocated to) policyholders.

(b) Could be certified by the Minister be certified as IFSC activities for the 10% rate.

The income and gains earned for the non-resident policyholders are effectively exempt from Irish tax.

The removal of section 446 (IFSC companies entitled to the 10% rate) does not disentitle any claimants from such relief.

Life assurance companies trading from the IFSC: Tax Briefing 41.

What happens if the holder of a policy issued by an IFSC life company becomes resident?

(3) If a non-resident, who was issued a life policy (a policy of assurance) by an IFSC based company, becomes resident in the State, and retains the policy, the company must, when the policy matures for payment, deduct from the proceeds income tax at the standard rate on the growth in value of the policy (i.e., the relevant amount, V – P) while the policyholder was resident in the State.

Where the non-resident was issued a retirement benefits policy, income tax at the standard rate is to be deducted from 75% of the growth in value of the policy (i.e., the relevant amount, (V – P) x 75%) while the policyholder was resident in the State.

The growth in value is treated as an annual payment. The company is entitled to deduct income tax from the growth in value of the policy proceeds, which is not regarded as income of the policyholder, during the policyholder’s residence in Ireland. The policyholder receives no credit for the tax deducted.

How does a life company that carries on both ordinary and industrial life assurance treat each business?

(4) Where a life assurance company carries on both ordinary life assurance business and industrial life assurance business, each is treated as a separate class of business.

Industrial life assurance business is life assurance business the premiums for which are collected by insurance agents and paid at intervals of less than two months (Insurance Act 1936 section 3). Because such premiums are collected more frequently, industrial business generally has higher administration costs, and is more likely to have excess management expenses. Industrial branch business is treated as a separate business to ensure that excess management expenses of such business may only be carried forward against the profits of that business.

What rules apply where a company amalgamates its ordinary and industrial life assurance businesses?

(5) Where an ordinary life assurance business and an industrial life assurance business are amalgamated under the terms of the Insurance Act 1989 section 25, the businesses are not to be treated separately for tax purposes.

However, pre-amalgamation losses of the industrial business may only be carried forward against post-amalgamation profits attributable to that business.

How is an accounting period which straddles the amalgamation date treated?

(6) An accounting period that straddles the amalgamation date (the day of amalgamation) (see (5)) is to be divided into two separate periods, one ending on the day before the amalgamation date, and the other beginning on the amalgamation date.

Section 711 Chargeable gains of life business

How are chargeable gains of a life business determined?

(1) In computing the corporation tax on chargeable gains of a fund of a life assurance company, all gains, realised or unrealised, are taxed by deeming it to have disposed of and immediately re-acquired its fund assets at market value each year. The gains are then taxed at source, at the standard rate of income tax (section 719). In calculating the gains:

(a) no indexation for inflation is allowed (section 556), and

(b) gains arising on government and semi-State securities, although exempt under section 607, must be included.

Under the capital gains tax “bed and breakfast” rules (section 581), the First In First Out (FIFO) share identification rule does not apply. Shares disposed of are to be identified with shares acquired within the four weeks preceding the disposal, i.e., Last In First Out (LIFO) basis applies.

Furthermore, a loss generated by a disposal and re-acquisition within the same four week period may not be offset against other chargeable gains. It may only be offset against any chargeable gain arising on the disposal of the re-acquired shares.

This four week rule continues to apply as if the annual deemed disposal and reacquisition rules (section 719) and the related withdrawal of exemption on disposals of gilts ((b) above) had not been enacted. In other words, this rule, which “ring-fences” losses against gains on the reacquired shares, does not prevent a loss, if any, arising on the annual deemed disposal and reacquisition from being offset against other gains, nor will LIFO apply by reference to such transactions.

The words “in so far as a chargeable gain is not thereby disregarded for the purposes of this subsection” ensure that where the four week rule applies to an actual (not deemed) disposal and reacquisition, and the reacquired shares recover in value and give rise to a chargeable gain on their deemed disposal and reacquisition, the deemed gain may absorb a loss on the actual disposal.

Corporation tax on chargeable gains is generally computed by applying the prevailing capital gains tax rate (section 28(3)) to the gain and regrossing the resulting figure using the prevailing corporation tax rate (section 78(2)).

Example

Chargeable gain realised by company 50,000
Notional CGT at 25% = Corporation tax on chargeable gain 12,500
Re-grossed at 12.5% (standard rate) gives figure for corporation tax purposes 100,000

The notional CGT is calculated in the case of a life company fund other than its special investment fund:

(a) from 1 January 1999 to 31 December 1999, at the rate of 40% (or if the company’s management expenses exceed its profits, 28%),

(b) from 1 January 2000, at the standard rate of corporation tax for the financial year (section 21(1)).

The deemed disposal and reacquisition of fund assets, and the disallowance of indexation relief applies to fund assets but it does not apply to fund assets which are permanent capital assets of a life assurance company, for example, shares in a wholly owned trading subsidiary which are held through the life fund. A disposal of such shares qualifies for indexation.

Only realised gains on gilts are charged to tax each year. Gilts are not deemed to be disposed of and immediately reacquired each year.

Where a life assurance company buys securities “cum div” and sells “ex div” in the next period, what capital gains/loss rules apply?

(2) Where a life assurance company buys securities “cum div” in the current period (with the right to the next interest payment) and sells them “ex div” (retaining the right to the next interest payment) in the next period, the resulting capital loss would, in the absence of this subsection, be treated as management expenses of the period, and set off against the fund’s investment income for that period.

In such a case, the part of the capital equal to the appropriate amount in respect of the interest, is disallowed in the current period and allowed in the following period.

This ensures that there is no timing difference between the allowing of a capital loss on the disposal of securities as a management expense, and the charging of the income from those securities.

How is a net capital loss arising from the deemed disposal and re-acquisition of special investment fund or basic life assurance fund assets treated?

(3) If the annual deemed disposal and re-acquisition of a life company’s special investment fund assets or basic life assurance fund assets results in a net capital loss, that loss may be treated as excess management expenses (but not acquisition expenses (section 708)) and set off against income of that class of business.

Net capital losses that have been converted to management expenses are ignored for the purposes of computing chargeable gains.

Capital losses of general annuity business and pension business do not qualify for this relief.

How is the capital loss to assimilate into management expenses in a period computed?

(4) Before calculating what capital loss is to be assimilated into management expenses, the net gain or loss on an annual deemed disposal and re-acquisition of assets must be spread over seven years (section 720). The capital loss is then computed as the sum of:

(a) one-seventh of the net unrealised gain or loss in the current period,

(b) the sevenths of the net unrealised gains or losses spread forward from previous periods into the current period,

(c) gains or losses on actual disposals in the current period.

Section 712 Distributions received from Irish resident companies

How are distributions received from Irish resident companies for the benefit of policy holders taxed?

(1) Distributions received by a life assurance company from Irish resident companies, for the benefit of policyholders, are chargeable to corporation tax.

Such distributions would normally be exempt in the hands of an Irish resident company (section 129) and effectively exempt in the hands of a non-resident (section 153(4)-(5)).

Distributions received in respect of general (non-life) insurance business (charged under Schedule D Case I), general annuity business or pension business (charged under Schedule D Case IV), remain exempt.

Section 713 Investment income reserved for policyholders

What is the meaning of unrelieved profits of a life assurance company?

(1)Unrelieved profits of a life assurance company are its profits from life business investments (other than special investment business) on which corporation tax is charged, i.e., after all deductions and reliefs, for example, set off of management expenses, charges and losses.

At what rate is the investment income reserved for policyholders taxed?

(3) The investment income reserved for policyholders, i.e., their share of your company’s unrelieved profits, for an accounting period, is taxed at the “average” standard rate of income tax for the accounting period. This is determined by the formula:

(N2 x SR1) + (N3 x SR2)
N1

where:

N1 is the number of months in the accounting period,

N2 is the number of months from the first day of the accounting period to the end of the tax year in which that day falls (or, if earlier, to the end of the accounting period),

N3 is N1 – N2

SR1 is the standard rate of income tax for the first tax year, and

SR2 is the standard rate of income tax for the second tax year.

Example

Year
Income of life company’s investment fund 12,000,000
N1 12
N2 (Jan, Feb, Mar) 3
N3 9
SR1 (standard rate for year 1) say 24%
SR2 (standard rate for year 2) say 22%

Therefore, the rate applicable is:

(3 x 24%) + (9 x 22%)
12
=       (72%) + (198%)
12
=      270%        =
12
        22.5%

Tax on income: 22.5% x 12,000,000 = €2,700,000

The reduced rate must be claimed.

How is franked investment income received for both policyholders and shareholders treated?

(5) Franked investment income must be apportioned between income received on behalf of policyholders or annuitants (taxed at the standard rate of income tax, section 15), and shareholders (taxed at the appropriate corporation tax rate, sections 2122). This is done by attributing to the policyholders a fraction of the company’s profits which is not charged to tax under Schedule D Case I (see section 710).

If the franked investment income exceeds the company’s profits chargeable under Schedule D Case I, the excess may also be apportioned to policyholders.

What happens if the total of the unrelieved profits and the shareholders’ part of the franked investment income exceeds the company’s Case I profits?

(6) If the total of the unrelieved profits and the shareholders’ part of the franked investment income exceeds the company’s Schedule D Case I profits (as reduced by relief for charges, trading losses and group relief), the part of the unrelieved profits attributable to the policyholders is the excess, or the unrelieved profits, whichever is lower.

The standard rate of income tax does not apply where your Schedule D Case I profits are greater than the total of the unrelieved profits and the shareholders’ part of the franked investment income.

What other rules apply in relation to investment income reserved for policyholders?

(7) Transitional rules (Schedule 32 para 24) apply to ensure that unrelieved losses carried forward from before 31 December 1992 (Finance Act 1993 section 11 effective date) must be scaled back (from a 40% corporation tax rate) to match the prevailing income tax standard rate at the time of offset.

Section 714 Life business: computation of profits

How is franked investment income that is attributable to a company’s life assurance fund treated?

(1) Although franked investment income is generally not chargeable to corporation tax (section 129), franked investment income attributable to a company’s life assurance fund must be included as trading income when computing its trading income under Schedule D Case I.

Section 715 Annuity business: separate charge on profits

How are profits arising to an assurance company from pension or general annuity business taxed?

(1) If a life assurance company’s income is not charged to tax under Schedule D Case I as trading income, its pension business profits and general annuity business profits are charged to tax under Schedule D Case IV.

The pension business and the general annuity business are each to be treated as a separate class of business, and although charged under Schedule D Case IV, the profits are to be computed using the Schedule D Case I rules.

What computational rules apply in calculating the profits of the pension business and general annuity business?

(2) For accounting periods ending before 4 March 1998, in computing the pension business profits and general annuity business profits under Schedule D Case IV, no deduction is allowed for:

(a) profits reserved for or allocated to pension business policyholders, or

(b) management expenses.

In relation to accounting periods ending on or after 4 March 1998, the following computations must be performed:

Any increase in the value of pension investments held on behalf of pension policyholders, whether realised or unrealised, is taken into account as a receipt in the pension business profit computation under Schedule D Case IV. Similarly, any decrease in the value of those investments, whether realised or unrealised, is taken into account as an expense. The increase or decrease in the value of the investment fund must be based on the company actuary’s calculations.

Any increase in the value of general annuity business investments held on behalf of general policyholders, whether realised or unrealised, is taken into account as a receipt in the general annuity business profit computation under Schedule D Case IV. Similarly, any decrease in the value of those investments, whether realised or unrealised, is taken into account as an expense. The increase or decrease in the value of the investment fund must be based on the company actuary’s calculations.

If, when a life company performs the computations, it is discovered that the profits for the immediately preceding accounting period were not computed on the same basis, the increase or decrease in the value of the fund is to be recalculated from the time the fund assets were acquired. Any net increase in the fund value is to be taken into account as a receipt, and any net decrease is to be taken into account as an expense.

Losses from a previous period may be carried forward against profits of the same class of business.

Can losses be carried forward as normal?

(3) The general carry forward provision for Schedule D Case IV losses (section 399) does not apply to losses carried forward under (2).

Can a company get relief as a charge for a non-deductible capital element of an annuity?

(4) Although a purchased life annuity may contain a “non-deductible” capital element (section 788), the whole of such an annuity may be deducted as a charge (when computing the profits of a general annuity business).

How is account taken of an annuity relating to a company’s excluded annuity business?

(5) An annuity which refers to a life company’s excluded annuity business (guaranteed income bonds, which provide guaranteed short term investment returns, with no mortality risk) may not be treated as a charge, and may not, therefore, be offset against the total profits of the company.

Though not regarded as charges, such annuities are regarded as normal life assurance business (but not general annuity business) trading expenses, and any consideration received for granting the annuity is, therefore, treated as a trading receipt.

Section 716 General annuity business

What is the meaning of taxed income of an annuity fund?

(1) Taxed income of an annuity fund is its income charged to corporation tax (but not Schedule D Case IV income:section 715), added to its franked investment income.

How are annuities paid by a general annuity business as charges on income treated?

(2) To the extent that the annuities paid by a company carrying on a general annuity business do not exceed the taxed income of the annuity fund, it may treat them as charges on income.

Annuities of a general annuity fund may be treated as charges to the extent that they do not exceed the fund’s taxed income. They may be deducted in a computation of profits under Schedule D Case IV to the extent that they do not exceed that income.

Can annuities treated as charges be set against total profits?

(3) Annuities so treated as charges may only be offset against profits arising in that accounting period to a life assurance company from its general annuity business.

Annuities (charges) referable to general annuity business may only be set off against profits of the general annuity business, not against total profits.

How are a company’s profits from general annuity business computed?

(4) In computing a company’s profits from general annuity business under Schedule D Case IV (section 715), taxed income is ignored, annuities treated as charges and deductible under (2) may not be deducted, but other such annuities may be deducted.

How can a non-resident company obtain relief for charges?

(5) A non-resident company carrying on general annuity business through a branch or agency in the State may not treat annuities it pays as paid from profits or gains brought into charge to tax.

A non-resident company carrying on a general annuity business obtains full relief for annuities either by way of charges against the general annuity fund’s taxed income or by way of deduction against Schedule D Case IV profits. The company may not obtain a double deduction for such charges.

Section 717 Pension business

Are income and gains of the pension business part of a company chargeable to tax?

(1) Income and chargeable gains from investments arising to the pension business part of a life assurance company fund and separate annuity fund are exempt from corporation tax.

Are financial futures and traded options treated as an investment?

(2) An investment, in this context, includes a financial futures contract or a traded option that is quoted on a futures exchange or stock exchange.

Does the exemption for pension fund investment income allow exclusion of these sums for CT purposes?

(3) The exemption for pension fund investment income is not to prevent sums being taken into account in computing a loss or gain for corporation tax purposes.

It ensures that the exemption for pension business investment income does not apply where it is necessary to include that income in computing general life business profits under Schedule D Case I or pension business profits under Schedule D Case IV.

Is franked investment income included in the profits of a pension business?

(4) Yes.

What rules apply where franked investment income is less than pension business profits?

(5) Where franked investment income in a period is less than pension business profits under Schedule D Case IV (section 715), a company may elect that the company’s pension fund investment income is not to be treated as exempt, and the franked investment income is not to be included as income in the Schedule D Case IV computation.

Such an election must be made in writing to the inspector within two years of the end of the accounting period to which it relates, or within a longer period allowed by the inspector.

A company may opt not to pay full corporation tax (sections 2122) on franked investment income included as part of the pension business profits, obtaining only a tax credit at the standard rate of income tax (section 15), where the franked investment income is less than the Schedule D Case IV profits.

Can a company take account of annuities paid when computing pension business profits under Schedule D Case IV?

(6) When computing pension business profits under Schedule D Case IV (section 715), annuities may be deducted, but such annuities may not be treated as paid from profits or gains brought into charge to tax.

Section 718 Foreign life assurance funds

What is a “foreign life assurance fund”?

(1) A foreign life assurance fund is a life assurance company’s fund that represents its liabilities to non-resident policyholders, whose contracts have been agreed through a foreign branch.

A life assurance company that does not keep a separate foreign life assurance fund will have its liabilities under such contracts estimated using the same method that is used when completing its periodical insurance returns.

How is income of a foreign life assurance fund from foreign investments taxed in Ireland?

(2) Income of a foreign life assurance fund from foreign property investments is taxed under Schedule D Case III on the amount remitted into the State (without any further deduction).

How is income from Irish government or semi-State securities taxed?

(3) Income of a foreign life assurance fund from Irish government or semi-State securities, issued with the condition that they are not to be taxed in the hands of a non-resident, is exempt from corporation tax if applied for the fund.

Are there cases where remitted income can continue to be exempt?

(4) Income of a foreign life assurance fund that has been remitted into the State may continue to be treated as exempt from corporation tax, if invested in Irish government or semi-State securities that would be exempt in the hands of a non-resident.

How is income of a foreign life assurance fund that is not remitted treated?

(5) Income of a foreign life assurance fund that is not remitted into the State:

(a) does not qualify for management expenses relief (section 707), and

(b) is not to be included as income where the life assurance company is chargeable on its pension business profits and general annuity business profits under Schedule D Case IV (section 715).

What chargeable gains rules apply to foreign life assurance funds?

(6) These rules also apply to chargeable gains accruing to a foreign life assurance fund on the disposal of its investments. Capital losses accruing on the disposal of investments are not allowable.

See also: Inspector Manual 26.1.1.

Section 719 Deemed disposal and reacquisition of certain assets

What definitions apply in relation to deemed disposals and reacquisition of certain assets?

(1) For a life assurance company-

life business fund is the fund it maintains for its life business.

investment reserve is the excess of the value of the life business fund assets over the life business liabilities.

linked assets are assets (investments) whose value will determine the benefits that will accrue under a policy. Linked liabilities are liabilities in respect of those benefits.

with-profits liabilities are its liabilities in respect of a policy under which the policyholder may be eligible to participate in surplus of the fund.

When are a company’s assets deemed to be disposed and reacquired?

(2) On the last day of a company’s accounting period, it is deemed to have disposed of and immediately reacquired its life business fund assets at market value on that day.

This deems a life assurance company’s assets to be disposed of and re-acquired at the end of each accounting period. The resulting gains are then brought into charge to tax over a seven year period (section 720).

The annual charge is designed to ensure that such gains are not deferred indefinitely.

The deemed annual charge applies only for the computation of capital gains. It is not intended to be used, for example, in computing capital allowances.

Do the deemed disposal and reacquisition rules apply to all asset types?

(3) This deemed disposal and reacquisition rule does not apply to:

(a) Strips (section 55) and Irish government and semi-State securities (section 607) except, from 26 March 1997, such securities if held under a swap arrangement.

(b) Pension business assets.

(c) Foreign life assurance fund assets.

In relation to the remaining assets not linked solely to core life assurance business, the deemed disposal and reacquisition rule only applies to the relevant chargeable fraction for an accounting period.

What is the meaning of the relevant chargeable fraction for an accounting period?

(4) The relevant chargeable fraction for an accounting period means:

(a) In relation to linked assets, a fraction whose denominator is the average of the opening and closing values of the linked assets which give rise to policy benefits. In calculating this value assets linked to basic life assurance business, the pension business and the foreign life assurance fund are not counted.

The fraction’s numerator is the average of the opening and closing values of the business liabilities the profits from which are not taxed under Schedule D Case I or IV (i.e., the core life assurance liabilities, profits which are normally charged under Schedule D Case III).

(b) In relation to other assets, a fraction whose denominator is computed by the adding the average of the opening and closing values of the life business liabilities and the average of the opening and closing amounts of the investment reserve.

In calculating the opening and closing values of the life business liabilities, the following liabilities are not counted: liabilities relating to linked assets, the foreign life assurance fund and the special investment fund.

The fraction’s numerator is the average of the appropriate parts of opening and closing amounts of the investment reserve.

What is the meaning of the appropriate part in relation to an investment reserve?

(5) The appropriate part of the investment reserve means:

(a) Where little or none of the life business liabilities are with-profits liabilities, the part of the reserve which bears the same proportion to the whole as the non-linked liabilities of the business not charged to tax under Schedule D Case I or IV bears to all the non-linked liabilities of the business.

(b) In any other case, the part of the reserve which bears the same proportion to the whole as the with-profits liabilities of the business (not charged to tax under Schedule D Case I or IV) bears to all the with-profits liabilities of the business.

Assets not linked solely to the core life assurance business are apportioned to the core life business in proportion to the liabilities and investment reserves of the different classes of business.

How does indexation relief apply on the deemed disposal and reacquisition of assets?

(6) In applying indexation relief to the computation of a gain on the deemed disposal and re-acquisition of assets on the last day of the accounting period, assets not linked solely to the basic life assurance fund are deemed to have been acquired from that fund at market value on the day before the accounting period began.

Example

Deemed disposal 60% of asset No deemed disposal 40% of asset
Year 1
Cost of asset: €1,000 600 400
Market value on deemed disposal
2,000 1,200 800
Gain (ignoring indexation) 600
Year 2
Cost of asset
1,200 400 x 60% = 960 x 40% = 640
Market value of deemed disposal 1,200 800
(unchanged from Year 1)
Gain 240

Subs (6) will produce the following result in Year 2:

Cost of asset
1,200 800 x 60% = 1,200 x 40% = 800
Market value of deemed disposal 1,200
(unchanged from Year 1)
Gain Nil

Source: Revenue Guidance Notes

Can assets and liabilities of a foreign life assurance fund be included in computing the investment reserve?

(7) In computing the investment reserve, assets of the foreign life assurance fund and liabilities of foreign life assurance business are not counted.

Section 720 Gains or losses arising by virtue of section 719

How is account taken of gains or losses arising under the deemed disposal and reacquisition rules?

(1) A life assurance company must spread over seven years the net gains (or losses) arising on the annual deemed disposal and re-acquisition of its assets. In the current period (the base period), it need only include one-seventh of the gains.

A further one-seventh of the net gains (or losses) is to be included in each succeeding accounting period after the base period until the full amount has been deducted.

How does this apply in relation to disposals of reinsurance contracts rights?

(2) The spreading of the annual deemed disposal charge is phased in for disposals of reinsurance contracts rights:

(a) For the year ended 31 December 1997, three-sevenths of the gains are ignored (i.e., four-sevenths are to be spread).

(b) For the year ended 31 December 1998, two-sevenths of the gains are ignored.

(c) For the year ended 31 December 1999, one-seventh of the gains is ignored.

What is included for an accounting period shorter than one year?

(3) The one-seventh of the gains to be included is proportionately scaled back for that period.

If a life company ceases to trade, what happens if the one seventh to be included is different than the full amount to be accounted for?

(4) If a life company ceases to trade (for example, in the eighth succeeding accounting period), and the one-seventh to be included is less than the full amount which must be accounted for, only the unaccounted balance need be included (not the entire one-seventh).

What rules apply when an actual loss on the sale of an asset is realised where the deemed disposal and reacquisition rules apply?

(5) This is an anti-avoidance provision. Unrealised gains and losses on the annual deemed disposal of assets are spread over seven years (1). However, if on the actual (not deemed) sale of an asset in, say, year two of the seven year period, a loss is realised, part of that loss (which could otherwise be immediately offset), must be spread forward over seven years. The part of the loss which must be spread is so much of the loss as exceeds the loss on the actualcost of acquisition (ignoring deemed re-acquisitions).

Example

A life business investment increases in value from €1,000 to €1,700 in year one.

The deemed gain at the end of year one (€700) is spread over years one to seven, at €100 per year.

If in year two, the value of the asset falls to €1,350, and the asset is sold, realising a deemed loss of €350, that loss would, apart from (5), be available for immediate offset, even though the €600 of the €700 gain has not yet been accounted for.

This section ensures that the loss is spread forward over seven years.

Section 721 Life policies carrying rights not in money

What value is used in calculating a gain/loss on assets transferred to a policyholder?

In computing a gain on assets transferred from a life assurance company to a policyholder, and in computing income taxed under Schedule D Case I or IV, the assets’ disposal value and acquisition cost are taken at market value.

This ensures that where assets other than cash are transferred to a policyholder, the same market value figure is used by the company and the policyholder to value the assets.

Section 722 Benefits from life policies issued before 6th April, 1974

What rules apply to investment-linked insurance policies taken out before the introduction of CGT?

(1) The rule in (2) applies to investment-linked insurance policies taken out before 6 April 1974 (introduction of capital gains tax), under which an agreed part of each premium is invested in shares or property, and the policy terms do not provide for deduction of capital gains tax from the benefits.

Can a deduction from policy proceeds for taxes due on the underlying investments be made?

(2) A life assurance company may deduct from the policy proceeds any amount of corporation tax on capital gains that it is required to pay on the appreciation of the underlying investments, provided they consist wholly or mainly of investments described in (1).

Section 723 Special investment policies

Amendments

Legislation spent or repealed

Section 724 Transfer of assets into or out of special investment fund

Amendments

Legislation spent or repealed

Section 725 Special investment policies: breaches of conditions

Amendments

Legislation spent or repealed

Section 726 Investment income

How is investment income of the basic life assurance fund of my overseas life assurance company taxed?

(1) Investment income accruing to the basic life assurance fund of your overseas life assurance company (i.e. your head office is located outside the State, but you trade through a branch or agency in the State) is taxed under Schedule D Case III.

An overseas life assurance company means the Irish branch of a foreign based assurance company.

Are Irish company distributions included as investment income?

(2) Investment income in this context includes distributions from companies resident in the State.

How are distributions received by an Irish branch of an overseas life assurance company from non-resident companies taxed?

(3) The distributions (including tax credit) received by an Irish branch of an overseas life assurance company from companies not resident in the State are treated as investment income.

This confirms a long standing practice which some UK life assurance companies had appealed against (as it was not provided for by law).

How is the income charged on the Irish branch of an overseas life assurance company calculated?

(4) The Irish branch of an overseas life assurance company is charged to tax on a portion (B/C) of its total worldwide investment income (A) from basic life assurance for an accounting period where:

B represents the average actuarial liabilities to policyholders (Irish and foreign) in respect of policies issued by the Irish branch, and

C represents the average actuarial liabilities to all the company’s policyholders.

The income of the special investment fund, general annuity fund and pension fund is not counted as basic life assurance investment income.

How are the figures for B and C in this calculation determined?

(5) The figures for B and C are the actuarial liabilities that must be included in the periodical insurance return.

Average means half of the aggregate of the opening and closing liability figures for the accounting period.

What gains of an overseas life assurance company are taxable?

(6) The Irish branch of an overseas life assurance company is charged to Irish corporation tax (section 78) on the branch’s gains on the disposal of investments in the life assurance fund, including government securities (section 607) and exempt assets (section 613), together with the branch’s gains on land and mineral rights located in the State and assets deriving their value therefrom (section 29(3)-(6)).

Does the single source rule apply to Irish branch income?

(7) The single source rule does not apply to income of a foreign life assurance company, trading through a branch or agency in the State, where it is taxed under Schedule D Case III.

Section 727 General annuity and pension business

Are distributions from Irish resident companies included in general annuity and pension business profits of a life assurance company?

(1) General annuity business profits and pension business profits of the Irish branch of an overseas life company are to include distributions from companies resident in the State.

How much of worldwide general annuity profits are charged on an Irish branch?

(2) The Irish branch of the company is charged to tax on its share of your worldwide general annuity business profits (A). This is calculated as (B/C) x A where:

B is the average actuarial liabilities under local branch contracts, and

C is the average actuarial liabilities under all general annuity contracts.

How are the figures for B and C determined?

(3) The figures for B and C are the actuarial liabilities that must be included in the periodical insurance return.

Average means half of the sum of the opening and closing liability figures for the accounting period.

Section 728 Expenses of management

What management expenses can the Irish branch of a foreign based assurance company deduct?

The Irish branch of a foreign based assurance company may only deduct management expenses attributable to the branch.

Section 729 Income tax, foreign tax and tax credit

In computing profits of an Irish branch, can a deduction be given for foreign tax?

(1) In computing basic life assurance business profits, or general annuity business profits of an Irish branch of an overseas life assurance company, no deduction is given for foreign tax suffered.

Can a non-resident company that receives a payment net of Irish income tax offset the income tax withheld against its CT liability?

(2) A non-resident company that receives a payment net of Irish income tax, can offset the income tax withheld against its corporation tax liability for the accounting period in which the payment falls (section 25(3)). This right to set off is limited (see (3)-(4)).

Are there limits to the amount of income tax that can be offset?

(3) Where the Irish branch’s charge to corporation tax on the investment income of its basic life assurance fund is based on its proportionate share of your worldwide investment income, the income tax set off must not exceed income tax at the standard rate on the Irish branch investment income.

Are there any further restrictions on the offset of income tax?

(4) Where the Irish branch’s charge to corporation tax on general annuity business profits is based on its proportionate share of your worldwide general annuity business profits, the income tax set off must not exceed income tax at the standard rate on the investment income included in Irish branch general annuity business profits.

In computing gains of an Irish branch, is a deduction given for foreign tax?

(6) In computing a chargeable gain on the disposal of investments by the Irish branch of the company, no deduction is given for foreign tax.

Section 730 Tax credit in respect of distributions

Amendments

Section 730 repealed by Finance Act 2000 section 69(2) and Schedule 2 Part 2 in the case of income tax as on and from 6 April 1999, and in the case of corporation tax as respects accounting periods commencing on or after 6 April 1999.

Section 730A Profits of life business: new basis

What definitions apply in relation to the new basis of taxation of life assurance companies?

(1) From 1 January 2001, an assurance company is chargeable to corporation tax under Schedule D Case I on profits arising from new basis business:

(a) In the case of an assurance company (non-IFSC) which was carrying on life business on 1 April 2000, this means:

(i) all policies and contracts, except those which relate to industrial assurance business, commenced by it on or after 1 January 2001, and

(ii) policies and contracts commenced by it before 1 January 2001 which relate to permanent health insurance (if the profits arising before 1 January 2001 were chargeable under Case I), pension business and general annuity business.

(b) In the case of an IFSC life assurance company which was carrying on IFSC-only life business on 1 April 2000, this means all policies and contracts commenced by it on or after 1 January 2001.

(c) In the case of an assurance company which was not carrying on life business on 1 April 2000, it means all policies and contracts commenced by it from the time it began to carry on business.

A credit union is as defined in the Credit Union Act 1997. This definition is added to allow credit unions that have made the appropriate declaration to be exempt from exit tax.

A financial institution means, broadly, a person who has been authorised under Irish or EU law to carry on business of banking or lending money.

The Service means the Courts Service. This definition is added to allow the Courts Service to be exempt from exit tax on gains made by its own funds – but it must apply exit tax on payments allocated to their beneficial owners.

Old regime

The old regime for assurance companies in the IFSC, which had only non-resident policyholders, is that they were taxed in a similar fashion to any other trade. The profits accruing to the shareholders were liable to corporation tax. The policyholders may have been liable to tax in their own country of residence but they were not liable in this State.

The old domestic regime was that the income and gains accruing to policyholders’ funds were taxed within the fund on an annual basis at the standard rate of income tax, while shareholders’ profits were taxed at the corporation tax rate. The policyholder was not liable to any further tax on maturity or encashment of a policy.

New regime

From 1 January 2001 the IFSC regime is extended to all assurance companies so that there is no annual tax imposed on policyholder’s funds. However, when an assurance company makes a payment to a policyholder, the company will have to deduct tax on the investment return to the policyholder at the standard rate of income tax plus three percentage points. That tax will be a final liability tax. However, tax will not be deducted from a payment to a person who is neither resident nor ordinarily resident in the State and who has compiled with the declaration requirements.

This system, where a policyholder’s investment is allowed to grow tax free throughout the term of the policy, is common in other EU countries and is referred to as the “gross-roll-up system”.

The new regime comes into effect for existing domestic companies from 1 January 2001, but only in respect of new policies issued from that time. The existing life assurance business of these companies at that time will continue to be taxed on the old basis viz. an annual tax on the investment return of policyholders’ funds. For existing IFSC companies there will effectively be no change in their tax regime except that from 1 January 2001 they will be entitled to sell their products on the domestic market, and they must comply with the new declaration procedure.

Chapter 4 provides a new regime for taxing life assurance companies themselves, both those operating from the IFSC and domestic assurance companies.

Chapter 5 provides a taxation regime for the investment return of a life assurance policy where the policyholder is resident or ordinarily resident in the State. In general, that investment return is only taxed when realised.

See also: Tax Briefing 43.

What rules apply to an assurance company which began business between 1 April and 31 December 2000?

(2) Where an assurance company began to carry on business between 1 April 2000 and 31 December 2000 inclusive, it may elect that life business policies and contracts that commenced before 31 December 2000 are not be treated as new basis business. For this election to apply, the policies and contracts must not relate to pension business or general annuity business.

See also: Tax Briefing 41.

Is life business which is new basis treated as a separate business?

(3) Life business which is new basis business is treated as a separate business of the company.

See also: Tax Briefing 41 and Tax Briefing 43.

What computational rules apply where an assurance company’s profits are taxed under Schedule D Case I?

(4)-(5) Where an assurance company’s profits are to be computed under Schedule D Case I:

(a) the part of the profits allocated to, or spent on behalf of policyholders or annuitants, is excluded from the computation, and

(b) any remaining part of the profits which is reserved for policyholder or annuitants must not be excluded.

See also: Tax Briefing 41.

What rules apply to the use of a Case I loss on new basis business?

(6) In computing trading income under Schedule D Case I, a company may claim a deduction for the part of its profits allocated to, or reserved for policyholders (section 710).

Where a company incurs a (Case I) loss in respect of new basis business, the amount of the loss that may be set off against other profits is limited to the amount of those profits as computed under section 710. In other words, the company cannot set off a Case I loss under the new regime against profits belonging to policyholders under the old regime (Income minus Expenses).

What amount is chargeable to tax under Case III?

(7) A company that carries on mutual life assurance business, is assessed to tax on the basis that one twentieth of the amount produced by the calculation in (8)(c) is chargeable to corporation tax under Schedule D Case III.

If however, the total value of funds unallocated to policyholders at the end of the period (see (8)(c)(ii)) exceeds the total value of such funds at the start of the period (see (8)(c)(i)), one twentieth of the excess may be deducted from the figure charged under (b) for the previous accounting period (provided that period begins on or after 1 January 2001), or a later accounting period.

What other computational rules apply?

(8)(a) A company’s statutory accounts are:

(i) if the company is resident in the State (a resident company), its profit and loss account and balance sheet, and

(ii) if the company is not resident in the State, and it trades through a branch or agency in the State (a non resident company), its profit and loss account and balance sheet,

which must be audited in accordance with the company law of Ireland, or of the State in which the company is resident.

(b) Net liabilities in respect of its policies must be valued by an actuary.

(c) The figure to be used in computing the figure in respect of which a mutual life assurance company is charged to tax under Schedule D Case III is:

(i) the total value of funds unallocated to policyholders at the end of the accounting period, less

(ii) the total value of such funds at the start of the accounting period.

For a foreign life assurance company, the value at (a) or (b) is multiplied by the fraction A/B where:

A is the figure for liabilities to policyholders whose proposals were made through the Irish branch, and

B is the liabilities at that time to all your policyholders.

Section 730B Taxation of policyholders

What is the meaning of a “return” when it comes to the taxation of policyholders?

(1) Return means a return under section 730G.

What is the purpose of the Chapter on policyholders?

(2) This Chapter imposes a charge to tax on a life policy which is new basis business of the assurance company that issued it.

The intention of the Chapter is to impose a tax charge in respect of life assurance policies which come within the definition of “new basis business” other than such a policy which relates to pension business, general annuity business or permanent health insurance business.

Source: Tax Briefing 41, September 2000

Are any life policies excluded from these rules?

(3) The rules in this Chapter do not apply to a life policy which is pension business, general annuity business or permanent health assurance business of an assurance company.

In other words, the tax charge (section 730F) applies to life policies which are essentially investment products with an element of life cover.

How do the rules in this Chapter apply to group life policies?

(4) The rules in this Chapter (i.e., the exit tax regime) apply to group life policies as follows:

(a) the group premiums payable in respect of the group policy are treated as if that policy were comprised ofseparate life policies,

(b) each beneficiary under the group policy being treated as the holder of a separate life policy,

(c) the premiums paid in respect of each separate life policy are the amounts included in group premiums which are beneficially owned by the holder of the separate life policy,

(d) a gain in a chargeable event in relation to the group policy is treated as relating to each separate policy, to the extent that the gain is owned by the holder of each policy.

The Courts service (the Service):

(a) is obliged to deduct exit tax and pay that tax over to the Collector-General (section 730F), on a self-assessment basis (section 730G), and

(b) is subject to inspection by Revenue (section 904C).

Permanently incapacitated individuals are entitled to repayment of exit tax suffered (section 730GA).

The Service must, on or before 28 February make an electronic return in the approved format in respect of the previous tax year, stating:

(a) the total gains arising in respect of the group policy,

(b) for each holder of a separate policy:

(i) the policyholder’s name and address,

(ii) the total gains to which that person is beneficially entitled, and

(iii) any other information Revenue might reasonably require.

Section 730BA Personal portfolio life policy

VAT treatment of investment management services supplied in relation to Self-Directed Life Assurance Bonds: Tax Briefing Issue 80 – 2009

This anti-avoidance section was introduced to counteract a scheme whereby a person could place property owned by him/her in a life assurance policy referred to as a personal portfolio life policy.

The advantage in doing this would be that any income or gain arising from the property would only be taxed, by means of a flat rate exit tax of 23%, when the “policy” was cashed in. In effect, income liable at the top rate of tax plus PRSI and levies would be taxed at 23%.

What definitions apply regarding personal portfolio life policies?

(1)Linked assets of an assurance company are the assets which are identified in the company’s records as providing the benefits under a policy.

An internal linked fund is a fund that is composed of linked assets. It may be divided into sub-funds based on the value of the linked assets.

Land is widely defined to include any interest in land, and shares which derive their value from land.

What is a personal portfolio life policy?

(2) A personal portfolio life policy is a life policy which meets the following conditions:

(a) The policy benefits are determined by reference to-

(i) the value of, or income from, property, or

(ii) fluctuations in, or in an index of, property.

(b) The property or index may be selected by the policyholder, his agent, a connected person, or a person connected with his agent, the policyholder and a connected person, his agent and connected person.

When is a personal portfolio life policy treated as having a right of selection in this section?

(3) A personal portfolio life policy is treated as having the right of selection mentioned in (2)(b) where:

(a) the terms of the policy (or of any other agreement between a person mentioned in (2)(b) and the assurance company):

(i) allow him to select the property or index,

(ii) allow the assurance company to offer such right of selection to any such person,

(iii) allow any such person the option to change the policy terms to include such right of selection,

(b) a person mentioned in (2)(b) has the right to have an investment advisor (however described) appointed by the assurance company to select the property.

When is a life policy not treated as a personal portfolio life policy?

(4) This subsection counteracts attempts to preserve the right to select property to be included in a personal portfolio life policy in the hands of the policyholder, while apparently conferring that right on an unconnected person.

A life policy is not treated as a personal portfolio life policy if:

(a) the only property that can be selected consists of property which:

(i) is already included in a linked fund of an assurance company, units in an investment undertaking or cash (unless acquired to realise a gain on its disposal), and meets the conditions listed in (5),

(ii) the only index that can be selected is one that meets the conditions listed in (6),

(b) in the case of a life policy commenced on or after 5 December 2001, the policy terms meets the conditions listed in (7).

When is a life policy not to be treated as a personal portfolio life policy?

(5) For a life policy not to be treated as a personal portfolio life policy, the opportunity to select the property must be made available to the public on terms which give the right to select the property to any person falling within the terms of the opportunity.

The opportunity must also be clearly identified to the public in the marketing or promotional literature as being available to any person falling within the terms of the opportunity.

What conditions relating to index selection can mean a life policy is not treated as a personal portfolio life policy?

(6) For a life policy not to be treated as a personal portfolio life policy, the opportunity to select the index must be made available to the public on terms which give the right to select the index to any person falling within the terms of the index.

The opportunity must also be clearly identified to the public in the marketing or promotional literature as being available to any person falling within the terms of the opportunity.

Do the conditions change from 5 December 2001?

(7) Yes. A life policy commenced on or after 5 December 2001 is not to be treated as a personal portfolio life policy, if it meets the following conditions:

(a) the assurance company does not subject any particular person to conditions which are more burdensome than those applicable to any other person,

(b) where the terms of the opportunity mentioned in (5) indicate that 50% or more of the property is land, and the capital requirement is clearly in the marketing material, the amount which any one person may invest in the policy must not represent more than 1% of capital requirement of the opportunity.

Section 730C Chargeable event

When is exit tax chargeable in relation to a life policy?

(1) Exit tax is chargeable when a life policy produces a return on investment, i.e., when a chargeable event occurs:

(i) the policy matures (i.e., produces an investment return, including on death or disability, which causes the policy to terminate),

(ii) the rights, or part of the rights, under the policy are surrendered (including on death or disability, but the policy does not terminate),

(iii) the rights, or part of the rights, under the policy are assigned.

(iv) the relevant period ends, i.e., eight years after the policy’s inception, and each subsequent eighth anniversary.

An assurance company that began to carry on business between 1 April 2000 and 31 December 2000 may elect that life policies begun before 31 December 2000 not be treated as new basis business ( section 730A(2)).

If the company did not make this election, a life policy issued by it before 31 December 2000 gives rise to a chargeable event on that date.

See also: Tax Briefing 41.

If the election is made, the growth in value of the policies is taxed on the I -E basis (section 707). If the election is not made, the growth in value of the policies from commencement to 31 December 2000 is taxed at 40%.

What types of assignments do not give rise to a chargeable event?

(2) The following assignments do not count as an “assignment” for the purposes of (1), and therefore do not give rise to a chargeable event:

(a) an assignment as security for a debt due to a bank or building society,

(b) an assignment between husband and wife,

(c) an assignment between (ex) spouses in accordance with a court decree granting their divorce,

(d) an assignment between (ex) spouses in accordance with a court decree facilitating their judicial separation,

(e) an assignment between (ex) spouses in accordance with a decree of a foreign court which is entitled to be recognised as valid in Ireland, and which grants their divorce or facilitates their legal separation.

A chargeable event does not occur on the assignment of a policy as a security for a debt or on the discharge of such a debt so secured. For example, if on taking out a loan from a bank, a policyholder assigns his or her life assurance policy to the bank as security for the loan, a chargeable event does not arise.

Source: Tax Briefing 41, September 2000

Where a life policy produces an investment return on death or disability, how is the taxable gain calculated?

(3)(a) Where a life policy produces an investment return on death or disability, the gain to be charged to tax (section 739D) is based on the amount by which the policy value after death or disability exceeds the policy value before death or disability.

(b) The value of a policy is:

(i) its surrender value, or

(ii) if it has no surrender value, the market value of the rights conferred by the policy.

(c) In determining the value of policy benefits under (a) or (b), no account is to be taken of the exit tax imposed bysection 730F.

Section 730D Gain arising on a chargeable event

How is the gain arising on a chargeable event computed?

(1) The gain arising on a chargeable event is computed as follows:

(a) If the chargeable event is the maturity of, or surrender of rights under, a life policy, the amount determined by the formula:

B – P

(b) If the chargeable event is the assignment of the rights under a life policy, the amount determined by the formula:

V – P

(c) If the chargeable event is the surrender of part of the rights under a life policy, the amount determined by the formula:

B – (P x B)
V

(d) If the chargeable event is the assignment of part of the rights under a life policy, the amount determined by the formula:

A – (P x A)
V

(da) If the chargeable event is the ending of a seven year relevant period, the amount determined by the formula:

V – P

(e) If the chargeable event arises on 31 December 2000 in relation to a company that did not make the new basis business election (section 730C(1)) the amount determined by the formula:

V – P

Where:

B is the total value of the sum payable and other benefits arising on the chargeable event,

P is the total premiums (allowable premiums) paid into the policy before the chargeable event (to the extent that they have not already been taken into account in computing a gain on a chargeable event) – in this regard, a “chargeable event” does not include an 8 year “deemed” chargeable event,

V is the total value of the rights and other benefits conferred by the policy before the chargeable event,

A is the value of the part of the rights or benefits which has been assigned,

In each case, exclusive of any retention tax chargeable by section 730F on the event.

See also: Tax Briefing 41.

How do I treat a standard chargeable event where there was an earlier disposal for the purposes of the eight year rule?

(1A) Where a standard chargeable event (i.e., a maturity, surrender or assignment) occurs after an 8 year event, the 8 year event is ignored in calculating the gain.

If the chargeable event is not a part surrender or assignment, in calculating the gain the policy value is increased by the tax on the deemed disposal (provided such tax has not been repaid).

If the chargeable event is a part surrender or assignment, in calculating the gain, the tax on the deemed disposal (provided such has not been repaid) is deducted from the eligible premiums figure.

When does exit tax not apply on a chargeable event?

(2) Exit tax does not apply if the policyholder has bona fide completed the appropriate declaration.

A chargeable event is treated as not giving rise to a gain if:

(a) before the chargeable event, the company which issued the life policy:

(i) has a declaration (section 730E(2)) stating that the policyholder is neither resident nor ordinarily resident in the State, and

(ii) does not have any information to suggest that

(I) the information contained in the declaration is materially incorrect,

(II) the policyholder has failed to notify the company that he/she has become resident in the State, or

(III) the policyholder is resident or ordinarily resident in the State,

(b) before the chargeable event, the company which issued the policy has a declaration (section 730E(3)) stating that the policyholder is:

(i) a life assurance company,

(ii) an investment undertaking (section 739B),

(iii) a Revenue-approved charity (section 207(1)(b)),

(iv) a PRSA provider,

(v) a credit union,

(vi) a person entrusted to pay life premiums from moneys under Court control,

(vii) NAMA,

(viii) an exempt approved pension scheme (section 774) or pension trust (section 784 and 785), or

(ix) an ARF (section 784A) or AMRF (section 784C).

(c) where the life policy is an asset held in a special savings incentive account, the company which is issued the policy has a declaration (section 730E(3A)) from the qualifying savings manager,

(d)-(e) the life policy is an asset held by the National Pensions Reserve Fund Commission.

See also: Tax Briefing 41.

Are any life policy types excluded from the exit tax rules?

(2A) Exit tax does not apply in the case of a life policy sold through a foreign (EU or EEA) branch of a domestic life assurance company which has received the appropriate Revenue approval.

Revenue may delegate their powers under this section to an authorised Revenue official.

Life policy gross roll-up regime

In general, gains are exempt if the policy commitment was made by a life company’s EU/EEA branch.

This exemption extends to situations where the life company carries on business on a ‘freedom of services’ basis and the policy holder resides in an EU/EEA state other than Ireland.

Revenue approval is needed.

What computational rules apply in relation to premiums?

(3)-(4) The following rules apply in relation to in relation to premiums:

(a) The amount of premiums to be taken into account in determining a gain under (3)(c) is the lesser of B and

(P x B)
V

The amount of premiums to be taken into account in determining a gain under (3)(d) is the lesser of A and

(P x A)
V

(b) In the case of a life policy which gave rise to a “deemed” chargeable event on 31 December 2000 (see (1)(e)), the figure to be taken for allowable premiums in relation to a subsequent chargeable event is the greater of:

(i) the policy value immediately after 31 December 2000,

(ii) the allowable premiums immediately before that date.

(ba) Where a gain is to be calculated on a second or subsequent seventh year anniversary (i.e., the ending of arelevant period), the figure for allowable premiums is taken as the premium paid after the first chargeable event (the previous anniversary), plus the greater of:

(i) the policy value at the time of the previous anniversary, or

(ii) the cumulative premium paid at the time of the previious anniversary.

(c) If the chargeable event is the assignment of the entire policy rights (see (1)(b)), the figure to be taken for allowable premiums in relation to a subsequent chargeable event is the greater of:

(i) the policy value immediately after the assignment,

(ii) the allowable premiums immediately before the assignment.

(d) If the chargeable event is the assignment of part of the policy rights (see (1)(d)), the policy is to be treated as if it were two policies:

(i) One policy conferring the part of the policy rights assigned. The post-assignment allowable premiums are taken as equal to the post-assignment value of the policy.

(ii) Another conferring the part of the policy rights which were not assigned. The post-assignment allowable premiums are taken as equal to the pre-assignment allowable premiums reduced by the premiums taken into account into computing the gain.

Must exit tax be deducted if the life company has a non-residence declaration for the policyholder?

(5) In general, no exit tax is deducted if the life company has a non-residence declaration for the policy holder. As regards policies taken out before 1 May 2005 which do not have a non-residence declaration, the life company neednot deduct exit tax on the first seventh year anniversary provided it has resonable grounds to believe the policy holder is non-resident. If a non-residence declaration is not made available for the next chargeble event, exit tax must be deducted from the first event also.

Section 730E Declarations

This sets out the terms of the non-resident declarations to be made by you as a policyholder who is seeking a gross payment to be made to you in respect of a life policy.

Who is a “policyholder” in relation to a life policy?

(1) In relation to a life policy, the policyholder means:

(a) the person in whom the policy rights are vested as beneficial owner,

(b) the person who created the trust under which the policy rights are held,

(c) the debtor, where the policy rights are held as security for a debt.

What are the requirements for the written declaration made to the assurance company?

(2) The written declaration to be made by policyholder (section 730D(2)(a)) to the assurance company must:

(a) be made by the policyholder,

(b) be signed by him/her,

(c) be made on the Revenue-prescribed form,

(d) declare that, at the time of the declaration, she/he is not resident and not ordinarily resident in the State,

(e) contain his/her name and address,

(f) contain an undertaking to notify the assurance company on becoming resident in the State,

(g) contain any other information that Revenue may reasonably require.

This relates to a the declaration required from a policyholder who was never resident in the State.

What are the requirements for a written declaration by a policyholder to be made by a life company, investment undertaking or exempt charity?

(3) The written declaration to be made by a life company, investment undertaking or exempt charity (section 730D(2)(b)) to the assurance company must:

(a) be made by the policyholder,

(b) be signed by the policyholder,

(c) be made on the Revenue-prescribed form,

(d) contain the policyholder’s name and address,

(e) declare that, at the time of the declaration, the policyholder is:

(i) a life assurance company,

(ii) an investment undertaking (section 739B),

(iii) a Revenue approved charity (section 207(1)(b)),

(iv) a PRSA provider,

(v) a credit union,

(vi) a person entrusted to pay life premiums from moneys under Court control,

(vii) NAMA,

(viii) an exempt approved pension scheme (section 774) or pension trust (section 784 and 785), or

(ix) an ARF (section 784A) or AMRF (section 784C).

(f) contain an undertaking by the policyholder to notify the assurance company if the policyholder becomes resident in the State,

(g) contain any other information that Revenue may reasonably require.

This relates to the declaration required from a policyholder who was resident in the State at the time of taking out the policy but subsequently becomes neither resident nor ordinarily resident in the State.

What are the requirements for the written declaration to be made by a qualifying savings manager?

(3A) The written declaration to be made by a qualifying savings manager (section 730D(2)(c)) to the assurance company must:

(a) be made by the qualifying savings manager (the declarer) in respect of a life policy which is held as an asset of a special savings incentive account,

(b) be signed by the declarer,

(c) be made on the Revenue-prescribed form, or an authorised alternative,

(d) declare that, at the time of the declaration, the life policy is an asset held in a special savings account, and is managed by the declarer on behalf of the person who is entitled to the policy benefits,

(e) contain the name, address, and PPS number of the person who is entitled to the policy benefits,

(f) contain an undertaking by the declarer to notify the assurance company if the life policy ceases to be held in a special savings account,

(g) contain any other information that Revenue may reasonably require.

How is a gain treated where the policyholder consists of two or more persons?

(4) If the policyholder (see (1)) consists of two or more persons, i.e., where the policy rights are-

(a) beneficially vested in two or more persons,

(b) held on trusts created by two or more persons,

(c) security for a debt owner by two or more persons,

the gain is apportioned in proportion to the ownership rights of each person.

Where two or more people are policyholders they are to be treated as if each of them were a policyholders for declaration purposes and the imposition of tax.

Source: Tax Briefing 41, September 2000

How long must an insurance company keep the declarations?

(5) An insurance company must keep the declarations relating to its non-resident policyholders for six years after the life policy ceases.

Section 730F Deduction of tax on the happening of a chargeable event

What are the rates of exit tax in relation to life investments?

(1) Exit tax (appropriate tax) applies at the following rates to the growth in value of life assurance investments:

(a) at 41% (25% if the policyholder is a company), and

(b) at 60%, in the case of a personal portfolio life policy, where the chargeable event occurs on or after 26 September 2001,

(c) at 40%, where the chargeable event occurs before 31 December 2000.

See also: Tax Briefing 41.

Can tax which has been paid on an eight year chargeable event be credited against tax on the new gain?

(1A) If tax (first tax) has already been paid on an 8 year chargeable event, such tax may be credited against tax (second tax) calculated on the new gain.

If the final amount due is less than what has already been paid to Revenue, Revenue may refund the excess. This only applies in the case of bona fide chargeable events.

Must a company make any declaration?

(1B) In order to obtain the 25% rate a company must make a declaration to the life assurance company that it is a company and must provide its tax reference number.

Who must account for and pay the exit tax to Revenue?

(2) An assurance company must pay to the Collector-General the exit tax it has deducted (section 730G).

Can the exit tax be deducted from the return payable on an investment policy?

(3) A assurance company is entitled to deduct exit tax from the return payable on an investment policy.

The policyholder must allow the tax to be deducted.

In paying the net return (after deduction of tax) to the policyholder, the company is treated as if it had paid the full return to the policyholder and is therefore acquitted of the debt to the policyholder.

What collection rules apply to policies cashed in between 26 September and 5 December 2001?

(4) This special collection rules section 730FA to apply (in place of the rules in section 730G and section 730GA) in relation to the 43% exit tax deductible by a life assurance company in respect of personal portfolio life assurance policies cashed in during 21 September 2001 to 5 December 2001.

Section 730FA Assessment of appropriate tax where tax not deducted under section 730F

Amendments

Section 730FA is now spent: only applied 26th September 2001 to 5th December 2001.

Section 730G Returns and collection of appropriate tax

What do the rules in this section relate to?

(1) The rules in this section relate to the time and manner in which exit tax deducted by an assurance company from returns payable on investment policies must be accounted for and paid.

What returns must an assurance company make each year?

(2) An assurance company must file two exit tax returns for each calendar year:

(a) the first return, relating to chargeable events happening between 1 January and 30 June inclusive, must be filed by the following 30 July, and

(b) the second return, relating to chargeable events happening between 1 July and 31 December inclusive, must be filed by the following 30 January.

A “nil” return must be filed if no tax is due.

How is the tax due on the exit tax return to be assessed by the assurance company?

(3) The tax shown due on the exit tax return is to be self-assessed and paid by each assurance company on or before the due date for the return. There is no need for an inspector to estimate and assess tax due, unless the tax has not been paid by the due date.

Can an inspector make an estimate of underpaid tax?

(4) Inspectors retain the right to estimate and assess any exit tax underpaid. Interest on tax underpaid accrues from the appropriate payment date.

What other powers does an inspector have in order to recover unpaid exit tax?

(5) An inspector of taxes can make any assessments, adjustments or set offs necessary to recover any unpaid or underpaid exit tax.

What is the due date for tax estimated by an inspector?

(6) If there is no appeal against the assessment, tax assessed or estimated by an inspector is due within one month of the date of the notice of assessment.

That due date does not displace any earlier payment date. Any tax found, on appeal, to have been overpaid must be repaid.

Are the normal tax collection procedures available to enforce the payment of unpaid exit tax?

(7) The tax collection procedures (Part 42) are available to the Collector-General to enforce payment of any unpaid exit tax and interest.

From 1 July 2009, interest on unpaid exit tax is charged at 0.0274% for each day or part of a day the tax remains unpaid. Prior to 1 July 2009 the rate was 0.0322%.

Such interest is not an annual payment from which income tax must be withheld by the payer at the standard rate. It is a debt due to the Minister for Finance, for the benefit of the Central Fund, and is payable to the Revenue Commissioners.

In any court proceedings to collect unpaid interest on exit tax, a certificate signed by the Collector-General stating that an amount is due may be given in evidence and such a certificate is evidence, until the contrary is proved, that the amount is so due.

The tax appeal procedures (Part 40) are available to a taxpayer who disputes any amount of exit tax due. This means a taxpayer is entitled to appeal to the Appeal Commissioners on any matter relating to his exit tax liability. The Appeal Commissioners must hear and determine such an appeal in the same manner as an appeal against an income tax assessment. As an appellant, you have a right, where necessary, to have your case reheard by a Circuit Court Judge. You also have a right to have a case stated for the opinion of the High Court on a point of law.

What are the requirements for the exit tax return?

(8) The exit tax return must be made on the appropriate Revenue return form. The person completing the return must sign a declaration that the return is correct and complete.

Section 730GA Repayment of appropriate tax

Must exit tax be deducted from payments which would be exempt in the hands of the policyholder?

This rule applies where a payment an assurance company makes to a policyholder would be exempt from income tax in the hands of the recipient because it arises to:

(a) a permanently incapacitated individual as a return on investment in respect of compensation received for personal injuries (section 189),

(b) the trustees of a qualifying trust for a permanently incapacitated individual (section 189A), or

(c) a thalidomide victim as a return on investment in respect of compensation received for personal injuries (section 192).

In such a case, the payment made is treated as the net amount of a payment from which exit tax has already been deducted. In other words exit tax need not be deducted from the payment. The gross income, although initially “chargeable” in the hands of the recipient under Case III, is then exempt under the appropriate section mentioned in (a)-(c) above.

Section 730GB Capital acquisitions tax: set-off

Can exit tax be offset against CAT on the same event?

Exit tax payable on the death of a person can be treated as capital gains tax which can be credited up to the amount of the capital acquisitions tax on the same event. In such circumstances, the exit tax is calculated at the 23% rate and not the higher rate that applies in the case of personal portfolio life policies.

Section 730H Interpretation and application

What are the main interpretation rules that apply in relation to taxation and returns from foreign life policies?

(1) This Chapter obliges you as an Irish resident who receives income from, or disposes of, a foreign life policy to include details of such income or gains in a self-assessment return of income on or before the return filing date (thespecified return date for the chargeable period). Where the income in question is paid annually or more frequently, it is described as a relevant payment.

Chargeable period means:

(a) for an individual, the basis period for an income tax year, and

(b) for a company, the accounting period the profits of which are charged to corporation tax.

A foreign life policy means a life assurance policy issued by:

(a) a branch or agency of an assurance company carrying on business in an offshore State, i.e., a State which is not:

(i) an EU State,

(ii) a member State of the European Economic Area (EEA), or

(iii) a member State of the Organisation for Economic Cooperation and Development (OECD) which has a tax treaty with Ireland,

or

(b) an assurance company carrying on business in an offshore State, other than through its branch or agency in Ireland.

What other interpretation rules apply?

(2)(a) A person who would be treated as having made such a disposal for capital gains tax purposes is regarded as having made a disposal of a life policy (see section 534).

(b) Income is not regarded as “included” in a self-assessment return unless the return is filed on or before the self-assessment return filing date (section 950).

(c) A disposal is not regarded as “included” in a self-assessment return unless the return is filed by the person, or if he/she has died, the executor or administrator of his/her estate, on or before the self-assessment return filing date (section 950).

Section 730I Returns on acquisition of foreign life policy

Must a person who acquires a foreign life policy file a return?

A person who acquires a foreign life policy is a chargeable person for self assessment purposes and must include in the return to the inspector for the chargeable period in which the foreign life policy was acquired, details of:

(a) the name and address of the company that issued the foreign life policy,

(b) a description of the terms of the policy, and details of the premiums payable under the policy,

(c) the name and address of the intermediary, if any, through whom the policy was acquired.

Must a person who acquires a foreign life policy file a return?

A person who acquires a foreign life policy is a chargeable person for self assessment purposes and must include in the return to the inspector for the chargeable period in which the foreign life policy was acquired, details of:

(a) the name and address of the company that issued the foreign life policy,

(b) a description of the terms of the policy, and details of the premiums payable under the policy,

(c) the name and address of the intermediary, if any, through whom the policy was acquired.

Section 730J Payment in respect of foreign life policy

What is the tax treatment of a payment made in respect of a foreign life policy?

A payment made in respect of a foreign life policy, on or after 1 January 2001, is subject to income tax, on a self-assessment basis as follows:

(a) for an individual or trustee, the income must be included in your income tax return, to be taxed at the following rates:

(i) where the payment is not for the disposal or part disposal of a foreign life policy the rte of income tax to be charged is-

(I) 60% in the case of a foreign life policy which is a personal portfolio life policy, and

(II) in any other case, 41%,

(ii) where the income in question has not been correctly included in your self-assessment return and arises from a foreign life policy which is a personal portfolio policy the rate is 80%.

and

(b) in the case of a company, the income must be included in its corporation tax return as untaxed investment income (i.e., under Schedule D Case III).

Section 730K Disposal of foreign life policy

How is the gain on the disposal of a foreign life policy taxed?

(1) This rule applies where:

(a) a foreign life policy is disposed of on or after 1 January 2001,

(b) the disposal gives rise to an exit charge, and

(c) the disposal details have been correctly included in a return.

In such a case, the gain is chargeable to income tax under Schedule D Case IV.

For an individual or trustee, the rate of income tax applicable to the gain is:

(a)(i) 60% in the case of a foreign life policy which is a personal portfolio life policy, or

(ii) in any other case, the rate of 41%, and

(b) where the income in question has not been correctly included in your self-assessment return and arises from a foreign life policy which is a personal portfolio policy the rate is 80%.

Does indexation relief and the annual exemption apply?

(2) Where a gain is realised indexation relief (section 556) is not allowed nor is the capital gains tax annual exemption (section 603) given.

Is relief allowed for a loss calculated under this section?

(3) If the computation of the gain produces a loss, the gain is treated as nil. In other words, no relief is allowed for the “loss” against other chargeable gains.

The tax on a deemed disposal (on the ending of the 8/12 year period) is repayable if their is an overall loss on the eventual disposal of the policy.

Can loss relief be used against this tax?

(4) You may not use loss relief to reduce the amount chargeable to income tax under Schedule D Case IV.

Can exit tax be credited against CAT on the same event?

(5) Exit tax payable on the disposal of a policy can be treated as CGT which can be credited up to the amount of CAT on the same event.

What happens at the end of the eight year period?

(6) The ending of the 8/12 year period (the relevant event) gives rise to a deemed disposal of the policy.

Section 731 Chargeable gains accruing to unit trusts

Up to 5 April 1990, income and gains accruing to a unit trust were always taxed on the trustees (section 731(2)). The trustees were charged to tax in respect of the trust’s income at the standard rate of income tax. The legislation underlying section 731 allowed gains accruing to a registered unit trust to be charged on the trustees at half the normal rate of capital gains tax. It also allowed gains on the disposal of such units to be charged at half the normal rate.

For income and gains accruing between 6 April 1990 and 5 April 1994, the situation is reversed: income is attributed to the unitholder. The collective investment undertaking pays no tax but must deduct withholding tax at the standard rate (like deposit interest retention tax) from any income paid to the unitholders. A specified collective investment undertaking, based in the IFSC or Shannon, was not (and is not) required to withhold tax, as its unitholders are non-residents.

For gains accruing from 6 April 1994, the situation is reversed again: income and gains are taxed on the undertaking for collective investment (section 738) at the standard rate of income tax. However, specified collective investment undertakings (section 734(1)) do not pay this tax, or withholding tax. Their income remains taxed at the level of the unitholders, who, as non-residents, also pay no tax.

In summary, there are now two tax regimes: one for undertakings for collective investment that sell mainly to residents, the income of which is taxed at source; and another for specified collective investment undertakings, selling to non-residents, with no taxation at source.

What is the meaning of a “capital distribution”?

(1) A capital distribution means a distribution from a unit trust (including a distribution on a termination of the trust) other than a distribution which is taxed as income of yours as the recipient.

On whom are chargeable gains of a unit trust assessed?

(2) Chargeable gains accruing to a unit trust are to be assessed and charged on the trustees.

What is the residence of the trustees of a unit trust?

(3) For capital gains tax purposes, the trustees are regarded as a single and continuing body of persons that is resident and ordinarily resident in the State unless the general administration of the trust is carried on outside the State and a majority of the trustees are non-resident.

How is an entitlement to receive a capital distribution treated?

(4) A person who receives or becomes entitled to receive a capital distribution in respect of units in a unit trust is treated as having disposed of an interest in those units..

How are unit trust gains accruing to charities or pensions treated for tax?

(5) Gains accruing to charities and pension funds are exempt (sections 608, 609). A disposal by a unit trust of units owned by an exempt body, for example, a charity or pension fund, is also exempt from capital gains tax.

To receive the exemption, the trustees must make a declaration to the effect that the units in question are owned by a tax-exempt body. The trustees must file, on or before 28 February in the following tax year, an electronic statement providing each unit holder’s name, address and other information Revenue may reasonably require. A €3,000 penalty applies if the statement is not made, or is incorrect.

A unit trust which is exempt from capital gains tax in respect of disposals of units owned by a charity or pension fund is also exempt:

(i) from income tax in respect of any gain realised on the disposal, and

(ii) from DIRT as respects interest earned by a deposit held by the trust.

Are chargeable gains accruing to a life assurance company taxable?

(6) Chargeable gains accruing to a life assurance company on the disposal of units in an assurance linked unit trust which it administers are exempt, provided the trustees are resident and ordinarily resident in the State and the units never become the property of the policyholder.

The tax exempt status of unitholders in life assurance linked funds (section 734) does not apply to funds which are exempt under this subsection. In other words, such a fund cannot be simultaneously exempt at the level of the fund and at the level of the unitholder (section 735).

How are gains chargeable on assets acquired before 6 April 1994?

(7) From 6 April 1994, gains arising on a disposal of units in a unit trust that has only invested in exempt assets (for example, government securities) are chargeable, based on their growth since that date.

Gains accrued on exempt assets acquired before 6 April 1994 and held throughout 1993-94, if the unit trust is not an undertaking for collective investment that began trading after 24 May 1993, are treated as arising on 6 April 1994. The exemption stops from that date.

If in calculating the chargeable gain on a post-6 April 1994 disposal of such units, the market valuation on 6 April 1994 produces a higher gain than the actual gain, the gain is restricted to the actual gain. Similarly, if the market value rule produces a larger loss than the actual loss, the loss is restricted to the actual loss.

If the market value rules have the effect of converting a gain to a loss, or vice versa, the transaction is treated as giving rise to no gain/no loss.

Government securities are non-chargeable assets, i.e., their disposal is exempt from capital gains tax.

Up to 6 April 1994, a company could avoid the full corporation tax rate (40%) on deposit interest income by buying units in a unit trust that would place the money on deposit in “corporate money bonds”. The unit trust would pay 27% income tax on the interest, and the company would pay no tax, thus saving the difference between 40% and 27% tax on the interest income. The interest would be added to the capital and the investor would extract a capital return after several years. The capital gain would be exempt on the basis that the unit trust’s underlying assets (government stocks) were exempt.

Gains accruing to a unitholder on the disposal of units consisting of government securities were also exempt (in the case of corporate unitholders) from corporation tax up to 31 August 1993. Gains on or after that date are chargeable to corporation tax.

By way of transitional relief, gains realised between 1 September 1993 and 5 April 1994 continue to be exempt if the unit trust is wholly invested in government securities. After 6 April 1994, the capital growth of such corporate bonds is fully taxed.

Section 732 Special arrangements for qualifying unit trusts

This section does not apply in relation to collective investment undertakings: section 734(7).

What definitions apply in relation to special arrangements for qualifying unit trusts?

(1) Securities includes government stocks and semi-State securities that are exempt from capital gains tax (section 607) as well as shares and bonds of any government, local authority or company.

Quoted securities are securities that have been quoted on a stock exchange within the previous six years.

What is a “qualifying unit trust”?

(2) A qualifying unit trust is a unit trust:

(a) that is registered under the Unit Trusts Act, 1972,

(b) the trustees of which are resident and ordinarily resident in the State,

(c) the unit prices of which are regularly published by the unit managers,

(d) the units of which are all of equal value carrying the same rights, and

(e) that meets the conditions listed in (6).

Qualifying units are units in a qualifying unit trust.

What tax rate applies to gains of a qualifying unit trust?

(3) Chargeable gains accruing to a qualifying unit trust are taxed at half the normal capital gains tax rate.

What tax rate applies to gains on the disposal of qualifying units?

(4) Chargeable gains arising on the disposal of qualifying units are also taxed at half the normal capital gains tax rate.

How are chargeable gains on disposals of qualifying units taxed where a company also made other disposals?

(5) Chargeable gains accruing to a company on the disposal of qualifying units are also taxed at a corporation tax rate equivalent to half the normal capital gains tax rate. This is achieved by reducing the corporation tax on the gains by half.

Where a company disposed of qualifying units and made other disposals in an accounting period, the effective reduction in corporation tax is rateably apportioned between the disposal of qualifying units and the other disposals.

What conditions apply to a qualifying unit trust?

(6) To be regarded as a qualifying unit trust, a unit trust must also meet the following conditions:

(a) Not less than 80% of the units must be held by the general public (i.e., following a public offering).

(b) There must be not less than 50 unitholders and no unitholder may hold (either alone or through connected persons) more than 5% of the units in issue at any one time.

(c) Not less than 80% of the value of the trust assets must derive from quoted securities (see (1)).

(d) The unit trust must not invest more than 15% of its funds in any one company.

What time limits apply for these conditions to be satisfied?

(7) A unit trust fund that was registered before 6 April 1976 had until 6 April 1978 to meet these conditions. A unit trust fund registered after 6 April 1976 must meet the conditions within two years of its registration.

Section 733 Reorganisation of units in unit trust scheme

What are the consequences of a reorganisation of units in a unit trust?

(1) When a unit trust reorganises or reduces its unit holdings a unitholder will have a new holding of units that stands in place of the original units.

The new holdings are generally held in the same proportion as the old holdings. The unit trust has the same amount of investment, but its ownership is spread over a larger or smaller number of units.

Is a unitholder treated as making a disposal of units where there is a reorganisation or reduction of holdings?

(2) When a unit trust or an undertaking for collective investment reorganises or reduces its holdings a unitholder is not treated as having disposed of his/her original units. The new units stand in place of the old units, and he/she is treated as having acquired the new units when the old units were acquired.

This rule does not apply if the new units are exempt, i.e., if the reorganisation is used to switch investment from chargeable units to exempt units.

What share identification rules apply to reorganisations of unit trust holdings?

(3) This section applies the share-for-share identification rules (section 584) to reorganisations of unit trust holdings so that the new units are identified with old units. The rules do not apply to unit trust reorganisations involving conversion of securities into shares (section 585), or to company amalgamations by exchange of shares (section 586).

Section 734 Taxation of collective investment undertakings

What is a collective investment undertaking?

(1) The term chargeable period is used to describe both a company’s accounting period and the tax year of an individual (or person other than a company). In such a case, the chargeable period related to expenditure means the tax year’s basis period and not the tax year.

Where two basis period overlap, the overlap belongs to the first basis period. If two basis periods coincide, or if one basis period is wholly included inside the other, the periods overlap. If there is a gap between two basis periods, the interval belongs to the second basis period.

A unit is an investment in a collective investment undertaking which entitles the investor (the unitholder) to share in the profits or receive a distribution from the undertaking.

A collective investment undertaking means:

(a) An authorised unit trust scheme (within the meaning of the Units Trust Act 1990).

(b) Any other undertaking for collective investment in transferable securities (UCITS) that has been authorised under the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 1989 (SI 78/1989).

(c) A limited partnership, whose principal business is investing funds in property, that has been authorised by the Central Bank to carry on such business, and which is also a specified collective investment undertaking.

(d) An authorised investment company (within the Companies Act 1990 Part XIII) that:

(i) has been designated as an investment company that may raise money by selling its shares to the public, or

(ii) is a specified collective investment undertaking, all of the non-resident investors of which are collective investors, and none of which are a qualified company.

A collective investment undertaking includes a specified collective investment undertaking that is a company limited by shares or by guarantee and it includes an ICAV (Irish Collective Asset-management Vahicle)..

A relevant payment is a payment (other than a payment to cancel, redeem or repurchase the unit) from a collective investment undertaking to a unitholder in respect of the holder’s rights. Tax must be withheld from a relevant payment made to an Irish resident unitholder.

A collective investment undertaking’s relevant income is the income, profits or gains used to make relevant payments to unitholders, or which are to be accumulated for the benefit of, or invested on behalf of, those unitholders. Such income, profits or gains is only relevant income if it would be taxed in the hands of an individual resident in the State.

Undistributed relevant income is relevant income of a collective investment undertaking which remains unpaid to the unitholders at the end of an accounting period.

Relevant gains are capital gains accruing to a collective investment undertaking that would be chargeable in the hands of a person resident in the State.

A collective investment undertaking’s relevant profits means the total of its relevant income and relevant gains.

Appropriate tax is the total retention tax which the collective investment undertaking must deduct at the standard rate of income tax from relevant payments made to the Irish resident unitholders, or pay on undistributed relevant income at the end of the accounting period. Retention tax on a relevant payment in the current accounting period is not charged if it has already been counted as tax included in undistributed relevant income of a previous accounting period.

A collective investor means a life assurance company, pension fund or other investor who invests in an authorised investment company (within the Companies Act 1990 Part XIII) primarily for the benefit of 50 or more persons who contribute to the investment. None of the contributors may contribute more than 5% of the investment, and the majority of the contributors must be saving/investing rather than seeking risk protection.

A specified collective investment undertaking (SCIU) is an undertaking that carries on most of its business in the IFSC or Shannon, either directly or through a qualifying management company, i.e., a 10%-taxed Shannon or IFSC company (a qualified company) that manages an undertaking’s investment and business activities.

Nevertheless, an undertaking may qualify as a specified collective investment undertaking if circumstances beyond its control currently prevent it from locating in the IFSC, provided it trades there when those circumstances are gone.

In addition, the units (apart from units held by the undertaking itself, another specified collective investment undertaking, a qualifying management company, or a specified company) must all be held by non-residents.

A specified company is a 10%-taxed Shannon or IFSC company (a qualified company) the share capital of which:

(a) is at least 75% owed by non-residents, or

(b) is wholly owned by a company the share capital of which is 75% owned by non-residents.

A specified collective investment undertaking also includes a 100% subsidiary that is owned to limit, for the unitholders’ benefit, the undertaking’s liability in respect of financial futures or options contracts. The subsidiary must trade in the IFSC or Shannon area.

Although certificates entitling Shannon or IFSC based management companies to the 10% expired on 31 December 2005, the company remains tax transparent, i.e., the income will remain taxed at the level of the unitholder after that date. In other words, the non-resident unitholders continue to pay no tax.

Tax need not be withheld from payments made to an SCIU’s non-resident unitholders.

The abolition of Shannon (section 445) and IFSC (section 446) relief does not disentitle claimants to any relief obtained.

A Lloyd’s syndicate is regarded as a non-resident investor. There is no “look through” to the individual Lloyd’s “name”. Therefore, the fact that a syndicate member is resident in Ireland for tax purposes does not prejudice the tax-exempt status of the fund (Revenue Precedent 5019/96, 15 February 1996).

The holding of units by an Irish resident nominee company on behalf of non-residents does not prejudice the tax-exempt status of the fund, provided:

(a) The nominee company is in the business of holding shares in a nominee capacity, and

(b) advance approval is received from Revenue (Revenue Precedent 1579/89).

The takeover by an SCIU of a foreign fund with Irish resident investors does not prejudice the tax-exempt status of the SCIU, provided the Irish investors are removed from the fund within three months of the takeover date (Revenue Precedent 2577/93, 19 April 1996).

What happens where relevant profits are not fully distributed to unitholders?

(2) Where relevant profits are not fully paid to the unitholders (i.e., where some of those profits are undistributed), withholding tax is attributed to the part of the profits paid to the unitholders in the same proportion as the payment to the unitholders bears to the relevant profits.

A relevant payment to a unitholder means the gross payment, i.e., the net payment together with the withholding tax deducted in arriving at that net payment.

Are a collective investment undertaking’s profits taxed at the unitholder level?

(3) A collective investment undertaking’s relevant profits are taxed at the level of the unitholder if the unitholder is chargeable on that income (i.e., if resident in the State) and as if the income had arisen directly to him/her.

Apart from withholding tax (see (5)), no tax is to be charged on the undertaking.

Tax transparency means that the tax system “looks through” the undertaking and taxes the unitholder on his/her share of the income and gains, giving a tax credit for withholding tax deducted from payments made to him/her by the undertaking.

This means that a unitholder may claim tax reliefs, credits and exemptions against the income that flows through from the undertaking. It also means that non-resident unitholders are not liable to Irish tax on the income they receive from the undertaking.

How is a unitholder taxed?

(4) The unitholder, is charged to tax under Schedule D Case IV on the gross payment (before withholding tax) for the year in which the payment is made to her/him by the undertaking.

Where a unitholder receives a capital payment from the undertaking, she/he is treated as having disposed of units in return for the payment. The capital receipt is therefore chargeable to capital gains tax in the hands of the unitholder.

The capital gain may qualify for indexation relief and the annual capital gains tax exemption may be set against the gain.

When must a collective investment undertaking deduct withholding tax?

(5) A collective investment undertaking must deduct withholding tax at the standard rate of income tax from relevant payments made to the Irish resident unitholders, or from undistributed relevant income at the end of the accounting period.

A unitholder must allow the tax to be deducted. When the undertaking pays the net amount (after deducting withholding tax) to the unitholder, it is treated as if it had paid the full gross amount and is therefore acquitted of the debt to her/him.

More detailed administrative rules for withholding tax are contained in Schedule 18.

A specified collective investment undertaking need not operate withholding tax (as all of its unitholders are non-resident).

Because the payee must allow the deduction, he/she cannot sue the payer for breach of contract.

How is withholding tax deducted by a collective investment undertaking dealt with?

(6) A non-resident unitholder is entitled to repayment of withholding tax deducted by a collective investment undertaking.

A resident unitholder is entitled to offset withholding tax deducted against his/her tax liability on the payment made to him/her by the undertaking. If the tax withheld exceeds his/her tax liability on the payment made, he/she is entitled to repayment of the excess.

Where a calculation of withholding tax to be deducted requires an apportionment (see (2)), the inspector, or on appeal the Appeal Commissioners, must justly and reasonably determine the amount due to the unitholder.

An apportionment might be required where tax withheld relates to a payment that is part income and part capital and therefore relates to an income tax assessment and a capital gains tax assessment.

Is the CGT rate reduced for qualifying unit trust gains of collective investment undertakings?

(7) The reduction in the capital gains tax rate to half the normal rate (section 732) does not apply on or after 6 April 1990 for chargeable gains accruing to a qualifying unit trust (or on the disposal of units in such a trust) which is a collective investment undertaking (but not a specified collective investment undertaking).

The reduction does not apply on or after 24 May 1989 for chargeable gains accruing to a qualifying unit trust (or on the disposal of units in such a trust) which is a specified collective investment undertaking.

Does the surcharge on undistributed trust income apply to collective investment undertakings?

(8) No.

Are relevant payments to a unitholder treated as a distribution?

(9) A relevant payment to a unitholder by a collective investment undertaking that is a company is not to be treated as a distribution. The surcharge on undistributed investment and estate income of a company (section 440) does not apply to a company that is a collective investment undertaking.

Can a non-resident be assessed in the name of an agent?

(10) A non-resident who receives a payment from a collective investment undertaking is not taxed (under section 1034) on the basis that the undertaking is her/his “agent” in the State.

This is a reassurance to wary foreign investors that they will not be taxed in another manner.

Is a non-resident investors in an IFSC managed investment limited partnership fund treated as resident?

(11) A non-resident investor is not treated as resident in the State merely because of participation in an investment limited partnership fund managed in the IFSC.

From what date do these rules apply?

(12) These rules apply from 24 May 1989 for specified collective investment undertakings, and from 6 April 1990 (or, by agreement with Revenue, as far back as 6 April 1989) for other collective investment undertakings.

Section 735 Certain unit trusts not to be collective investment undertakings

This section preserves the capital gains tax charge on assurance linked unit trusts (wholly owned by life companies)

When are certain unit trusts not collective investment undertakings?

(1) Under section 734, authorised (or registered) unit trusts (being collective investment undertakings) are exempt on the disposal of their assets. Gains arising to a collective investment undertaking are taxed on the unitholders.

Where the units in such a unit trust scheme are owned by a life assurance company (to fund the value of its “unit linked” life policies), section 734 exempts any gain arising to the unit trust on its disposal of its assets.

At the same time, section 732 exempts any gain arising to the unitholder (the life assurance company) on a disposal of its units.

In other words, there would be no capital gains tax charge at the level of the unit trust or at the level of the unitholder.

Is a unit trust that is a life assurance linked fund exempt at the unit trust level?

(2) A unit trust that is a life assurance linked fund is not to be exempt at the level of the unit trust.

Section 736 Option for non-application of section 735

Amendments

Section 736 spent since 31st March 1992

Section 737 Special investment schemes

Amendments

This section is now spent.

A Special Savings Account (SSA) was a savings account to which the government added a contribution. The account had to be opened before 2002 and held for a minimum five year period.

Section 738 Undertakings for collective investment

What definitions apply regarding undertakings for collective investment?

(1) The term chargeable period is used to describe both a company’s accounting period and the tax year of an individual (or person other than a company). In such a case, the chargeable period means the tax year’s basis period and not the tax year.

A unit is an investment in a undertaking for collective investment which entitles the investor (the unitholder) to share in the profits or receive a distribution from the undertaking.

An undertaking for collective investment means:

(a) An authorised unit trust scheme (within the meaning of the Unit Trusts Act 1990) but not a special investment scheme, or unit trust wholly owned by a pension fund or charity. This means that unit trusts wholly owned by a pension fund or charity do not pay tax at the level of the unit trust and are exempt at the level of the unitholder.

(b) Any other undertaking for collective investment in transferable securities (UCITS) that has been authorised under the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 1989 (SI 78/1989).

(c) An authorised investment company (within Companies Act 1990 Part XIII) that has been designated as an investment company that may raise money by selling its shares to the public.

An undertaking for collective investment does not include a specified collective investment undertaking (section 734(1)) or an offshore fund (section 743).

A designated undertaking for collective investment is one for which the price it paid (using market value rules) for land or unquoted shares in an Irish resident company (designated assets) it owned on 25 May 1993 represented at least 80% of the total paid for all of the undertaking’s assets on that date.

A guaranteed undertaking for collective investment is one that will make a single payment on a specified date to the unitholders in cancellation of their units. That payment will comprise a minimum guaranteed return, and an additional return (which may be nil) based on the performance of a stock exchange.

A reference to an undertaking for collective investment includes a reference to its management company or trustee. This is to save referring to these throughout the section.

Where an accounting period of an undertaking for collective investment that is a company straddles 5 April 1994, it must be split into two accounting periods (one ending on that date and one ending after). This is so that payment of withholding tax due by the company as a collective investment undertaking under the preceding regime (see notes to this Chapter heading) is not delayed after 6 April 1994.

Income is not apportioned into the two separate accounting periods on the time basis, i.e., based on the number of days in the accounting periods before and after 5 April 1994. Instead, to preserve the tax charge for any withholding tax due, income is attributed to the separate accounting period in which it arose, and gains are to be attributed to the separate accounting period in which the assets were disposed of. Nevertheless, income derived from “bond washing” (section 815) may continue to be apportioned on a time basis.

What tax rules apply to undertakings for collective investments?

(2)(a) The rules that applied to collective investment undertakings (section 734, apart from section 734(7)-(9)) do not apply to undertakings for collective investment (that are also collective investment undertakings) for chargeable periods ending on or after 6 April 1994.

(b) In the case of a corporate undertaking, for chargeable periods beginning on or after 8 February 2012, corporation tax is to be computed as if the rate of corporation tax were 30%. An accounting period that straddles 8 February 2012 is to be divided into two periods, one ending on 7 February 2012 with the profits for that period being taxed at 20%, and the other beginning on 8 February 2012.

(c) Company chargeable gains are to be grossed up at the rate mentioned in (2), i.e., 30%.

(d) From 1 January 2012, in the case of a non-corporate undertaking, income and gains are to be charged in a way that ensures an effective tax rate of 30%. This is reduced to 20% for the period 1 January 2012 to 7 February 2012.

The 30% rate applies to realised and unrealised income and gains of the undertaking. Unrealised gains do not escape tax on the basis that they cannot be paid to, or accumulated on behalf of, the unitholders.

How is franked investment income and deposit interest taxed on an undertaking for collective investment?

(3) Distributions received from Irish resident companies (franked investment income) by an undertaking for collective investment that is a company are liable to corporation tax.

Deposits held by an undertaking that is not a company are exempt from deposit interest retention tax.

What specific rules apply in taxing undertakings for collective investment?

(4) The following rules apply in taxing undertakings for collective investment:

(a) On the last day of each chargeable period, the undertaking for collective investment is deemed to have disposed of and immediately re-acquired its assets at market value on that day.

This deemed disposal and re-acquisition rule does not apply to:

(i) strips (section 55), or

(ii) Irish government and semi-State securities (section 607) except, from 26 March 1997, such securities held under a swap arrangement.

(b) The undertaking must spread over seven years the net gains (or losses) arising on the annual deemed disposal and re-acquisition of its assets. In the current period (the base period) it need only include one-seventh of the gains.

A further one-seventh of the net gains (or losses) is to be included in each succeeding accounting period after the base period until the full amount has been deducted.

(c) For an accounting period shorter than one year, the one-seventh of the gains to be included is proportionately scaled back for that year.

(d) If the undertaking ceases to trade (for example, in the eighth succeeding accounting period) and the one-seventh of the gains to be included is less than the full amount which must be accounted for, only the unaccounted balance need be included (not the entire one-seventh).

(e) This is an anti-avoidance provision. Unrealised gains and losses on the annual deemed disposal of assets are spread over seven years (see (b)). However, if a loss is realised on the actual (not deemed) sale of an asset (for example, in year two of the seven year period), part of that loss (which could otherwise be immediately offset) must be spread forward over seven years.

The part of the loss which must be spread forward is that part of the loss which exceeds the loss on the actual cost of re-acquisition, ignoring deemed reacquisitions.

See also: Inspector Manual 27.1.2.

What computational rules apply in calculating gains on the deemed disposal and reacquisition?

(5) In calculating gains on the deemed disposal and re-acquisition of the amounts of the undertaking (see (4)):

(a) no indexation for inflation is permitted (section 556),

(b) gains arising on gilts (exempt government and semi-State securities) are not exempt under section 607, i.e., they must be included.

Under the capital gains tax “bed and breakfast” rules (section 581), the First In First Out (FIFO) share identification rule does not apply. Shares disposed of are to be identified with shares acquired within the four weeks preceding the disposal, i.e., a Last In First Out (LIFO) basis applies.

Furthermore, a loss generated by a disposal and re-acquisition within the same four week period may not be off set against other chargeable gains. It may only be off set against any chargeable gain arising on the disposal of the re-acquired shares.

This four week rule continues to apply as if the annual deemed disposal and re-acquisition rules (section 719) and the related withdrawal of exemption on disposals of gilts ((4)(a) above) had not been enacted. In other words, this rule, which “ring-fences” losses against gains on the re-acquired shares, does not prevent a loss, if any, arising on the annual deemed disposal and re-acquisition from being offset against other gains, nor will LIFO apply by reference to such transactions.

An undertaking for collective investment that was carrying on business as a collective investment undertaking on 25 May 1993 is deemed to have disposed of and immediately reacquired all of its assets (apart from gilts) at market value on 5 April 1994.

How is a capital loss which arises on the deemed disposal and reacquisition used?

(6) If the annual deemed disposal and re-acquisition of an undertaking’s assets results in a capital loss (an excess of allowable losses over chargeable gains), that loss is ignored for capital gains tax purposes but may be set againstincome of the undertaking chargeable to income tax or corporation tax in that period. Any unused balance may be carried forward for set off against chargeable gains in the next year.

What tax rules apply where an undertaking buys securities “cum div” and sells “ex div” in the next period?

(7) If an undertaking buys securities “cum div” (with the right to the next interest payment) in the current period and sells them “ex div” (retaining the right to the next interest payment) in the next period, the part of the capital loss equal to the appropriate amount in respect of the interest is disallowed in the current period but allowed in the following period.

How are the unitholders taxed on income and gains?

(8) Because the undertaking is taxed at the level of the unit trust, the unitholders (apart from corporate investors, undersection 739) are not taxed on the income they receive from the undertaking, or gains they receive on the disposal of scheme units and accordingly are not entitled to any credits for tax paid by the undertaking.

What transitional provisions apply in relation to undertakings for collective investment?

(9) This transitional provision allows a designated undertaking for collective investment or a guaranteed undertaking for collective investment (see (1)) to defer the effective date for taxation at source at the standard rate of income tax from 6 April 1994 to 6 April 1998.

The deferral is withdrawn if, before 5 April 1997, the designated undertaking fails to retain at least 80% of its assets in land or unquoted shares or if the guaranteed undertaking makes a payment to its unitholders (other than one cancelling the units). The withdrawal is made on the 5th day of April following the failure or payment.

Section 739 Taxation of unit holders in undertakings for collective investment

How is an investment return from an undertaking for collective investment taxed?

(1) An investment return paid in money or non-cash consideration by an undertaking for collective investment to an individual (i.e., a non-corporate investor) chargeable to income tax is tax-free in the hands of the investor.

An investment return to a corporate investor is chargeable to corporation tax under Schedule D Case IV as if 30% income tax had been deducted from the payment.

What computational rules apply in relation to a payment?

(2) A company that holds units in the course of a (financial) trade, is chargeable to corporation tax under Schedule D Case I on the gross income from the units.

Trading payments taxed under this subsection are not also taxed under (1).

The gross income is calculated by treating the income as received after 30% income tax been deducted.

In computing the income attributable to a payment:

(i) If the payment arises on a chargeable gain (i.e., derives from a disposal, cancellation, redemption or repurchase of units) only the net payment is included.

(ii) The cost of the units may be deducted in computing the gain, i.e., only the net gain is to be regrossed.

(iii) Market value as at 6 April 1994 is substituted for cost in the case of units acquired before that date by an undertaking that was in business on 25 May 1993.

(iv) The capital gains tax market value rules (section 548) also apply to determine the value of units acquired at less than market value.

(v) If units are sold from a block of similar units acquired on different dates, the capital gains tax share identification rules (section 580) determine which acquired units are now being sold.

The standard rate income tax deducted by the undertaking fully discharges the liability of non-corporate investors, but may only be credited against a company’s ultimate liability (which is at the appropriate corporation tax rate) on that income.

Is an individual subject to tax on a disposal of units?

(3) A gain accruing on a disposal of units in an undertaking for collective investment by an individual (i.e. a non-corporate investor) is ignored.

If, in calculating the chargeable gain on a post-6 April 1994 disposal of such units, the market valuation on 6 April 1994 produces a higher gain than the actual gain, the gain is restricted to the actual gain. Similarly, if the market value rule produces a larger loss than the actual loss, the loss is restricted to the actual loss.

If the market value rules have the effect of converting a gain to a loss, or vice versa, the transaction is treated as giving rise to no gain/no loss.

Is a company subject to tax on a disposal of units?

(4) A company is chargeable to corporation tax on a gain accruing on a disposal of units as if the gain were a net amount after deducting capital gains tax tax at 30%. The amount of the gross up may be credited against the corporation tax liability, with any unused excess being repaid. A gain on units bought before 6 April 1994 is calculated using the units’ market value on that date.

Losses may not be regrossed in the same manner as disposals of units.

What tax rules apply to disposals of units acquired under no gain, no loss circumstances?

(5) On a disposal of units acquired on or after 6 April 1994 under circumstances that no gain/no loss arose on the transaction, the person making the disposal is entitled to take the previous owner’s date and cost of acquiring the units.

Where the previous owner acquired the units under similar circumstances, the new owner may take the previous owner’s date and cost of acquisition.

For example, where the units were transferred from a husband to a wife at no gain/no loss, on a later disposal, the wife is entitled to the husband’s acquisition cost (section 1028(5)).

A predecessor’s date and cost of acquisition is also relevant in the case of a share-for-share exchange on a company reorganisation or reconstruction transaction that is treated as giving rise to no gain/no loss (sections 584587).

What rules apply to an undertaking that began in business after 25 May 1993?

(6) In the case of an undertaking that began in business after 25 May 1993, the transitional rules in (1)-(4) do not apply.

An individual (non-corporate) unitholder, in such an undertaking, is not chargeable to tax on income or gains derived from units. A corporate unitholder is liable at the corporation tax rate, subject to a credit at the standard rate of income tax.

Section 739A Reorganisation of undertakings for collective investment

Does a chargeable gain arise where undertakings for collective investment exchange shares for units in the other?

(1) No chargeable gain arises where an undertaking for collective investment (section 738(1)) transfers assets to another such undertaking in exchange for units in that other undertaking.

Do deemed disposal rules apply to an undertaking for collective investment?

(2) An undertaking for collective investment is deemed to have disposed of and immediately re-acquired its assets at market value on the last day of each chargeable period (section 738(4)(a)(i)).

In computing the gain on the annual deemed disposal, the consideration paid for units acquired by transfer of assets in exchange for units in another undertaking is taken to be:

(a) the value of the transferred assets at the time of the most recent annual deemed disposal and re-acquisition, or

(b) the cost of the transferred assets (where the assets where acquired after the most recent deemed disposal and re-acquisition).

Section 739B Interpretation and application

What definitions apply in relation to investment undertakings?

(1) This Chapter imposes an exit tax when an investment in an investment undertaking (fund) produces a return for you as the investor (unitholder), i.e., when a chargeable event occurs:

(a) The investment undertaking makes a relevant payment, i.e., a payment (annually or more frequently, other than a payment to cancel, redeem or repurchase the unit) to you by reason of rights arising from your holding of units.

(b) The investment undertaking makes any other payment (including a payment to cancel, redeem or repurchase the unit) to you, but this does not include a payment on your death.

(c) You transfer or sell your holding of units in the undertaking, but this does not include a transfer resulting from your death.

(cc) You appropriate or cancel units to meet appropriate tax payable on an gain resulting from a transfer or sale within (c).

(ccc) A relevant period ends, i.e., the eight year period beginning with the acquisition of the units ends. A relevant period also ends on each subsequent eighth anniversary.

(d) An investment undertaking which began in business on or after 1 April 2000, or which was on 31 March 2000 a specified collective investment undertaking (see below), is deemed to have a chargeable event on 31 December 2000 in respect of all of its unit holders.

A chargeable event does not include:

(I) an exchange of units in one sub-fund of an umbrella scheme investment undertaking for units in a sub-fund of the same undertaking,

(II) an arm’s length exchange of units in an undertaking for other units in the same undertaking,

(IIa) a transaction which arises only due to a change of court funds manager,

(III) any transaction relating to, or in respect of, units held in a recognised clearing system,

(IV) a transfer of units:

(A) between husband and wife,

(B) between (ex) spouses in accordance with a court decree granting their divorce,

(C) between (ex) spouses in accordance with a court decree facilitating their judicial separation, or

(D) between (ex) spouses in accordance with a decree of a foreign court which is entitled to be recognised as valid in Ireland, and which grants their divorce or facilitates their legal separation;

in a case within (A)-(D), the transferee takes the transferor’s acquisition cost.

A unit is an investment in an investment undertaking which entitles you as the investor (the unitholder) to share in the profits or to receive a distribution from the undertaking.

An investment undertaking means:

(a) a unit trust scheme which holds an up to date valid authorisation under the Unit Trusts Act 1990, and which is not:

(i) exempt under section 731(5)(a), or

(ii) a special investment scheme (section 737),

(b) any other undertaking for collective investment in transferable securities (UCITS) that has been authorised under the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 1989(the relevant Regulations),

(c) an investment company which holds an up to date valid authorisation under the Companies Act 1990 Part XIII that:

(i) has been designated as an investment company that may raise money by selling its shares to the public, or

(ii) all of the shareholders of which are collective investors,

which is not an offshore fund (section 743).

An investment undertaking also includes you where you are a company which is not an offshore fund (section 743) and which:

(a) is limited by shares or guarantee and is wholly owned by the investment undertaking or its trustees, for the benefit of its unitholders,

(b) is owned solely to limit the liability of the undertaking in respect of futures contracts, options and other risky financial instruments, by enabling dealing in such instruments to be made through the company.

A collective investor means a life assurance company, pension fund or other investor who invests in an authorised investment company (see above) primarily for the benefit of 50 or more persons who contribute to the collective investment. None of the contributors may contribute more than 5% of the investment, and the majority of the contributors must be saving/investing rather than seeking risk protection.

An investment undertaking’s relevant income is the income, profits or gains used to make relevant payments to unitholders, or which are to be accumulated for the benefit of, or invested on behalf of, those unitholders. Such income, profits or gains is only relevant income if it would be taxed as income in the hands of an individual resident in the State.

Relevant gains are capital gains accruing to a collective investment undertaking that would be chargeable in the hands of a person resident in the State, if the assets in question where chargeable and no exemption from capital gains tax applied.

A collective investment undertaking’s relevant profits means the total of its relevant income and relevant gains.

A money market fund is an investment undertaking established under European Central Bank legislation of 21 November 2001.

A specified collective investment undertaking (SCIU) is an undertaking that carries on most of its business in the IFSC or Shannon. A qualifying management company is a company which, as part of a trade of managing investments, manages an undertaking’s investment activities.

Nevertheless, an undertaking may qualify as a specified collective investment undertaking if circumstances beyond its control currently prevent it from locating in the IFSC, provided it trades there when those circumstances are gone.

In addition, the units (apart from units held by the undertaking itself, another specified collective investment undertaking, a qualifying management company, or a specified company) must all be held by non-residents.

A specified company is a 10%-taxed Shannon or IFSC company (a qualified company) the share capital of which:

(a) is at least 75% owed by non-residents, or

(b) is wholly owned by a company the share capital of which is 75% owned by non-residents.

The new definition of investment undertaking covers both:

(a) the type of domestic investment undertaking (an undertaking for collective investment: section 738) already subject to retention tax at the level of the fund (section 739), and

(b) the type of investment undertaking which deals exclusively with non-residents (a specified collective investment undertaking: section 734).

What is the meaning of a “recognised clearing system”?

(1A) A recognised clearing system means one listed in section 246A, and includes any other security-clearing system which Revenue have designated as a recognised clearing system.

Revenue may by order designate one or more security-clearing system as a recognised clearing system. Such an order may contain any necessary transitional measures and may be varied or revoked by a subsequent order.

Who is included in the definition of an investment undertaking?

(2) An investment undertaking includes a trustee, management company or other person who is authorised to act on behalf of the undertaking and who habitually does so. They are included only to the extent that their inclusion brings into account matters that would not otherwise be brought into account. They are not liable in any personal capacity for tax imposed in the investment undertaking.

What tax rules apply where money under Court control is used to acquire relevant units?

(2A) Where money under Court control is used to acquire relevant units in an investment undertaking, the Courts service (the Service):

(a) is obliged to deduct exit tax and pay that tax over to the Collector-General (section 739E), on a self-assessment basis (section 739F), and

(b) is subject to inspection by Revenue (section 904D).

The Service must, on or before 28 February in any year, make an electronic return in the approved format in respect of the previous tax year, stating:

(a) the total gains arising to the investment undertaking in respect of the relevant units,

(b) for each beneficial owner of units in the undertaking:

(i) the owner’s name and address,

(ii) the total gains to which that person is beneficially entitled, and

(iii) any other information Revenue might reasonably require.

To whom does the new retention tax regime for investment undertakings apply?

(3) The new retention tax regime for investment undertakings described in this Chapter applies:

(a) in the case of SCIUs in existence on 31 March 2000, from 1 April 2000,

(b) in the case of an investment undertaking which first issued units on or after 1 April 2000, from the issue date, or

(c) in the case of an unit trust which is exempt at the level of the fund because all of the units are held by a body which is exempt from capital gains tax, for example, a charity (section 731(5)(a)).

What other tax rules apply to an investment company subject to the retention tax regime?

(4) An investment undertaking which is subject to the retention tax regime in this Chapter is not regarded as a collective investment undertaking (section 734), or an undertaking for collective investment (section 738), a unit holder is not subject to the retention tax imposed on unit holders in an undertaking for collective investment (section 739).

Are there rules which supplement this Chapter?

(5) The rules in Schedule 2B also apply for the purposes of the new retention tax on investment undertakings.

What type of unitholder is treated as entitled to the units held?

(6) The following type of unitholder in an investment undertaking is treated as entitled to the units so held:

(a) an investment undertaking,

(b) a special investment scheme (section 737),

(c) a unit trust which is exempt under section 731(5)(a).

Section 739BA Personal portfolio investment undertaking

What definitions are relevant for personal portfolio investment undertakings?

(1) This section defines a personal portfolio investment undertaking; this definition is then used in sections 739D, 747Dand 747E to ensure that gains arising from offshore funds within this definition are taxed at that standard rate plus 23%, i.e., 43%. In this regard, an investor is defined as a unit holder in an investment undertaking or an individual with a material interest in an offshore fund.

How is “personal portfolio investment undertaking” defined?

(2) A personal portfolio investment undertaking is defined as an investment undertaking or an offshore fund in which the selection of the underlying property was influenced by the investor, a person acting on his/her behalf or a person connected (section 10) with him/her.

When is an investor regarded as having the ability to influence the selection of property?

(3) If:

(a) the investor is given an option to exercise such influence, the undertaking or fund has discretion to offer any person the right to select the underlying property, or the investors can collectively change the existing selection terms so that any investor may subsequently make the selection, or

(b) the investor cannot select the underlying property but can appoint an investment advisor who will do so,

he/she is regarded as having such influence.

When is an investment undertaking or offshore fund not treated as a personal portfolio investment undertaking?

(4) An investment undertaking or an offshore fund is not treated as a personal portfolio investment undertaking if it meets the conditions in (5) and (6).

Must the opportunity be open to the general public?

(5) The condition here is that, at the time the property was available for selection, the opportunity to make the selection was available to to the public through the marketing or promotional literature of the undertaking or offshore fund.

Must all the investors be treated as equal?

(6) Yes. The conditions here are that:

(a) no investor is subjected to terms which are more burdensome than the terms applicable to other investors, and

(b) if 50% or more of the underlying value is derived from land (which includes buildings), no investor can own more than 1% of the investment.

Section 739C Charge to tax

How is an investment undertaking which is subject to the retention tax regime taxed on its profits?

(1) Such an investment undertaking is not liable to tax on its relevant profits (i.e., the relevant income and relevant gains accruing to the undertaking).

Instead, the relevant income and gains are taxed in the hands of the unit holders.

Does the DIRT regime apply to a deposit held by an investment undertaking?

(2) DIRT does not apply to a deposit held by an investment undertaking.

Section 739D Gain arising on a chargeable event

What interpretation rules apply regarding investment undertakings?

(1) In the case of an investment undertaking:

(a) an undertaking is regarded as associated with another undertaking if both undertakings were set up and promoted by the same person,

(b) a reference to an investment in a unit of a fund which has since been exchanged for a unit in another fund, is to be taken as a reference to the amount invested in the original unit,

(bb) a reference to an investment in a unit of a fund which has been exchanged for a unit in another fund, as a consequence of a change of court funds manager, and

(c) a reference to an investment in an SCIU in existence on 31 March 2000 means the amount directly invested by the unit holder to acquire the unit, or in the case of a unit acquired otherwise its value at the time it was acquired.

How is the gain on a chargeable event computed?

(2) The gain arising on a chargeable event is computed as follows:

(a) Where the investment undertaking makes a relevant payment, i.e., a payment (annually or more frequently, other than a payment to cancel, redeem or repurchase the unit) to you as the unit holder, the gain is the amount of the payment.

(b) Where the investment undertaking makes any other non-death payment (including a payment to cancel, redeem or repurchase the unit) to you as the unit holder, the gain is the amount of the payment.

(c) Where the unit is cancelled, redeemed or repurchased the gain is as computed in (3). If the investment undertaking has made the FIFO election in (5), the gain is the amount of the payment reduced by the amount paid to acquire the unit (or its value at the time it was acquired).

(d) Where the unit is transferred, the gain is as computed in (4). If the investment undertaking has made the FIFO election in (5), the gain is the value of the unit at the time of the transfer reduced by the amount paid to acquire the unit (or its value at the time it was acquired).

(dd) Where units are appropriated or cancelled to meet appropriate tax payable on a gain resulting from a transfer or sale within (c), the gain within (5A).

Exit tax must be applied to a deemed disposal (chargeable event) at the end of a relevant period (eight years).

(ddd) On the ending of a relevant period, i.e., the eighth anniversary of the acquisition of the units in the fund (and each subsequent eighth anniversary), the accrued gain on the unit (the excess of the disposal value over its acquisition value).

(e) A “deemed” chargeable event arises on 31 December 2000 in respect of the unit holders in an investment undertaking which began in business on or after 1 April 2000, or which was on 31 March 2000 an SCIU. In such a case, the gain is the value of the unit at on 31 December 2000 reduced by the amount paid to acquire the unit (or its value at the time it was acquired).

How is the gain on a standard chargeable event calculated where there was an earlier eight year deemed disposal event?

(2A) Where a standard chargeable event occurs after an 8 year event, the 8 year event is ignored in calculating the gain.

When the unitholder cancels, redeems or repurchases a unit, how is the gain computed?

(3) The gain arising on the chargeable event is the amount computed by the formula:

P – (C x P)
V

where-

P is the payment received for cancelling, redeeming or repurchasing the unit, before deduction of retention tax (section 739E),

C is the amount invested to acquire the unit, but

(a) in the case of a unit otherwise acquired, it is the value of the unit at the time it was acquired, and

(b) in the case of a deemed chargeable event on 31 December 2000, it is the greater of

(i) the cost of the unit when you first acquired it, and

(ii) the value of the units on 31 December 2000 before deduction of retention tax (section 739E),

V is the total value of the units held by you immediately before the chargeable event.

What happens if a unit is transferred?

(4) Where a unit holder transfers a unit, the gain arising on the chargeable event is the amount computed by the formula:

V1 – (C x V1)
V2

where-

V1 is the value at the time of the transfer of the units transferred, before deduction of retention tax (section 739E),

C is the amount you invested to acquire the unit, but

(a) in the case of a unit otherwise acquired, it is the value of the unit at the time it was acquired, and

(b) in the case of a deemed chargeable event on 31 December 2000, it is the greater of

(i) the cost of the unit when you first acquired it, and

(ii) the value of the units on 31 December 2000 before deduction of retention tax (section 739E),

V2 is the total value of the units you hold immediately before the chargeable event.

Can the FIFO rules apply to an investment undertaking?

(5) An investment undertaking may make an irrevocable election in respect of all of its unit holders to have them treated on a FIFO (First In First Out) basis.

In computing the exit tax arising when you, as a unitholder in an investment undertaking:

(a) cancel, redeem or repurchase a unit (see (2)(c)), or

(b) transfer a unit (see (2)(d)),

if the undertaking treats the units disposed of as coming from the earliest acquired units in the holding, it is deemed to have elected to apply the FIFO rule to all future gains relating to you.

If the undertaking does not apply FIFO to the computation, it is deemed not to have elected for FIFO.

How is the gain on the appropriation or cancellation of units to pay appropriate tax calculated?

(5A) The gain is calculated by the formula shown.

Must a company make any declaration?

(5AA) In order to have the gain computed by the companies formula under subsection 5A the company must make a declaration to the investment undertaking that it is a company and must provide its tax reference number

On what date must an investment undertaking value units for the deemed eight year disposal?

(5B) An investment undertaking may elect (but only in relation to a deemed (eight year) disposal) to value units on 30 June or 31 December prior to the chargeable event.

When is a chargeable event not subject to exit tax?

(6) A chargeable event is not treated as giving rise to a gain and therefore is not subject to exit tax if, before the chargeable event, the investment undertaking receives from the unit holder, the appropriate declaration for:

(a) a pension scheme (Schedule 2B para 2),

(b) a company carrying on life business (section 706, Schedule 2B para 3),

(c) another investment undertaking (Schedule 2B para 4),

(cc) an investment limited partnership (section 739J and Schedule 2B para 4A)

(d) a special investment scheme (Schedule 2B para 5),

(e) an exempt unit trust (section 731(5)(a), Schedule 2B para 6),

(f) an exempt charity (section 207(1)(b), Schedule 2B para 7),

(g) a qualifying management company or a specified company (Schedule 2B para 8),

(h) a qualifying fund manager of an exempt approved retirement fund (section 784A(2)) or a qualifying savings manager (section 848E) (Schedule 2B para 9),

(i) a PRSA (Schedule 2B para 9A),

(j) a credit union (Schedule 2B para 9B),

(k) a company unit holder that is chargeable to tax in respect of a payment to it from an investment undertaking (section 739G) which is a money market fund (section 739B) that has provided its tax reference number to the undertaking (section 885),

(ka) NAMA,

(kb) National Treasury Management Agency,

(m) a securitisation company within the charge to corporation tax (section 110(2)) that has provided its tax reference number to the undertaking (section 885).

Is a non-resident unitholder subject to to exit tax?

(7) A chargeable event is not treated as giving rise to a gain if, before the chargeable event:

(a) the investment undertaking receives the appropriate non-residency declaration for:

(i) a non-resident on acquisition of units (Schedule 2B para 10), or

(ii) a non-corporate person (Schedule 2B para 11), and

(b) does not have any information to suggest that:

(i) the information contained in the declaration is materially incorrect,

(ii) the unitholder has failed to notify the undertaking that she/hs has become resident in the State, or

(iii) the unitholder is resident or ordinarily resident in the State (immediately before the chargeable event).

Does a declaration of exemption from exit tax apply to other units?

(7A) Where an investment undertaking has a declaration from a unitholder (see (6) and (7)(b)) which entitles you as the unitholder to exemption from the exit charge, then that declaration exempts you in relation to any other units acquired in the same undertaking or an associated investment undertaking.

Are non-resident unitholders exempt from exit tax?

(7B) Non-resident unitholders are exempt from exit tax where the investment undertaking has:

(a) put measures in place to ensure the unit holders are non-Irish resident, and

(b) been approved by Revenue where they are satisfied with such measures.

Revenue can withdraw their approval under this section, and may also delegate their powers under this section.

Are there any other chargeable events that escape exit tax?

(8) A chargeable event is not treated as giving rise to a gain, and therefore does not give rise to an exit charge tax for you as a unit holder in the case of an investment undertaking:

(a) which was an SCIU on 31 March 2000, provided

(i) it makes before 30 June 2000 a non-residency declaration to the Collector-General (Schedule 2B para 12) in respect of the unitholder, or

(ii) it provides the Collector-General on or before 1 November 2000 with a list of all unitholders resident in the State who became unitholders before 30 September 2000,

but the declaration does not apply to you as an excepted unit holder who is resident in the State, if

(I) their names are listed in the Schedule to the declaration, and

(II) they are not covered by a declaration mentioned in (6),

or

(b) where the gain is deemed to happen on 31 December 2000 for you as an excepted unit holder.

Does exit tax apply to a disposal of units acquired before 30 September 2000?

(8A) If a disposal of SCIU units acquired before 30 September 2000 is not a chargeable event (i.e. it is exempt from exit tax), then the exemption also applies to other units acquired in the same undertaking or an associated investment undertaking.

When is a chargeable event not treated as giving rise to a gain?

(8B) A chargeable event is not treated as giving rise to a gain, and therefore does not give rise to an exit charge tax for a unit holder in the case of an investment undertaking where:

(a) all of the units in the undertaking are held by a tax-exempt body, for example, a pension fund or charity (section 731(5)(a)),

(b) the units have been held since the formation of the investment undertaking,

(c) the investment undertaking, within 30 days of becoming one, sends a list to the Collector General containing each unit holder’s name and address and any other information that Revenue may reasonably require.

What rules apply in relation to a scheme of amalgamation?

(8C) This rule applies where all of the units in an investment undertaking are held by a tax-exempt body, for example, a pension fund or charity (section 731(5)(a)).

A chargeable event is not treated as giving rise to a gain, and therefore does not give rise to exit charge tax where:

(a) the unit holder exchanges her/his units in one such undertaking for units in another such undertaking under ascheme of amalgamation, and

(b) within 30 days following the amalgamation, the investment undertaking sends a list to the Collector General containing each unit holder’s name and address and any other information that Revenue may reasonably require.

What tax rules apply in relation to a scheme of migration and amalgamation?

(8D) The UCITS IV Directive provides for the cross-border merger of two or more UCITS funds. A chargeable event isnot treated as giving rise to a gain, and therefore does not give rise to exit tax where:

(a) under a scheme of migration and amalgamation, the holder of a material interest in an offshore fundexchanges that interest for units in an investment undertaking (section 739B)) and

(b) within 30 days following the amalgamation, the investment undertaking sends to the inspector or other authorised Revenue officer a written declaration (see (c)) in relation to non-resident holders,

(c) the declaration must state that the undertaking has not, to the best of its knowledge and belief, issued units to Irish residents other than the persons in the schedule to the declaration, and that schedule must list the name and address of each unitholder who was Irish resident at the time of the scheme,

(d) a gain which would escape exit tax on the basis of the declaration mentioned in (b) is caught if, before the event giving rise to the exit tax charge, the undertaking has information suggesting the unitholder is resident in the State.

Are inward migrating investment companies and unit trusts obliged to deduct exit tax from their existing (non-resident) investors?

(8E) An investment company migrating to Ireland may apply to the Central Bank for authorisation to carry on business in the State (Companies Act 1990 section 256F).

A unit trust, migrating to Ireland may also apply to the Central Bank for authorisation to carry on business in the State as an authorised unit trust scheme (Unit Trusts Act 1990) or as a unit trust under the UCITS Regulations (section 739B(1)).

Once authorised by the Central Bank, the investment company/unit trust may make a declaration to Revenue to ensure that exit tax is not deducted from payments to unitholders who are non-Irish resident at the time of migration. However exit tax will be deducted from payments to a non-resident unitholder who later becomes resident in the State.

When is a gain not treated as arising in relation to a non-resident?

(9) A chargeable event is not treated as giving rise to a gain if, before the chargeable event, the investment undertaking or an associated undertaking:

(a) receives the appropriate non-residency declaration for an intermediary (Schedule 2B para 13),

(b) does not have any information to suggest that:

(i) the information contained in the declaration is materially incorrect,

(ii) the intermediary has failed to notify the undertaking that the beneficial owner has become resident in the State, or

(iii) any beneficial owner of the units is resident or ordinarily resident in the State immediately before the chargeable event.

What other declarations allow a chargeable event to be treated as exempt?

(9A) A chargeable event is not treated as giving rise to a gain if, before the chargeable event, the investment undertaking or an associated undertaking:

(a) receives the appropriate declaration for an intermediary (Schedule 2B para 14),

(b) does not have any information to suggest:

(i) the information contained in the declaration is materially incorrect,

(ii) the intermediary has failed to notify the undertaking that the declaration is no longer correct,

(iii) that any of the persons for whom the intermediary holds units of an undertaking (or receives payments from an undertaking) no longer holds the appropriate declaration.

For how long must an investment undertaking retain declarations?

(10) An investment undertaking must keep declarations made to it for six years from the time the unit holder making the declaration ceases to be a unit holder in relation to the investment undertaking, and any associated investment undertakings.

Section 739E Deduction of tax on the occurrence of a chargeable event

What is retention tax (appropriate tax) in relation to an investment undertaking?

(1) Retention tax (appropriate tax) applies at the following rates to the growth in value of an investment undertaking fund:

(a) at the rate of 41% (25% if the unit holder is a company) for the tax year in which the chargeable event (section 739D(2)(a)) occurs,

(b) at the rate of 41% (25% if the unit holder is a company), where the chargeable event (section 739D(2)(b)-(d)) occurs on or after 1 January 2001,

(ba) at 60% where the chargeable event happens on or after 20 February 2007 in relation to a personal portfolio investment undertaking (PPIU – section 739BA), and

(c) at 40%, where the chargeable event (section 739D(2)(b)-(e)) occurs before that date.

Can tax paid on an eight year chargeable event be credited against tax on a “new gain”?

(1A) If tax (first tax) has already been paid on an 8 year chargeable event, such tax may be credited against tax (second tax) calculated on the new gain.

If the final amount due is less than what has already been paid to Revenue, Revenue may refund the excess. This only applies in the case of bona fide chargeable events.

If the percentage of the value of chargeable units is less than 15% of the total units, the investment undertaking may elect in writing to Revenue that any excess tax arising on a deemed disposal be repaid directly to the unit holder by Revenue.

Must a company make any declaration?

(1B) In order to obtain the companies rate a company must make a declaration to the investment undertaking that it is a company and provide its tax reference number.

Who accounts for the retention tax?

(2) An investment undertaking must pay to the Collector-General the retention tax it has deducted (section 739F).

Are there circumstances where an investment undertaking need not apply exit tax?

(2A) An investment undertaking need not apply exit tax to a deemed disposal where the value of chargeable units is less than 10% of the total units provided the undertaking agrees to report details annually to Revenue.

Can an investment undertaking deduct the retention tax from payments made to a unitholder?

(3) An investment undertaking is entitled to deduct retention tax from the growth in value of an investment. Tax is deducted on the making of a payment to a unit holder, the transfer by him/her of entitlement to a unit, or the ending of an (eight year) relevant period.

The unit holder must allow the tax to be deducted.

In paying the net return (after deduction of tax) to you, the investment undertaking is treated as if it had paid the full return to you and is therefore acquitted of the debt to you.

Section 739F Returns and collection of appropriate tax

Where does the legislation specify how retention tax must be paid?

(1) The rules in this section relate to the time and manner in which retention tax deducted by an investment undertaking from returns payable on holdings of units must be accounted for and paid.

What returns must an investment undertaking file each year?

(2) An investment undertaking must file two retention tax returns for each calendar year:

(a) the first return, relating to chargeable events happening between 1 January and 30 June inclusive, must be filed by the following 30 July, and

(b) the second return, relating to chargeable events happening between 1 July and 31 December inclusive, must be filed by the following 30 January.

A “nil” return must be filed if no tax is due.

How is the tax on the retention tax return assessed and paid?

(3) The tax shown due on the retention tax return is to be self-assessed and paid by each investment undertaking on or before the due date for the return. There is no need for an inspector to estimate and assess tax due, unless the tax has not been paid by the due date.

Does an inspector retain the right to estimate and assess underpaid retention tax?

(4) Yes. Interest on tax underpaid accrues from the appropriate payment date.

What powers does an inspector of taxes have in this section?

(5) An inspector of taxes can make any assessments, adjustments or set offs necessary to recover any unpaid or underpaid retention tax, or to repay any retention tax that has been overpaid.

What is the due date of tax assessed or estimated by an inspector?

(6) If there is no appeal against the assessment, tax assessed or estimated by an inspector is due within one month of the date of the notice of assessment.

That due date does not displace any earlier payment date. Any tax found, on appeal, to have been overpaid must be repaid.

What tax collection procedures apply to enforce the payment of unpaid retention tax?

(7) The tax collection procedures (Part 42) are available to the Collector-General to enforce payment of any unpaid retention tax and interest.

From 1 July 2009, interest on unpaid retention tax is charged at 0.0322% for each day or part of a day the tax remains unpaid. Prior to 1 July 2009 the rate was 0.0274%.

Such interest is not an annual payment from which income tax must be withheld by the payer at the standard rate. It is a debt due to the Minister for Finance, for the benefit of the Central Fund, and is payable to the Revenue Commissioners.

In any court proceedings to collect unpaid interest on retention tax, a certificate signed by the Collector-General stating that an amount is due may be given in evidence and such a certificate is evidence, until the contrary is proved, that the amount is so due.

The tax appeal procedures (Part 40) are available to a taxpayer who disputes any amount of retention tax due. This means a taxpayer is entitled to appeal to the Appeal Commissioners on any matter relating to his retention tax liability. The Appeal Commissioners must hear and determine such an appeal in the same manner as an appeal against an income tax assessment. The appellant has a right, where necessary, to have his case reheard by a Circuit Court Judge. He also has a right to have a case stated for the opinion of the High Court on a point of law.

What are the requirements for the retention tax return?

(8) The retention tax return must be made on the appropriate Revenue return form. The person completing the return must sign a declaration that the return is correct and complete.

Section 739G Taxation of unit holders in investment undertakings

How are excepted unitholders taxed on a 31 December 2000 deemed chargeable event?

(1) A 40% rate of capital gains tax applies to a gain accruing to an excepted unit holder (section 739D(8)) on a “31 December 2000” deemed chargeable event.

How are unitholders taxed?

(2) Unitholders who receive an investment return in the form of money or non-cash consideration from an investment undertaking are taxed as follows:

(a) An individual (or other non-corporate) unitholder is not chargeable to income tax or capital gains tax if exit taxhas been deducted from the payment.

(b) An individual (or other non-corporate) unitholder is chargeable to income tax on a self-assessment basis (section 747D) under Schedule D Case IV if exit tax has not been deducted. If the recipient is an individual or trustee, the rate of income tax applicable to the gain is 36% (section 747E).

(c) A company unitholder is chargeable to income tax in respect of an annual or more frequent payment (i.e., arelevant payment) from which exit tax has been deducted as if it were a net annual payment from which income tax has been deducted under Schedule D Case IV.

(d) A company unitholder is chargeable to tax in respect of an annual or more frequent payment (i.e., a relevant payment) from which retention tax has not been deducted under Schedule D Case IV.

(e) A company unitholder is chargeable to income tax in respect of a payment, other than a relevant payment, from which exit tax has been deducted, as if the net amount received were an annual payment chargeable to tax under Schedule D Case IV from which tax has been deducted at 25%.

(f) A company unitholder is chargeable to income tax under Schedule D Case IV in respect of a payment other than a relevant payment if retention tax has not been deducted from the payment. If the payment is for the repurchase, redemption or transfer of the units, the income is treated as reduced by the amount paid to acquire the units.

(g) A company unitholder chargeable to corporation tax under Schedule D Case I on the payment

(i) is generally (but see (ii)) chargeable on the net payment grossed up at the standard rate of income tax,

(ii) is chargeable in the case of a payment in respect of the cancellation, redemption or repurchase of units on the income reduced by the amount paid to acquire those units,

(iii) is allowed to set off the retention tax deducted against its corporation tax liability for the chargeable period in which the payment was made.

(h) A company unitholder which is non-resident, and an individual unitholder who is non-resident and non-ordinarily resident, are not chargeable to income tax in respect of a payment.

(i) Exit tax must not be repaid to any person who is not a company within the charge to corporation tax except to correct an error.

(j) This rule applies where a payment made to a unitholder would be exempt from income tax in the hands of the recipient because it arises to:

(i) a permanently incapacitated individual as a return on investment in respect of compensation received for personal injuries (section 189),

(ii) the trustees of a qualifying trust for a permanently incapacitated individual (section 189A), or

(iii) a thalidomide victim as a return on investment in respect of compensation received for personal injuries (section 192).

In such a case, the payment made by the investment undertaking is treated as the net amount of a payment from which exit tax has already been deducted. In other words, the investment undertaking need not deduct exit tax from the payment. The gross income, although initially “chargeable” in the hands of the recipient under Case III, is then exempt under the appropriate section mentioned in (i)-(iii) above.

In what circumstances is a unitholder obliged to account for tax on a deemed disposal?

(2A) Where an undertaking does not apply exit tax to a deemed disposal (section 739B(1)(ccc) or section 739E(2)), the unitholder must account for the exit tax under Schedule D Case IV.

Does the tax exemption in (2) also apply to unit held through a recognised clearing system?

(3) The exemption in (2) also applies where the tax-exempt individual or trustee holds the units through a recognised clearing system.

Is a unitholder subject to CGT on the foreign currency gain element of a disposal?

(4) Where the units in an investment undertaking are denominated in a foreign currency, the unitholder is liable to capital gains tax on any foreign currency gain realised when the units are redeemed or sold.

Can exit tax be treated as CGT which can be offset against CAT arising on the same event?

(5) Exit tax payable on the death of a person can be treated as capital gains tax which can be credited up to the amount of the capital acquisitions tax on the same event.

Section 739H Investment undertakings: reconstructions and amalgamations

When do the reconstruction and amalgamation rules apply in relation to investment undertakings?

(1) This rule applies where units (the old units) in one investment undertaking (the old undertaking) are exchanged for units (the new units) in another such undertaking (the new undertaking) as part of a scheme of reconstruction or amalgamation of two or more undertakings, and the new units are held in the same proportion as the old units.

What are the tax consequences where units in a sub-fund of an umbrella fund are exchanged for units in another fund?

(1A)-(2) The exchange is exempt if part of a bona fide scheme for reconstruction or amalgamation.

Does the reconstruction relief for CCFs apply to funds established under the 2005 Act?

(3) The reconstruction relief for common contractual funds (CCFs) also applies to CCFs that are established under theInvestment Funds, Companies and Miscellaneous Provisions Act 2005.

Section 739HA Investment undertakings: amalgamations with offshore funds

Can unitholders exchange their units for an interest in an offshore fund?

(1) The UCITS IV Directive provides for the cross-border merger of two or more UCITS funds.

Such a merger might involve a scheme of amalgamation where unitholders in an investment undertaking exchange their units (assets) for a material interest in an offshore fund.

The effect for the investors should be tax-neutral.

Is the exchange of units for an interest in an offshore fund tax-neutral?

(2) The cancellation of units in an investment undertaking, as a result of the transfer of its assets to an offshore fund as part of a scheme of amalgamation is not a chargeable event.

The material interest takes the date and acquisition cost of the original units in the investment undertaking.

Section 739I Investment undertakings: reconstructions and amalgamations

What is a common contractual fund (CCF)?

(1) A common contractual fund (CCF) is an investment fund structure which allows institutional investors (for example, pension funds) to pool their assets to achieve cost efficiencies.

It is a collective investment undertaking established under a co-ownership agreement and authorised under Irish law (Investment Funds, Companies and Miscellaneous Provisions Act 2005) and not under the older European UCITS legislation.

How is a CCF taxed?

(2) A CCF is tax transparent:

(a) It is tax exempt as regards income and gains arising to it.

(b) Such income and gains are treated as arising to the co-owners in proportion to each owner’s holding of units in the fund.

When does the tax transparency rule apply?

(3) The tax transparency rule mentioned in (2) only applies where the CCF’s assets are held by institutional investors, i.e.:

(a) pension funds or non-individuals,

(b) a trustee on behalf of a non-individual.

What returns must be filed by a CCF?

(4) A CCF must, on or before 28 February following the end of the tax year, file an electronic return with Revenue in respect of that year, stating:

(a) the total income and gains arising to the fund in that year,

(b) each unit holder’s name, address, profit entitlement and any other details required by Revenue.

Is interest income arising to a CCF subject to DIRT?

(5) Interest income arising to a CCF is not to be subjected to deposit interest retention tax (DIRT).

Section 739J Investment limited partnerships

What definitions apply to Investment Limited Partnerships?

(1) This section applies to Investment Limited Partnership established under the Investment Limited Partnerships Act 1994. Other definitions are the same as apply to Investment Undertakings in section 739B

How are the profitsd of an investment limited partnership taxed?

(2)(a) An investment undertaking which is subject to the retention tax regime in this Chapter is not liable to tax on its relevant profits (i.e., the relevant income and relevant gains accruing to the partnership).

(b) Instead, the relevant income and gains are taxed in the hands of the unit holders of the partnership in proportion to the value of their units.

What reporting obligations does an Investment Limited Partnership have?

(3) Not later than 28 February a partnership return must be made specifying the amount of relevant profits, the names and addresses of the unit holders and the amount of the relevant profits to which each unit holder is entitled.

How is interest earned by an Investment Limited Partnership treated?

(4) Interest earned by Investment Limited Partnerships on deposits with financial institutions is not liable to DIRT.

Section 740 Interpretation (Chapter 2 and Schedules 19 and 20)

What definitions apply in relation to offshore funds?

This section lists the location of defined terms that are used in taxing offshore funds.

An offshore fund is a unit trust fund located outside the State. Before 6 April 1990, an offshore fund paid no tax on its income or gains. The fund would not pay any income to its investors. Instead, the fund’s income would be reinvested or “rolled up” at the end of each accounting period, for the benefit of investors. Investors would obtain a capital return at the end of the investment term (say eight years) which would include all income that had been reinvested. The capital return would be taxed as a capital gain, and investor’s gains would be indexed to remove the part of the gain due to inflation.

Therefore, an investor could use an offshore fund to convert income (then chargeable at a maximum rate of 56%) to capital gains (then chargeable at 30% where the assets were held for more than six years).

The legislation taxes the unindexed capital gain as income.

Section 741 Disposals of material interests in non-qualifying offshore funds

What rules apply to a disposal of a material interest in a non-qualifying offshore fund?

(1) These rules apply to a disposal of a material interest (section 743) in a non-qualifying offshore fund (section 744).

They also apply to a disposal of a material interest in a resident company or unit trust scheme which became a non-qualifying offshore fund at a material time on or after 1 January 1991.

A disposal in this context includes a disposal in the course of a reorganisation or reduction of a company’s share capital whereby each shareholder will have a new holding of shares (or debentures) that stands in place of, and in proportion to, his original shares (section 584(3)).

Material interest: a realisable share in the market value of a fund’s assets.

Non-qualifying offshore fund: an offshore fund (non-resident company or unit trust whose trustees are non-resident) that does not distribute its income. In other words, an offshore fund that accumulates or “rolls up” the income it earns for the benefit of its investors.

The income tax charge on investors’ disposals of their units cannot be avoided by an offshore fund becoming resident in the State after 1 January 1991.

The charge cannot be avoided by reorganising units or holdings in an offshore fund that becomes resident after 1 January 1991. In such a case, an investor who disposes of the replacement units is treated as disposing of the original units.

A gain arising on the disposal of a material interest in an offshore fund held under a trust is assessable on the trustee. This is because under general law, such gains form part of the capital of the trust, and accordingly are not available for distribution to the beneficiary (Revenue Precedent IT97-2507, 7 August 1998).

When is a material interest regarded as having been disposed of?

(2) A material interest is regarded as disposed of if it would be regarded as disposed of for capital gains tax purposes.

A disposal generally involves “a transfer … of ownership of an asset … by one person to another”: Kirby v Thorn EMI plc, [1987] STC 625. A disposal includes a part disposal (section 534) and a situation where a capital sum is derived from an asset, even though ownership of the asset has not been transferred (section 535).

Does the passing of assets on death give rise to a disposal of the material interest?

(3)-(4) Normally, the passing of a deceased person’s assets to his/her beneficiaries is not regarded as a disposal for capital gains tax purposes (section 573). This rule does not apply in the case of a material interest in an offshore fund. Where such an interest is passed on the death of a person, the deceased person is treated as having disposed of the material interest at market value on the date of death. The resulting gain is then taxed as pre-death income of the deceased.

Allowable losses of the deceased in the year of death may be set against a chargeable gain on a disposal of an interest in an offshore fund.

A deed of family arrangement relating to the deceased’s interest in an offshore fund, if made within two years of the date of death, is regarded as having been made by the deceased.

What share-for-share identification rules apply when companies are amalgamated or reconstructed?

(5) When two companies are amalgamated (section 586) or reconstructed (section 587), and shares in the new company (the acquiring company) are given in exchange for shares in the old company (the acquired company), the share-for-share identification rules (section 584) apply so that where you are a holder of the new shares, you are not to be treated as having disposed of your original shares.

However, these share-for-share identification rules do not apply:

(a) where the acquired company is or was a non-qualifying offshore fund, and the acquiring company is not,

(b) to an exchange of shares in an non-qualifying offshore fund for other assets.

What rules apply in relation to an exchange of shares involving a non-qualifying fund?

(6) Instead, the exchange of shares is treated as a disposal of the interest in the offshore fund at market value.

This modifies the share-for-share exchange rules to prevent their being used to avoid the tax charge.

How are “material time” and “relevant consideration” defined?

(7) A material time means on or after 6 April 1990 in relation to an asset acquired before that date. Otherwise, it means the earliest date on which the asset’s acquisition cost (relevant consideration) was paid or is deemed to have been paid.

Note

Deemed to have been paid: For example, where the units were transferred from a husband to a wife at no gain/no loss, on a later disposal, the wife is entitled to the husband’s acquisition date and cost (section 1028(5)).

Section 742 Offshore funds operating equalisation arrangements

What are equalisation arrangements of an offshore fund?

(1) An offshore fund operates equalisation arrangements if the ultimate fund distribution to which an investor (who has made an initial purchase) becomes entitled covers a period beginning before the interest was bought, and accordingly, at the time of that distribution, the capital investment was repaid (to a separate equalisation account).

A normal offshore fund pays its investors by redeeming their units at the end of the investment period. The price obtained by you as the investor reflects the capital growth in the value of the units.

An offshore fund that operates equalisation arrangements pays its investors differently. In gross terms, all investors receive the same distribution on the payment date. In net terms an investor receives the distribution accrued during your investment period. If an investor buys another investor’s units, he pays for the distribution accrued by the predecessor up to the purchase date. Otherwise, he does not get the full distribution of income on the final payment date. The capital investment entitles the investor to a full payout.

If later units are sold before the final payout, because part of the payment is a refund of the capital investment, only the investor is taxed on the income part of the distribution payment (the equalisation element) relating to his ownership period. The fund manager normally credits the capital repayment to a separate equalisation account.

What is an initial purchase when it comes to offshore funds?

(2) A investor makes an initial purchase if he subscribes for new shares or units in the fund, or buys shares or units from the fund managers (acting in their capacity as fund managers).

A characteristic of equalisation arrangements is that the purchase involves the fund managers.

Do the rules which tax offshore fund capital gains as income apply to a fund operating equalisation arrangements?

(3) The rules that tax offshore fund capital gains as income also apply to a disposal of an interest in an offshore fund that operates equalisation arrangements, provided the gain is not taxed as a trading profit of yours on making the disposal.

When is a disposal of an interest in an offshore fund not taxed as an offshore gain?

(4) This prevents a double charge to income tax. A disposal of an interest in an offshore fund is not taxed as an offshore income gain if throughout the period in which it operates equalisation arrangements, the income preceding the disposal was taxed in the hands of the investors as income from a foreign possession.

Do the share-for-share identification rules for a company reorganisation or reduction of share capital apply where equalisation arrangements are in place?

(5) Normally, when a company reorganises or reduces its share capital a shareholder would not be treated as having disposed of his original shares. The new shares stand in place of the old shares and he is treated as having acquired the new shares when he acquired the old shares.

This share-for-share identification rule (section 584(3)) does not apply in the case of a disposal of an interest in an offshore fund operating equalisation arrangements. The old shares are treated as having been disposed of at the time of the exchange.

Does the non-application of the share-for-share rules apply in other areas?

(6) The non-application of the share-for-share identification rule (see (5)) also applies to a disposal as part of a share-for-share amalgamation of two or more companies (section 586) and a unit-for-unit reorganisation of units in a unit trust scheme (section 733).

Section 743 Material interest in offshore funds

What is the meaning of a “material interest”?

(1)-(2) An interest in an offshore fund (a non-resident company, a unit trust whose trustees are all non-resident, or any other arrangement under foreign law which creates rights of co-ownership) is a material interest if, when making the investment, an investor had a reasonable expectation of being able to realise the value of the investment within seven years.

The seven year period is designed to exclude venture capital funds, which normally last 10 years. Whether an investor has a reasonable expectation of realising his investment is an objective test; it does not depend on his personal opinion or viewpoint.

When can an investor realise the value of an interest?

(3) An investor can realise his investment if he can realise an amount (see (4)) which approximates the part which his interest represents in the market value of the fund’s assets.

When can an investor realise an amount?

(4) An investor can realise an amount if he can obtain cash or assets to the value of that amount.

If his share of the market value of a fund’s assets is disproportionately high when compared with his interest in the fund’s assets, it is not regarded as an ability to realise his interest.

This prevents ordinary investments in foreign companies being taxed as offshore income gains.

When is an interest not deemed to be a material interest?

(5) An interest in a normal commercial loan or a right under an insurance policy is not to be treated as a material interest.

When is the holding of shares in a foreign company not a material interest?

(6) The holding of shares in a foreign company (the overseas company) is not a material interest if all of the following conditions are fulfilled:

(a) The holding company holds the shares to maintain or deveIop its foreign trade or that of an associate company.

(b) The holding company owns at least 10% of the voting rights in the foreign company and a right to 10% of that company’s assets in the event of a winding up.

(c) The foreign company has not more than 10 shareholders, and all of the shares in the company carry voting rights and an entitlement to share in the company’s assets in the event of a winding up.

(d) When it acquired the shares, the holding company had a reasonable expectation that it would be able to realise its investment because:

(i) there was an arrangement that within the next seven years the company could require other shareholders (as defined in (c)) to buy its shares, or

(ii) the shareholders agreed, or the foreign company’s constitution provided, that the company would be wound up before that seven year period ended.

This ensures that gains arising through a joint venture foreign company are not taxed as offshore income gains. It excludes a commercial holding in a foreign company where the investor could only expect to realise his investment through a buyout agreement, an agreement to wind up the foreign company, or both.

When are companies considered to be associated?

(7) A company is an associate of another company if one controls the other or both are controlled by a third company. In this context, you are considered to control a company if you have or can obtain:

(a) control of the company’s affairs,

(b) more than half of the company’s shares or voting power,

(c) shares which enable you to receive more than half of the company’s distributable income,

(d) more than half of the company’s assets on a winding up.

When is an interest in a non-resident company not a material interest?

(8) An interest in a non-resident company is not a material interest if the holder has the right to have the company wound up and is entitled to more than half of the company’s net assets (after all debts have been paid) on such a winding up.

How are the market value rules determined in this Chapter?

(9) The capital gains tax market value rules (section 548) apply in valuing a holding in a fund. However, if there are separate published buying and selling prices for units in such a fund, the market value of units means their buying price as published on the valuation date or the latest previous date their price was published.

Section 744 Non-qualifying offshore funds

When is an offshore fund deemed to be non-qualifying?

(1) An offshore fund is deemed to be non-qualifying, unless the Revenue Commissioners certify that it is a distributing fund.

A list of distributing offshore funds is available at www.revenue.ie under publications/lists.

How can an offshore fund qualify as a distributing fund?

(2) To qualify as a distributing fund, an offshore fund must, within six months of the end of the account period, distribute at least 85% of its income for that period.

In addition, the distribution must, if it is not taxed as trading or professional income, be taxable as foreign source income in the hands of the Irish resident investors (under Schedule D Case III).

An offshore fund that deals in commodities need only distribute 42.5% of its income in order to qualify as a distributing fund.

Funds operating equalisation arrangements may also qualify as distributing funds.

An offshore fund that has no income in an account period can meet the distribution test, but a fund that has failed to make up accounts does not.

What will prevent an offshore fund qualifying as a distribution fund for a period?

(3) An offshore fund does not qualify as a distributing fund for an account period in which:

(a) More than 5% of the fund’s assets are invested in other offshore funds.

(b) More than 10% of the fund’s assets are invested in a single company.

(c) The fund owns more than 10% of the issued share capital of any company.

(d) The fund has different classes of interests, with differing distribution entitlements.

These conditions are relaxed where a fund invests in: another fund that meets the 85% distribution test, a trading company, a wholly owned subsidiary or a company providing management services (Schedule 19 Part 2).

In determining whether a fund has invested more than 10% of its assets in a single company, how is the fund’s holding in the company valued?

(4) In determining whether a fund has invested more than 10% of its assets in a single company, the fund’s holding in the company is to be valued at the time of the most recent investment in the company.

In this regard, if the holding that is now to be valued was acquired on a share-for-share basis on a company reconstruction or amalgamation, the share-for-share identification rules (which allow new shares to take the acquisition cost of the old shares) do not apply.

Are a fund’s current and deposit accounts with a banking business counted in determining if a fund has more than 10% of assets in a single company?

(5) In determining whether a fund has invested more than 10% of its assets in a single company, the fund’s current and deposit accounts with a banking business carried on by that company are not counted.

What rules apply in determining whether units in the fund have differing entitlements to distribution rights?

(6) In determining whether units in the fund have differing entitlements to distribution rights, units held by the fund managers, that carry no rights to share in profits or assets on a winding up, are not counted.

How are distribution entitlements ascertained if a fund has different classes of interests?

(7) If a fund has different classes of interests, the interests are treated as having differing distribution entitlements unless, treating the different interest classes as interests in separate sub-funds, each separate sub-fund passes the 85% distribution test.

When does an offshore fund’s account period begin?

(8) An offshore fund’s account period begins on the day the fund begins to carry on its activities. While the fund remains in business, a new account period begins each time an old one ends.

When does an offshore fund’s account period end?

(9) An offshore fund’s account period ends when the first of the following occurs:

(a) 12 months have passed since the beginning of the account period,

(b) an accounting date of the fund arises (or a period for which it does not make up accounts ends),

(c) the fund ceases to carry on business.

What are the effects on the account period if an offshore fund that is a company or unit trust ceases to be non-resident?

(10) An account period of an offshore fund that is a non-resident company ends if the company becomes resident in the State.

A account period of a unit trust with non-resident trustees ends if the trustees all become resident in the State.

What rules apply to the certification of an offshore fund as a distributing fund?

(11) The detailed rules in Schedule 19 Parts 3 and 4 are used to determine whether an offshore fund is to be certified as a distributing fund.

To be certified, the fund must apply to the Revenue Commissioners for certification within six months of the end of the account period. If certification is refused, an appeal may be made within 30 days. An investor in a fund that has not applied for certification may require Revenue to invite the fund to apply for certification. If the fund does not apply for certification, Revenue may decide whether the fund should be certified.

Section 745 Charge to income tax or corporation tax of offshore income gain

How is a gain on a disposal of a material interest in an offshore fund taxed?

(1) A gain arising from a disposal of a material interest in an offshore fund is taxed as income of the person making the disposal under Schedule D Case IV.

What other tax rules apply to offshore income gains?

(2) Capital gains tax rules regarding residence and sharing of partnership profits apply to a gain on disposing of an interest in an offshore fund.

Offshore income gains realised by a non-resident and non-domiciled person are not chargeable, unless derived from land or mineral assets located in the State, or assets used by a branch in the State.

A non-resident company is only chargeable on gains realised by its branch in the State.

A partner is are only chargeable on his share of the partnership’s offshore income gains.

Is an offshore income gain on the disposal of branch assets always chargeable?

(3) Yes, even if the assets are no longer located in the State.

How is an offshore income gain of a non-domiciled person taxed?

(4) An offshore income gain realised by a person who is not domiciled in the State is only chargeable if remitted into the State. A remittance is treated as accruing when received in the State.

How is an offshore income gain made by a charity treated?

(5) An offshore income gain realised by a charity (a body established for charitable purposes) is exempt if the gain is applied for charitable purposes (see section 208).

If units in an offshore fund held by a charitable trust cease to be held for charitable purposes (for example, if they are sold or diverted to non-charitable use), the units are treated as having been disposed of and immediately reacquired by the trustees at market value. The resulting gain is then taxed as an offshore income gain accruing to the trustees.

Does an offshore income gain arise on a disposal by a non-resident trust?

(6) An offshore income gain does not arise on a disposal of offshore fund units held by a trust whose general administration is carried out abroad and a majority of the trustees of which are non-resident or non-(ordinarily-)resident.

Section 746 Offshore income gains accruing to persons resident or domiciled abroad

When do the income attribution rules in section 579 apply to offshore income gains?

(1) This subsection applies the rules of section 579 to an offshore income gain accruing to a non-resident trust. The gain is apportioned among the trust’s beneficiaries who are Irish domiciled and resident (or ordinarily resident). The apportionment must be made justly and reasonably in accordance with the values of the beneficiaries’ interests, taking account of whether a beneficiary has a life or future interest.

The payment by the trustees of income tax or corporation tax on a beneficiary’s share of the non-resident trust’s gain is not treated, for income tax or corporation tax purposes, as a payment to the beneficiary.

This subsection also applies the rules of section 579A to an offshore income gain accruing to a non-resident trust. The gain is attributed to trust beneficiaries who have received capital payments from the trustees in the tax year, or any earlier tax year.

The payment by the trustees of income tax or corporation tax owed by a beneficiary on chargeable gains attributed to him/her is not regarded (for the purposes of income tax or corporation tax) as a payment in the hands of the beneficiary.

Under section 579A(11), section 579 and section 579A cannot both apply simultaneously to the same gains of a non-resident trust.

What happens if section 579 attributes both a chargeable gain and an offshore income gain to a beneficiary?

(2) The offshore income gain is to be applied before the chargeable gain.

This prevents the same gain being doubly taxed as an offshore income gain and a chargeable gain.

What happens if section 579A attributes both a chargeable gain and an offshore income gain to a beneficiary?

(2A)The offshore income gain is to be applied before the chargeable gain.

This prevents the same gain being doubly taxed as an offshore income gain and a chargeable gain.

What rules apply to an offshore fund gain accruing to a non-resident company which would be a close company if Irish resident?

(3) This applies the rules of section 590 to an offshore income gain accruing to a non-resident company which, if resident in the State, would be a close company. The gain is apportioned among the company’s participators who are domiciled and resident (or ordinarily resident) in the State, in proportion to the participators’ interests in the company were liquidated when the chargeable gain accrued.

If not reimbursed by the company, income or corporation tax paid by the participator to whom the gain has been apportioned may be deducted in computing any income or corporation tax due on a later disposal of his shares (section 590(9)).

Gains on the disposal of foreign trade assets and foreign currency used for a foreign trade are ignored (section 590(7)(a)-(b)). A loss is also ignored (section 590(11)).

What information must a shareholder give to Revenue?

(4) A shareholder in a non-resident company (section 590) or a beneficiary of a foreign trust (sections 579579F) may be required (section 917) to give information to Revenue to enable them to determine whether the company or trustees is or are non-resident, whether chargeable gains accruing to the company should be attributed to its Irish resident shareholders, and whether chargeable gains accruing to the trust should be attributed to its Irish resident beneficiaries.

Do the transfer of assets abroad rules apply to offshore fund gains?

(5) Under the legislation relating to transfer of assets abroad (sections 806807C), an Irish resident may be taxed on income arising to a non-resident which he/she has “power to enjoy”. From 1 February 2007, an Irish resident or ordinarily resident person may also be taxed where he/she has power to enjoy an offshore income gain realised by a non-resident.

Can an offshore income gain also be taxed under the transfer of assets abroad rules?

(6) This prevents a double charge. An offshore income gain that is taxed under (1) or (2) is not also to be taxed under sections 806, 807 or 807A.

Section 747 Deduction of offshore income gain in determining capital gain

Can a double charge arise on a gain accrued over a period that straddles 1 April 1990?

(1) This prevents a double charge on gains accrued over a period that straddles 1 April 1990. The part of the gain accrued up to 1 April 1990 is taxed as a chargeable gain. The part of the gain accrued after that date is taxed as an offshore income gain.

What rules apply to a material deposit of a fund which does not operate equalisation arrangements?

(2) In relation to a material disposal (a disposal of a material interest in an offshore fund that does not operate equalisation arrangements), the rules in (3) and (4) apply in place of the rules in section 551 (which ensures revenue receipts taxed as income are not treated as capital proceeds chargeable to capital gains tax).

In other words, in the case of a fund that operates equalisation arrangements, the general rule (section 551) applies.

How is the part of proceeds that are taxed as an offshore income gain treated?

(3) The part of the proceeds that is taxed as an offshore income gain is deducted when calculating the part of the proceeds that is to be taxed as a chargeable gain.

How is deductible expenditure treated on a part disposal?

(4) On a part disposal of an asset, deductible expenditure is reduced in proportion to the part disposed of (section 557). The consideration for the part disposed of is not to be reduced by the amount of the offshore income gain. Instead, the apportionment is to be made based on the full consideration for the part disposed of.

How is an offshore income gain treated on transfer of a business to a company?

(5) Where a business is transferred to a company partly for shares and partly for other consideration, the part of the gain to which the new consideration relates is charged immediately; the part of the gain to which the new shares relate may be deferred (section 600).

In carrying out this apportionment, the overall consideration must first be reduced by the amount of the offshore income gain.

How is an offshore income gain treated in cases of company amalgamation or reconstruction?

(6) On a company amalgamation or reconstruction, if old shares are exchanged for new shares, there is no disposal of the old shares. The new shares are treated as if they were the equivalent old shares, and they take the acquisition date and cost of the old shares.

This rule does not apply:

(a) where the acquired company is a non-qualifying fund and the acquirer is not, or shares in a non-qualifying fund are being exchanged for other assets,

(b) in the case of a disposal of an interest in an offshore fund operating equalisation arrangements.

In such cases, the disposal of the old shares is taxed at the time of the exchange, and their original acquisition cost is deductible. On a later disposal of the new shares, in the absence of legislation, their acquisition cost as at the time of the deemed disposal on the exchange is not deductible.

To prevent a double charge in such a case, the offshore income gain charged on the disposal at the time of the exchange is deductible when calculating a gain on a later disposal of the shares (it is added to their original acquisition cost).

How is a disposal of an interest in a non-qualifying offshore fund that operates equalisation arrangements taxed?

(7) No double charge arises in the case of a disposal of an interest in a non-qualifying offshore fund that operates equalisation arrangements to a person other than the fund or the fund managers (for example to a connected person, or a deemed disposal by a trustee). The offshore income gain is set against later distributions to the person who made the disposal (or persons connected with him/her) until the gain is extinguished.

Section 747A Capital gains tax: rate of charge

What rules apply to a disposal of a non-qualifying offshore fund?

(1)-(2) These rules apply to a disposal on or after 12 February 1998 of a material interest (section 743) in an offshore fund, which:

(a) from the time the interest was acquired, or

(b) in the case of an Irish resident company or unit trust scheme with Irish resident trustees, from 1 January 1991,

was not a non-qualifying offshore fund (section 744).

What rules apply to a disposal of a material interest in an offshore fund that was not a non-qualifying fund?

(3) The rules in section 741(2)-(7) apply to a disposal of such a material interest.

What is the CGT rate in respect of disposals of a material interest in a qualifying fund?

(4) Capital gains tax is charged at 40% on disposals of a material interest in a qualifying offshore fund (and not at the general 25% rate mentioned in section 28(3)).

In other words, these rules apply to a disposal of a material interest in a qualifying offshore fund, i.e., one that has been certified by Revenue as a distributing fund.

Section 747AA Treatment of certain offshore funds

Can gains arising on a “personal portfolio” offshore fund qualify for CGT treatment?

Where a fund does not qualify as an offshore fund, because it is regarded as a “personal portfolio” fund (within section 747B(2A), gains arising from such a fund will also fail to qualify for CGT treatment (section 747A).

Section 747B Interpretation and application

What definitions apply in relation to taxation and returns for certain offshore funds?

(1) This Chapter obliges an Irish resident who receives income from, or disposes of, a material interest in an offshore fund (section 743) to include details of such income or gains in a self-assessment return of income on or before the return filing date (the specified return date for the chargeable period). Where the income in question is paid annually or more frequently, it is described as a relevant payment.

A deemed disposal arises when a relevant period ends. This event, referred to as a relevant event, occurs on the eighth anniversary of the investment into the fund, and each subsequent anniversary.

Chargeable period means:

(a) where you are an individual, the basis period for an income tax year, and

(b) where you are a company, the accounting period the profits of which are charged to corporation tax.

Where must a fund be resident to avail of the exit tax rules in this Chapter?

(2) The exit tax rules in this Chapter apply to an offshore fund located in an offshore State, i.e., a State which is:

(i) an EU State (other than Ireland),

(ii) a member State of the European Economic Area (EEA), or

(iii) a member State of the Organisation for Economic Cooperation and Development (OECD) which has a tax treaty with Ireland.

To what types of offshore funds does this chapter apply?

(2A) Only the following types of offshore fund will qualify under this chapter:

(a) a foreign collective investment undertaking similar to an Irish investment limited partnership which is authorised to act as such by the authorities of an EU/EEA/OECD tax treaty State,

(b) a foreign collective investment undertaking which is authorised by the authorities of another EU Member State under the legislation giving effect to the EU law governing collective investment in transferable securities (Council Directive 85/611/EEC and its amending legislation),

(c) a foreign company which is similar to an Irish authorised investment company, which is authorised by the authorities of an EU/EEA/OECD tax treaty State, and which raises which raised capital by public subscription or the shareholders of which are themselves collective investors, or

(d) is a unit trust scheme with non-Irish resident trustees, which is similar to an Irish authorised unit trust, which is authorised by the authorities of an EU/EEA/OECD tax treaty State, and which allows members of the public to participate in profits arising from acquiring, holding, managing or disposing of securities and property.

What other rules apply to disposals of a material interest?

(3)(a) A disposal is a disposal of a material interest in an offshore fund if it would be treated as such a disposal for capital gains tax purposes (see section 534).

(b) Income is not regarded as “included” in a self-assessment return unless the return is filed on or before the self-assessment return filing date (section 950).

(c) A disposal is not regarded as “included” in a self-assessment return unless the return is filed by the person, or if he/she has died, the executor or administrator of his/her estate, on or before the self-assessment return filing date (section 950).

Section 747C Return on acquisition of material interest

Must an acquisition of a material interest be returned?

An acquirer of a material interest in an offshore fund is are a chargeable person for self-assessment purposes and must include in the return to the inspector for the chargeable period in which the material interest was acquired, details of:

(a) the name and address of the offshore fund,

(b) a description of the material interest, including its cost, and

(c) the name and address of the intermediary, if any, through whom the interest was acquired.

Section 747D Payment in respect of offshore funds

What tax rate applies to a payment from an offshore fund?

A payment made in respect of a material interest in an offshore fund is subject to income tax or corporation tax, on a self-assessment basis, as follows:

(a) for an individual or trustee, at the following rates:

(i) Where the payment is not consideration for the disposal of an interest in an offshore fund the income is taxed –

(I) at 60% where the offshore fund is a personal portfolio investment undertaking, and

(II) in any other case at 41%, and

(ii) where the income in question has not been correctly included in your self-assessment return and arises from an offshore fund which is a personal portfolio policy the rate is 80%,

and

(b) for a company, if not taxed as a trading receipt, the income must be included in its corporation tax return as untaxed investment income (i.e., under Schedule D Case III) and charged accordingly.

Section 747E Disposal of an interest in offshore funds

What tax rate applies to the disposal of a material interest in an offshore fund?

(1) This rule applies where:

(a) a person disposes of a material interest in an offshore fund,

(b) the disposal gives rise to an exit charge, and is not taxed as a trading receipt of a company.

In such a case, the gain is chargeable to tax under Schedule D Case IV in the hands of the recipient.

If the recipient is a company, the corporation tax rate is 25%.

For an individual or trustee the income will be charged-

(i) in the case of an offshore fund which is a personal portfolio investment undertaking at 60% but if the details of the disposla are not correctly entered in the treturn the rate is 80%, and

(ii) in any other case at 41%

Is an exchange of an interests in sub-funds within a scheme a disposal?

(1A) If an offshore fund is divided into sub-funds, i.e., if it is an umbrella scheme, a person with a material interest in one sub-fund can exchange the whole of part of that interest for a material interest in another sub-fund of that umbrella scheme.

Does a disposal of a material interest in an offshore fund qualify for any exemptions or reliefs?

(2) No. There is no indexation relief (section 556) and the capital gains tax annual exemption (section 601) cannot be used against the gain.

What happens if a disposal of a material interest in an offshore fund gives rise to a loss?

(3) The gain is treated as nil. No relief is allowed for the “loss” against other chargeable gains. This means all other chargeable gains – not just gains from other offshore roll-up investments.

If, on an overall basis (i.e., from date of investment to date of disposal), the disposal of a material interest gives rise to a loss, any tax paid in respect of an earlier “deemed disposal” is to be refunded.

Can income arising from a disposal of a material interest be reduced by general loss relief?

(4) You cannot use general loss relief to reduce the amount chargeable to income tax under Schedule D Case IV.

Can exit tax payable on death be set off against CAT on the same event?

(5) Exit tax payable on the death of a person can be treated as CGT which can be credited up to the amount of CAT on the same event.

Do deemed disposal rules apply to a material interest in an offshore fund?

(6) A material interest in an offshore fund is deemed to have been disposed of, and immediately re-acquired on the eighth anniversary of the acquisition of the interest (and on each subsequent eighth anniversary). In other words there is a deemed disposal on the happening of a relevant event.

Section 747F Reconstructions and amalgamations in offshore funds

What is a scheme of reconstruction or amalgamation?

(1) A scheme of reconstruction or amalgamation is an arrangement under which each person with a material interest (the old interest) in an offshore fund receives in its place a mirror holding (the new interest) in another offshore fund.

What happens when a new interest is received in place of the old interest?

(2) Where a new interest is received in place of an old interest as part of a scheme of reconstruction or amalgamation, the new interest stands in place of the old interest and takes the acquisition date of the old interest.

Section 747FA Offshore funds: amalgamations with investment undertakings

Can a material interest holder exchange his interest for units in an investment undertaking?

(1) The UCITS IV Directive provides for the cross-border merger of two or more UCITS funds.

Such a merger might involve a scheme of amalgamation where the holder of a material interest in an offshore fund exchanges that interest for units in an investment undertaking (section 739B)).

The effect for the investors should be tax-neutral.

Is the exchange tax-neutral?

(2) The disposal of a material interest in an offshore fund in exchange for units in an investment undertaking is not a chargeable event.

The replacement units takes the date and acquisition cost of the original material interest in the offshore fund.

Section 747G Tax treatment of relevant UCITS

To what does this section apply?

(1) This section applies to relevant UCITS and relevant AIFs (Alternative Investment Funds). These are UCITS and AIFs formed in accordance with EU Directives in Member States other than the State.

Are relevant UCITS and AIFs subject to tax?

(2) A relevant undertaking for collective investment in transferable securities (UCITS) or a relevant alternative investemnt fund (AIF) formed under the law of another EU State is not liable to Irish tax solely on the basis that it has a management company that is authorised under Irish law.

Is an interest in a relevant UCITS or AIF regarded as a material interest in an offshore fund?

(3) Yes.

Section 748 Interpretation and application (Chapter 1)

What definitions apply in relation to the purchase and sale of securities?

(1) Interest in respect of a security (stocks and shares) includes a distribution or dividend. In this context, gross interest means the distribution together with the attaching credit, and net interest means the distribution excluding the tax credit.

Securities are regarded as similar if the holders have similar rights and entitlements to capital and interest, irrespective of different nominal amounts of the securities, the form in which they are held, or the manner in which they can be transferred.

Where the income of a trust or fund is exempt from income tax, a person entitled to an exemption from income tax includes any person entitled to claim that exemption.

The anti-avoidance rules in this Chapter and Schedule 21 deal with bond washing, as practiced by share-dealing concerns and exempt institutions (pension funds and charities). Tax law normally treats a “dividend” (section 748(1)) paid on a security as income of the current owner of the security, even where the owner did not own the security for the full period in which the dividend accrued. A share dealer could us the tax law to create an artificial loss. If a share dealer sold security for less than it cost, he/she could use the resulting trading loss to relieve other income without having included the income received on the security.

Person: includes the trustees of an exempt charity or pension fund.

Similar securities: prevents avoidance of these rules through buying securities in bearer form and selling them in registered form.

When do these securities rules apply?

(2) These rules apply where, after a sale of securities by a first buyer, interest payable on the securities is receivable by the first buyer.

When do the securities rules not apply?

(3) These rules do not apply where:

(a) the interval between the purchase and the sale of (or acquisition of an option to sell) the securities is greater than six months,

(b) the interval is greater than one month, and the Revenue opinion is that the purchase and sale were made at market value, and the sale was not made under an agreement made before the purchase was made.

Can a Revenue opinion be appealed?

(4) A Revenue opinion may be appealed to the Appeal Commissioners. They must hear and determine the matter as if it were an appeal against an income tax assessment. The appellant has a right, where necessary, to have the case re-heard by a Circuit Court judge. The appellant also havs a right to have a case stated for the opinion of the High Court on a point of law.

Can these rules be avoided by selling similar securities ?

(5)-(6) No. These rules could theoretically be avoided by selling not the purchased securities but similar securities that had been held for some time (achieving an equivalent result). This subsection prevents the rules being circumvented in this manner. In such a case, the sale of the similar securities is treated as a sale of the purchased securities.

Where the similar securities were bought at different times, the sale is treated as coming from the latest purchase.

The tax payable under this subsection may not exceed what would have been payable on a sale of the original securities.

How is a security dealer treated?

(7) Where a person begins to trade as a security dealer, securities forming part of trading stock are treated as sold by their previous owner, and acquired by their new owner at open market value.

Where the persons carrying on a trade change, and the change is not treated as a permanent discontinuance of the business (for example, where a partner retires, and is replaced by a successor), the successor is treated as having carried out the actions of the predecessor partner.

This ensures the successor is assessable on transactions initiated by the predecessor.

Section 749 Dealers in securities

Can a security dealer make use of a loss created by buying a security “cum div” and selling it “ex div”?

(1) Where the first buyer is also a security dealer, the artificial loss (created by buying a security cum dividend and selling it ex dividend) is disallowed by treating the purchase price paid for the securities as reduced by the interest accrued which was included in that price (the appropriate amount in respect of the interest).

Example

You are a share dealer who buys €100,000 of securities cum dividend (i.e., interest: section 748(1)) for €102,000 and sells them ex dividend for €100,000. The operation of the market ensures that the additional €2,000 paid for the securities broadly represents the accrued interest (net of income tax at the standard rate).

If you sell the security ex dividend for €100,000, although in real terms, you break even on the deal when you receive the net interest of €2,000, for tax purposes, you make a loss of €2,000 (€100,000 – €102,000) which can be offset against the gross interest income of €2,702 (from which tax deducted at 26% gives €2,000, the net interest).

The timing difference allows you to reduce your tax bill, or claim a repayment. The legislation counteracts this by providing that where a “security” is bought cum dividend and sold ex dividend, no artificial loss can be created; the price paid for the security is to be reduced by the deemed accrued interest included in the purchase price.

Does the disallowance of an artificial trading loss apply to ordinary business transactions carried on by a bona fide discount house or security dealer?

(2) No.

Whens does the rule regarding restricted deduction not apply?

(2A) The rule in (1) ensures that, in computing the profits as a security dealer, the deduction is restricted to the interest-exclusive price of the security.

However, this rule does not apply in the case of overseas securities (i.e., securities of a foreign government, foreign local government, foreign local authority, foreign public authority or any other non-resident body of persons) bought on a short-term basis by you where the following conditions are met:

(a) the interest is taxed as trading income of the receiving dealer,

(b) on or before the return filing date (specified return date for the chargeable period), any entitlement you may have to double tax credit for any foreign tax paid on the income must be disclaimed in writing.

In other words, the security dealer may claim a deduction for the interest-exclusive price where these conditions are met.

What happens when the entitlement to double tax credit fis disclaimed?

(2B) Where a security dealer elects to disclaim any entitlement to double tax credit for foreign tax paid on the income,

(a) no credit is given for such tax,

(b) the election must be included with her/his self-assessment return, and

(c) the election is only effective for the chargeable period for which it is made.

What if assets are non-chargeable assets?

(2C) The rule in (1) ensures that, in computing profits of a security dealer, the deduction is restricted to the interest-exclusive price of the security.

However, this rule does not apply in the case of non-chargeable assets (i.e., securities of the government, local authorities, semi-State bodies, or certain institutions of the EU) bought on a short-term basis by you where the securities are bought as part of a trading transaction your hands.

Does this section apply to interest caught by the dividend stripping rules?

(3) To prevent a double charge, this section does not apply to interest that is caught by the dividend stripping rules (section 752).

Neither does the section apply to an issuing house that held on to shares because of unfavourable market conditions and during that time received dividends on the shares.

Section 750 Persons entitled to exemption

Is a tax exempt body given an exemption on accrued interest in the purchase price?

Exemption is not given to a tax exempt body (for example, a pension fund or charity) on accrued interest included in the purchase price of a security.

Such accrued interest is treated as paid out of income not charged to tax (section 238) and is not regarded for corporation tax purposes as a charge on income.

The tax on the accrued interest may not be used to cover tax on charges.

Section 751 Traders other than dealers in securities

Can an ordinary dealer make use of a loss created by buying a security cum div and selling it ex div?

(1) For an ordinary trader who is not a security dealer, an artificial loss (created by buying a security cum dividend and selling it ex dividend) is disallowed by treating the purchase price paid for the securities as reduced by the interest accrued which was included in that price (the appropriate amount in respect of the interest).

How is accrued interest paid by a company treated?

(2) For a company:

(a) that is not a security dealer (section 749), or

(b) which carries on a business of making investments,

accrued interest paid is treated as paid out of income not charged to tax (section 238), and is not regarded for corporation tax purposes as a charge on income.

The tax on the accrued interest may not be used to cover tax on charges.

Section 751A Exchange of shares held as trading stock

What is a “new holding”?

(1) When a company’s share capital is reorganised or reduced, each shareholder will have a new holding of shares (or debentures) that stands in place of his/her original shares.

What rules apply to original shares held by a security dealer as trading stock?

(2) The rules in (4)-(5) apply in relation to original shares held by a security dealer as trading stock.

To what types of disposal does this section apply?

(3) This section applies to a disposal of original shares which, if not held as trading stock, would otherwise qualify for any of the following share-for-share reliefs:

(a) a reorganisation or reduction of share capital (section 584),

(b) conversion of securities (section 585),

(c) exchange of securities (section 586), or

(d) a reconstruction or amalgamation (section 587).

Do such disposals give rise to tax?

(4) A transaction within (3) is treated as if no disposal of the original shares had taken place. There is no tax charge under Schedule D Case I, and the new holding stands in place of the original shares.

How is consideration other than new shares in exchange for old shares treated?

(5) A share trader who receives any consideration other than new shares in return for old shares is treated as having disposed of part of the old shares. The part disposed of is calculated by reference to the proportion which the market value of the original shares is of the market value of the new shares plus the cash (or market value of the consideration) given.

Example

You are a share dealer who has original shares, held as trading stock, worth €100,000.

As part of a company reconstruction, the shares are exchanged for a new holding, also worth €100,000. As part of the transaction, you also receive €5,000 in cash.

You are treated as having disposed of €100,000/105,000 worth of the original shares, i.e., €95,238 qualifies for share-for-share relief. €4,762 does not qualify, and is chargeable as a trading receipt.

Do these rules apply in relation to a life assurance company’s income in the notional Case I basis outlined in section 707?

(6) The rules in (4)-(5) also apply in relation to a life assurance company’s income computation in the notional Case I basis (section 707(4)) where the original shares disposed of, if not held as trading stock, would otherwise qualify for any of the share-for-share reliefs mentioned in (3).

Section 751B Exchange of Irish Government bonds

When do the rules relating to the exchange of Irish Government bonds apply?

(1) The rules in (3)-(7) apply to an investor in securities (section 36) who exchanges old securities for new securities as part of the exchange, i.e., the Exchange Programme in Irish Government bonds which has been initiated by the National Treasury Management Agency (NTMA).

Chargeable period (see (3)) means in the case of a company, its accounting period, and in the case of an individual, the tax year’s basis period (section 321(2)).

How does a security dealer who is chargeable under Case I on profits calculate deferred tax?

(2)-(3) For a security dealer (i.e., an investor) whose profits from security trading are chargeable to tax under Schedule D Case I, the deferred tax is calculated for the chargeable period in which the exchange takes place.

For an investor chargeable to tax in respect of interest received in the chargeable period, the deferred tax is

A – B – C

where:

A is the ultimate tax liability for that chargeable period,

B is the tax that would have been paid if the exchange was ignored in computing that tax,

C is the tax, included in A, on the accrued interest in the chargeable period in respect of the old securities.

If an investor is not chargeable to tax in respect of interest received in the chargeable period, the deferred tax is

A – B

where:

A is the ultimate tax liability for that chargeable period,

B is the tax that would have been paid if the exchange was ignored in computing that tax, but including the tax onaccrued interest in respect of the old securities from the start of the chargeable period (or the date the securities were acquired) until the date of the exchange.

How is “accrued interest” defined for the purposes of the exchange of Irish Government bonds?

(4) In the context of (3), accrued interest on the old securities means interest accrued from the later of:

(a) the last payment day for the securities,

(b) the date on which you acquired the securities.

In this regard, the last payment day means the last day before the exchange on which interest was payable in respect of the old securities.

If interest may be paid on several days, the last payment day is the first of those days. If there is no day on which interest is payable, it means the day on which the old securities were issued.

Section 752 Purchases of shares by financial concerns and persons exempted from tax

What interpretation rules apply to the purchase of shares by financial concerns or those exempt from tax?

(1) For corporation tax purposes, distribution is widely defined to include not only dividends but also any method by which company profits are paid to its shareholders (section 130).

In this Chapter, a dividend means a distribution, and the payment of a dividend means the payment of a distribution. Agross dividend means the net distribution together with its attaching tax credit. The net dividend means the net distribution excluding the attaching tax credit.

The anti-avoidance rules in this Chapter and Schedule 23 deal with dividend stripping, as practised by share dealing concerns and exempt institutions (pension funds and charities). A dividend strip takes place when a share dealer buys a company that is no longer in business but has accumulated cash reserves and then “strips” the cash from the company (cause it to declare a dividend), sells the shares at a loss, and claims a trading loss on the transaction. The tax credit is claimed by setting the loss against the dividend (section 157).

What definitions apply to the purchase of shares by financial concerns and persons exempted from tax?

(2) A company includes any body corporate but does not include a non-resident company.

A person is considered to control a company if, either through holding shares or through special voting powers, she/he can ensure that the company’s affairs are conducted in accordance with her/his wishes.

A person controls a partnership if she/he has a right to more than half of the partnership income or assets.

Share does not include a debenture or loan stock.

This section applies to shares other than fully paid up preference shares which entitle the holder to a fixed reasonable percentage dividend return (a return which in the Appeal Commissioners’ opinion is not excessive, taking into account the market return generally available on quoted preference shares).

Shares are of a different class if they have different dividend payment rights or obligations attaching to them.

Shares acquired in right of other shares means shares acquired under a rights issue (i.e., in response to an offer restricted to existing shareholders).

Two trades are regarded as under common control if they are carried on by two persons (one being a body of persons), one of whom controls the other, or both are bodies of persons controlled by a third person. Several trades are regarded as under common control if each is under the same control as the others. A body of persons, in this context, includes a partnership.

Where the income of a trust or fund is exempt from income tax, a person entitled to an exemption from income tax includes any person entitled to claim that exemption.

Note

“Person” includes the trustees of an exempt charity or pension fund.

What dividend stripping rules apply to a security dealer?

(3) This deals with dividend stripping by a security dealer (financial institution), i.e., who becomes entitled to receive a dividend on shares acquired in the 10 year period preceding the dividend payment date, and the dividend is paid from profits accumulated before the shares were acquired.

If the holding of shares amounts to 10% or more of the issued shares of that class, the net dividend paid from profits accumulated before the shares were acquired is treated as a trading receipt which had not borne tax.

Example

X Ltd., a company that has ceased trading, has cash reserves of €150,000.

You are a share dealer who buys the shares of X Ltd. for €150,000. You then cause X Ltd. to declare a net dividend of €140,000 (gross dividend of €187,215; the attaching tax credit is €37,215) and then sell the shares for €10,000.

In this manner, you could claim that you have made a trading loss of €140,000 (the €10,000 sale price of the shares less their €150,000 purchase price). You could then set a loss against the gross dividend of €187,215 and reclaim the tax credit (€37,215).

The legislation counteracts this by providing that the net dividend is treated as a trading receipt, thus eliminating the artificial loss.

In deciding whether a shareholding amounts to 10% or more of the issued shares of that class, the following shares must also be counted as part of the holding:

(a) Other shares, acquired within the 10 year look back period, carrying a dividend payable to the holder.

(b) Where the trade is under the same control as another share dealing trade, shares, acquired within the 10 year look back period, carrying a dividend payable to the person carrying on that share dealing trade.

(c) Shares acquired under reciprocal arrangements with another share dealer, charity, or pension fund (see (5)).

What dividend stripping rules apply to an exempt body?

(4) This deals with dividend stripping by an exempt institution (pension fund or charity,) i.e., where such an exempt body becomes entitled to receive a dividend on shares acquired in the 10 year period preceding the dividend payment date, and the dividend is paid from profits accumulated before the shares were acquired.

If the holding of shares amounts to 10% or more of the issued shares of that class, the net dividend paid from profits accumulated before the shares were acquired is treated as a trading receipt which had not borne tax.

In deciding whether a holding as a shareholder amounts to 10% or more of the issued shares of that class, the following shares must also be counted as part of the holding:

(a) Other shares acquired within the 10 year look back period carrying a dividend payable to you.

(b) Shares acquired under reciprocal arrangements with another share dealer, charity, or pension fund (see (5)).

An annual payment paid out of a dividend made from profits accumulated before the shares were acquired is treated as paid out of income not charged to tax (section 238) and is not regarded for corporation tax purposes as a charge on income.

How are persons acting in concert treated?

(5) Where two or more security dealers or exempt bodies, acting in concert, together hold more than 10% of the issued share capital of that class, the combined holding is counted for the purposes of the 10% test.

Does the FIFO rule apply here?

(6) Yes. Where shares are sold from a batch of similar shares bought at different dates, the shares bought earlier are treated as sold before shares bought later.

This is known as the First In First Out (FIFO) rule.

What are the consequences of beginning to trade as a security dealer?

(7) Securities forming part of trading stock are treated as sold by their previous owner, and acquired by their new owner at open market value.

Where the persons carrying on a trade change, and the change is not treated as a permanent discontinuance of the business (for example, where a partner retires, and is replaced by a successor), the successor is treated as having carried out the actions of the predecessor partner.

This ensures the successor is assessable on transactions initiated by the predecessor.

What rules apply to profits accumulated before a given date?

(8) The detailed rules in Schedule 22 are used to determine whether a dividend is paid from profits accumulated before a given date.

Section 753 Restriction on relief for losses by repayment of tax in case of dividends paid out of accumulated profits

What dividend stripping restrictions apply to me as an ordinary trader?

Where an ordinary trader (not a security dealer or financial institution) becomes entitled to receive a dividend on shares acquired in the 10 year period preceding the dividend payment date, and the dividend is paid from pre-acquisition accumulated profits the trader is prevented from using trading losses for dividend stripping.

As in the case of a security dealer, the net dividend paid from profits accumulated before the shares were acquired is treated as a trading receipt which had not borne tax.

Example

X Ltd., a company that has ceased trading, has cash reserves of €150,000.

You are a trader who is not a security dealer, and you buy the shares of X Ltd. for €150,000. You then cause X Ltd. to declare a net dividend of €140,000 (gross dividend of €187,215; the attaching tax credit is €37,215), and then sell the shares for €10,000.

In this manner, you could claim that you have made a trading loss of €140,000 (the €10,000 sale price of the shares less their €150,000 purchase price). You could then set a loss against the gross dividend of €187,215 and reclaim the tax credit (€37,215). The legislation counteracts this by providing that the net dividend is treated as a trading receipt, thus eliminating the artificial loss.

Section 754 Interpretation (Chapter 1)

How is “patent income” defined?

(1) Patent income (income from patents) means income (for example, a royalty) paid for the use of a patent. It also includes a capital sum received for the sale of patent rights, i.e., the right to do something which otherwise would infringe the patent.

Does a sale of patent rights include the grant of a licence?

(2) Yes. A grant of an exclusive licence to use a patent (to the exclusion of the grantor and anyone else) is treated as a sale of the patent rights.

How use by the State the State of a patented invention treated?

(3) The State has power (under the Patents Act 1992 section 77) to make official use of any patented invention in return for the payment of compensation to the patent holder. Such compensation, if received from the State (or the government of another country exercising similar powers), is treated as a sum received for the sale of patent rights.

Section 755 Annual allowances for capital expenditure on purchase of patent rights

Can a writing down allowance be claimed for the purchase patent rights?

(1) Yes. A purchaser of patent rights may claim a writing down allowance for the duration of the writing down period.

The writing down allowance is only given to a trader chargeable to Irish tax on trading profits or chargeable to Irish tax on income from the patent.

How long is the writing down period?

(2) In general, the writing down period is 17 years, beginning with the chargeable period in which the expenditure is incurred.

If the patent rights are bought for a specified period, the writing down period is the lesser of 17 years or the number of years in that specified period.

Example

On 1 January 2009, X registers a German patent for a new invention.

On 2 January 2009, you buy from X the exclusive licence to use the patent for 20 years.

The writing down period is 17 years.

Had the rights been granted for four years, the writing down period would be four years.

Where purchased patent rights begin a year or more after the date from which the rights became effective, the writing down period is 17 years less the number of complete years which, at the time the rights begin, have elapsed since the date the rights became effective. If 17 years have elapsed, the writing down period is one year.

Pre-trading expenditure is treated as having been incurred on the first day of trading. This rule does not apply if purchased patent rights are sold by the intending trader before trading begins.

Example

On 1 January 1998, X registers an Irish patent for a new invention.

On 2 January 2002, you buy from X the exclusive licence to use the patent for 15 years.

Four years have expired. The writing down period is therefore 13 years (i.e., 17 – 4 years).

Had you bought the patent on 1 January 2015 (17th anniversary of its taking effect), the writing down period would be one year.

Are patent capital allowances superseded by the new allowance for intangible assets?

(3) The 17 year allowance for purchase of patent rights ceases to apply to companies from 7 May 2009. However, a company may elect for a two year extension (see (4)).

Can a xcompany elect for a 17 year write down?

(4) During 7 May 2009 to 7 May 2011, a company can elect for the 17 year write down of purchased patent rights (instead of the period in section 291A).

Such an election must be made in its self-assessment return not later than 12 months after the end of the accounting period in which the expenditure was incurred.

Section 756 Effect of lapse of patent rights

When does a balancing event arise?

(1) A balancing event arises where, in relation to patent rights for which an allowance has been granted:

(a) the rights are allowed to lapse,

(b) the rights are sold,

(c) part of the rights are sold and the net sale proceeds are not less than the remaining unallowed expenditure,

before the end of the writing down period.

The balancing event requires a balancing adjustment, i.e., a balancing allowance (an additional capital allowance) or a balancing charge (a reduction or withdrawal of a capital allowance already given).

The balancing adjustment is to ensure that the trader receives the proper writing down amount (and no more or no less) for the patent rights in question.

Once the writing down period has expired, no balancing adjustment can arise.

When is a balancing allowance given?

(2) A balancing allowance is given where the patent rights lapse, or are sold, and the net proceeds are less than the expenditure remaining unallowed. The allowance is given for the expenditure remaining unallowed less the net sale proceeds (if any).

Example

You spend €10,000 on patent rights for 10 years; the relevant tax years are 2002 to 2011.

You obtain an annual allowance of €1,000 for each of the years 2002, 2003, 2004, 2005, 2006. The rights lapse on 1 January 2007 (tax year 2007).

No annual allowance is given for tax years 2007 to 2011.

Instead, a balancing allowance of €6,000 is given for 2007.

When does a balancing charge arise?

(3) A balancing charge is made where the patent rights lapse, or are sold, and the net sale proceeds exceed the expenditure remaining unallowed. The charge is on the excess (if any).

Example

Take the facts of the previous example, but assume that you sold the rights on 1 January 2007 (tax year 2007) for €7,000.

No annual allowance is given for tax years 2007 to 2011.

Instead, a balancing charge of €1,000 (i.e., €7,000 – €6,000) is made for 2007.

How is a sale of part of patent rights treated?

(4) Where part of patent rights are sold and no balancing charge arises on the transaction, future allowances on the rights retained must be adjusted.

The expenditure remaining unallowed (for the current and subsequent chargeable periods) is reduced by the net sale proceeds. The resulting figure is allocated in equal instalments to the remaining complete years of the writing down period.

What is meant by capital expenditure remaining unallowed?

(5) It is the initial capital expenditure, less any capital allowances given before the chargeable period in which the balancing adjustment event takes place, less the net sale proceeds arising from any previous sale of part of the patent rights.

Are there any limits on what balancing allowances or charges can be made?

(6) A balancing allowance is not made unless a writing down allowance has been or could have been made.

A balancing charge can never exceed the net allowances granted to the trader for the rights.

When do the rules in relation to lapse of patent rights not apply?

(7) This section does not apply if the company in question has got an intangible asset allowance (section 291A).

Section 757 Charges on capital sums received for sale of patent rights

How is an Irish resident taxed on a sale of patent rights?

(1) an Irish resident who sells patent rights for a capital sum is taxed under Schedule D Case IV on the proceeds. One-sixth of the proceeds is charged in the chargeable period in which the sum was received, and one-sixth of the proceeds in each of the five succeeding chargeable periods (assuming each such period is 12 months long).

On election, within 12 months of the end of the chargeable period in which the sum was received, the entire sum may be chargedin that period.

In cases of hardship, notice in writing may be given to the Revenue Commissioners to have the charge spread over a period other than six years.

Note

Whether a royalty is capital has been considered in Desoutter Bros Ltd v Hanger and Co Ltd and Artificial Limb Makers Ltd, (1936) 15 ATC 49; Rees Roturbo Development Syndicate Ltd v Ducker, (1928) 13 TC 366; Brandwood v Banker, (1928) 14 TC 44; IRC v Rustproof Metal Window Co Ltd, (1947) 29 TC 243; Ferguson (Harry) (Motors) Ltd v IRC, (1951) 33 TC 15; Margerison v Tyresoles Ltd, (1942) 25 TC 59.

As regards deduction of tax from foreign patent rights, see IRC v National Book League, (1957) 37 TC 455.

How is a non-resident who sells patent rights taxed?

(2)-(3) A non-resident who sells rights under an Irish patent for a capital sum is taxed under Schedule D Case IV on the proceeds. The purchaser must deduct income tax at the standard rate from the payment (as if the payment were an annual payment).

The seller may elect, within 12 months of the end of the chargeable period in which the sum was received, to be charged on one-sixth of the proceeds in that chargeable period and one-sixth of the proceeds in each of the five succeeding chargeable periods.

The tax liability is adjusted to reflect the inclusion of one-sixth (instead of the total amount) of the capital sum as income in the return and overpaid tax must be repaid.

Despite the election the purchaser remains obliged to deduct and remit income tax from the total payment.

Credit is given for the total tax withheld by the purchaser, but not all at once in the current chargeable period. One-sixth of the tax withheld is allocated to each of the current and five succeeding chargeable periods, and any tax ultimately found to be overpaid in any of those chargeable periods is repaid.

Can purchase costs be deducted from the taxable amount on a sale of patent rights?

(4) If the seller bought those rights for a capital sum, she/he is entitled to deduct the purchase cost when calculating the net capital sum to be charged to income tax.

The deduction must be reduced by the amount of any capital sum previously received from selling part of the patent rights during the ownership period.

The purchaser remains obliged to deduct income tax from the gross payment made, regardless of any deduction made for the purchase price of the rights.

Do these rules apply to a sale of part of any patent right?

(5) Yes.

Section 758 Relief for expenses

Can a trader take a deduction for costs in relation to a trade patent?

(1) A trader computing trading profits may deduct incidental fees or expenses incurred in obtaining, or renewing, a patent for the trade.

What relief is available to a non-trader?

(2) A non-trader is given an allowance for fees or expenses against patent income for the chargeable period in which the expenditure was incurred.

What allowances are given to an inventor who is granted a patent right?

(3) An inventor who is granted a patent for an invention is given an allowance for the net expenses incurred in working out and perfecting the invention. The allowance is given for the tax year in which the expenses were incurred.

Expenses claimed under this section may not be claimed under any other section.

Section 759 Spreading of revenue payments over several years

Does tax payable include tax of a spouse?

(1) In this section, tax payable by someone who is jointly assessed to tax includes tax payable by his/her spouse.

How does the spreading relief apply to a patent owner?

(2) This relief applies to a patent owner who receives a royalty or lump sum (for the use of the patent for a period longer than six years) under deduction of tax. He/she may request that the tax be payable as if the income were spread in equal annual instalments over the current and five preceding chargeable periods.

The tax liability for the preceding five years is then adjusted to reflect the spreading of the income.

What rules apply where the patent usage period is longer than two years but less than six?

(3) Where the patent usage period is longer than two complete years but less than six complete years, the income may also be treated as spread backwards for a period equivalent to the number of complete years in the usage period.

Does this spreading relief apply where a lump sum is paid to a non-resident?

(4) The spreading relief of this section does not apply where a lump sum is paid to a non-resident in respect of Irish patent rights (section 757) as that situation has its own spreading relief.

Section 760 Capital sums: effect of death, winding up and partnership changes

Does tax payable include tax of a spouse?

(1) In this section, tax payable by someone who is jointly assessed to tax includes tax payable by his/her spouse/civil partner.

What happens if a person dies or a company is wound up?

(2) Where a person chargeable to tax on the receipt of a capital sum for the sale of patent rights dies (or in the case of a company, begins to be wound up), income that has been spread forward into later periods becomes immediately chargeable in the current chargeable period (instead of the later periods).

Are any options available when the outstanding balance is charged?

(3) If charged to tax on the outstanding balance of the capital sum, an individual’s personal representatives may elect within 21 days to have the additional tax balance calculated as if the outstanding capital sums were spread over the tax years from the year in which the capital sum was received up to the year of death, inclusive.

What happens where a partnership is treated as ceasing to trade?

(4) Where a partnership relevant period ends, and the partnership is treated as having ceased to trade, any outstanding balance of the capital sum becomes immediately payable in the final chargeable period. Each partner (or if the partner is dead, his personal representative) is charged on his share of the outstanding balance according to the agreed profit-sharing ratio.

A partner may make the election described in (3) in respect of his/her share of the outstanding balance.

Section 761 Manner of making allowances and charges

What allowances are available to a trader under Case I?

(1) A trader who owns patent rights for the purposes of his trade is given an allowance or charge in respect of expenditure on those rights in taxing his trade under Schedule D Case I.

This does not affect the charge under Schedule D Case IV on the sale of patent rights for a capital sum (section 757).

What if the criteria above are not met?

(2) In any other case, an allowance is made by way of discharge or repayment of tax and may be made against income from patents, while a charge (for example a balancing charge) is made under Schedule D Case IV.

Section 762 Application of Chapter 4 of Part 9

Do the normal capital allowance rules apply to patent capital allowances?

(1) The capital allowance rules in Part 9 Chapter 4 apply to patent capital allowances in this Chapter.

Can companies under common control transfer an asset at its tax written down value ?

(2) A company (or partnership) that is under common control may, where the tax written down value is lower, opt to substitute the transferred asset’s tax written down value for its open market value.

If this option is taken, the selling company does not have a balancing charge, and the buying company may write off a reduced figure over the remaining life of the asset. However, if the buying company subsequently sells the asset for more than its tax written down value, the balancing charge must take account of the allowances already given to the selling company.

Because this option simply moves a balancing charge from the seller to the buyer, it is not normally available if one of the companies is non-resident, as it might prove impossible to collect any balancing charge from the non-resident buyer.

However, the option is allowed if the non-resident company is trading through a branch or agency in the State.

This option is available where the transferred asset consists of patent rights.

Generally, for income tax purposes, capital expenditure does not include revenue type expenditure that is deductible in the normal way in the claimant’s computation of taxable profits.

Similarly, capital sums received do not include any receipts treated as trading receipts in computing the taxable income of a trade, profession or employment.

However, this rule does not apply to a capital sum received for the sale of patent rights (section 757). Such a capital sum may be charged as income.

Section 763 Interpretation (sections 764 and 765)

What definitions apply in relation to scientific and certain other research?

(1) Petroleum resources are reserves of offshore oil or gas.

Petroleum exploration activities means searching for petroleum in a licensed area, testing, appraising and winning access to deposits found, under a licence other than a petroleum lease.

Petroleum extraction activities are the activities of the holder of a petroleum lease in:

(a) winning petroleum from a relevant field,

(b) transporting the petroleum to dry land,

(c) initial treatment and storage of that petroleum before it is refined.

A relevant field is an area for which a petroleum lease is in force.

A licensed area is an area for which a licence is in force.

A licence, in this context, means:

(a) an exploration licence,

(b) a petroleum prospecting licence,

(c) a petroleum lease,

(d) a reserved area licence.

Specified minerals are: barytes, copper ore, felspar, gold ore, iron ore, lead ore, manganese ore, molybdenum ore, quartz rock, serpentinous marble, silver ore, soapstone, sulphur ore, zinc ore.

Exploring for specified minerals means searching in the State (including by drilling) for specified mineral deposits, testing, and winning access to such deposits. It does not include such operations in the course of developing or working a mine.

Note

Reserves in a designated area on the Continental Shelf are vested in the Minister for Public Enterprise (Petroleum and Other Minerals Development Act 1960 section 4, Continental Shelf Act 1968 section 4). The Minister may licence companies to explore for offshore reserves, and develop any reserves they find.

Initial treatment and storage: see section 684.

Licence: An exploration licence and a petroleum prospecting licence entitle the holder to search for oil and gas. Only apetroleum lease entitles the holder to extract oil and gas.

How is “scientific research” defined?

(2) Scientific research means activities in the fields of natural or applied science for the extension of knowledge.Expenditure on scientific research does not include expenditure on rights arising from such research.

A payment for the construction of a Library Information Technology Services Building may qualify under sections 763,767, or 792, but relief cannot be given more than once for any payment. In determining whether relief applies, and if so which relief, the inspector will ascertain how the payment was applied (Revenue Precedent IT96-2505, 15 July 1996).

What items do not qualify as scientific research?

(3) Scientific research (see (2)) does not include:

(a) exploring for specified minerals,

(b) petroleum exploration activities, or

(c) petroleum extraction activities.

Note

This reverses the decision in Texaco (Ireland) Ltd v Murphy, 4 ITR 91, where it was held that unsuccessful oil and gas exploration expenditure qualified as “scientific research expenditure”.

Is an allowance given for subsidised expenditure?

(5) Any part of scientific research expenditure that has been subsidised or paid for by some other person does not qualify for relief.

Can scientific research expenditure be taken into account for than one trade?

(6) No.

Section 764 Deduction for revenue expenditure on scientific research

Can a trading deduction for revenue expenditure be claimed?

(1) Where a trader incurs revenue expenditure on scientific research, the expenditure may be deducted as a trading expense in computing profits. This applies even if the research is carried out by a separate approved research body or Irish university.

Is a deduction available where the research expenditure is not related to a trade?

(2) Yes.

Approved bodies: Inspector Manual 29.2.2

Section 765 Allowances for capital expenditure on scientific research

Can a trader claim an allowance for capital expenditure on scientific research?

(1) A trader who incurs capital expenditure on scientific research related to a trade may, on application within 24 months of the end of the chargeable period in which the expenditure was incurred, be given an allowance for expenditure in taxing his trade (i.e., in charging your profits for income tax or corporation tax) under Schedule D Case I. If incurred before the commencement of the trade the allowance is given within 24 month after the trade commences and the asset must be in use for the purposes of scientific research at the end of the chargeable period.

Expenditure incurred before trading begins may be claimed within 24 months of commencing to trade.

Note

In Gaspet Ltd (formerly Saga Petroleum (UK) Ltd) v Elliss, [1987] STC 362, it was held that under the equivalent UK law, the research must be undertaken by the claimant or directly on his behalf, and not merely financed by the claimant.

Relief was not given to an author in respect of the cost of computing and video equipment in Salt v Golding SpC 81, [1996] SWTI 858.

The reference to capital expenditure does not exclude expenditure on plant and equipment. Equally, it does not exclude expenditure on buildings such as laboratories, provided expenditure thereon meets the requirements of the legislation. For instance, it is a condition of the legislation that capital expenditure be incurred on scientific research for the purposes of a trade carried on by the claimant or for the purposes of a subsequent trade which is related to the claimant’s earlier trade of scientific research.

The term “capital expenditure” is not defined in the Taxes Act. The ordinary rules of commercial accounting as modified by tax law will, where appropriate, determine whether an item of expenditure is capital or revenue in nature (Tax Briefing 18, September 1995).

Can an allowance be claimed for expenditure is not related to a trade?

(2) Yes.

What happens where an asset ceases to be used for scientific research?

(3) Where an asset that formed the basis of a claim for capital expenditure on scientific research ceases to be used for scientific research:

(a) A balancing allowance is made for an underallowed scientific research allowance, and a balancing charge is made for an overallowed scientific research allowance.

(b) If another trader subsequently uses the asset, he/she may only claim wear and tear allowance based on the tax written down value of the asset (i.e., after scientific research allowance).

If a scientific research allowance is given, is other relief denied for those assets?

(4) If a scientific research allowance is given for expenditure on assets, those assets may not be the subject of a claim for:

(a) the deduction amounting to five-twelfths of the rateable valuation of the property for industrial buildings built before 30 September 1956 (section 85), or

(b) wear and tear allowance (section 284).

How can excess allowances from the current period be used?

(5) Any excess scientific research allowances that cannot be offset against your taxable profits for the current period may be carried forward (section 304(4)) for set off against the taxable profits of the next and subsequent chargeable periods.

Section 766 [Tax credit for research and development expenditure]

Research and Development (R&D) Tax Credits: Tax Briefing Issue 83 – 2009

Claims for Research and Development (R&D) tax credit in respect of expenditure incurred in periods ending on or before 31 December 2007 where protective claims were submitted on or before 31 December 2008: Tax Briefing Issue 71 – 2009

Projects Approved for Research Technology & Innovation [RTI] Grants from Enterprise Ireland: Tax Briefing Issue 67 – 2007

Finance (No.2) Act 2008 changes

What definitions apply in relation to the research and development tax credit?

(1) Research and development activities means systematic, investigative or experimental activities in a field of science or technology in the following areas:

(a) basic research, i.e., “pure” experimental or theoretical work undertaken to acquire new scientific or theoretical knowledge, without any practical application in view,

(b) applied research, i.e., work undertaken to gain scientific or technical knowledge and directed towards a specific practical application, or

(c) experimental development, i.e., work which draws on existing scientific or technical knowledge with a view to creating new or improved materials, products, devices, processes, systems or service, including incremental improvements.

Activities do not qualify unless they seek to achieve scientific or technological advancement and involve the resolution of scientific or technological uncertainty.

This section provides relief for expenditure on research and development (R & D), i.e., non-construction expenditure incurred wholly and exclusively by the company in carrying out its research and development activitiesin the State which:

(a) is tax-deductible as a business expense (or would be tax-deductible but for the fact that it is included, for accounting purposes, as part of the cost of an intangible assets),

(b) qualifies for plant and machinery allowance,

(c) qualifies for scientific research deduction (section 764).

Expenditure on research and development does not include:

(a) a royalty or payment for the use of intellectual property if

(i) it is paid to a connected person who receives it as income within the “knowledge development box” (section 769G), or

(ii) the payment exceeds what would have been payable between independent persons acting on an arm’s length basis,

(b) interest, even though such interest may be included as part of the cost of an asset for accounting purposes,

(c) outsourced expenditure unless within the limits allowed (see (1)(b)) and expenditure on managing and controlling R & D carried on by a person other than the claimant company,

(d) expenditure incurred by an Irish resident company if

(i) it is tax-deductible as a business expense,

(ii) it qualifies for plant and machinery allowance,

(ii) it qualifies for any other relief,

in relation to foreign tax.

Expenditure incurred before trading begins is having been incurred on the first day of trading.

Expenditure is not regarded as having been incurred by a company to the extent that it has been met by grant aid from the State or a State-funded body.

A qualified company is one which:

(a) throughout the relevant period is a trading company, a 51% subsidiary of such a company or a 51% subsidiary of a holding company that holds shares in a trading company,

(b) carries out research and development in the relevant period, and

(c) maintains a record of expenditure on such activities.

Two companies are members of a group if one is a 51% subsidiary of the other or both are 51% subsidiaries of a third company. In this regard shares held as trading assets do not count as percentage holdings. To ensure a genuine parent-subsidiary relationship exists, the parent must also be entitled to more than half of the subsidiary’s profits (section 414) available for distribution to its equity holders (section 413), and at least 50% of the assets available for the subsidiary’s equity holders on a notional winding up (section 415).

A company and its 51% subsidiaries form a group. A company which is not a member of a group is treated as a member of its own “group”.

The relevant period is a term used for a group of companies. It means

(a) where the end dates of the group members’ accounting periods coincide, a 12 month accounting period during which a member was trading and which ends the first such accounting period that began on or after 1 January 2004, or

(b) where the end dates of the group members’ accounting periods do not coincide, the period specified in a joint notice given by the group members to the appropriate inspector (section 950) within nine months of the end of a 12 month accounting period during which a member was trading and which ends the first such accounting period that began on or after 1 January 2004,

and each subsequent such 12 month period.

Qualifying group expenditure on research and development means the excess of group R & D expenditure over the threshold amount for a relevant period. From 1 January 2015 the deduction of the threshold amount (2003) no longer applies and relief is given for all the qualifying expenditure in the year.

The threshold amount is a defined base of R & D expenditure for a group of companies. It depends on the relevant period. Where the relevant period is between 31 December 2003 and 1 January 2014, it means the aggregate R & D expenditure incurred in a one year period (the threshold period) that ends on the corresponding end date of the relevant period in 2003. Otherwise, the threshold amount means the aggregate R & D expenditure incurred in the one year period (the threshold period) that ends 10 years before the end of the relevant period.

For accounting periods up to and including 2013, the base year is 2003.

For 2014 and later accounting periods, the base year is 10 years before the end of the year of the claim.

Expenditure on outsourced R & D qualifies for relief provided it does not exceed the higher of:

(a) €300,000, or

(b) the percentage limit (n the case of R & D subcontracted to colleges this is 5% of overall R & D expenditure, and in other cases it is 15% of overall R & D expenditure).

Does expenditure on equipment not exclusively used for R & D qualify?

(1A) If you incur expenditure on machinery and plant used for your R & D, the expenditure attributable to R & D is to be apportioned on a just and reasonable basis. The inspector, or on appeal the Appeal Commissioners, will decide what is “just and reasonable”.

If an apportionment that has already been made in this manner ceases to be just and reasonable, the inspector, or on Appeal the Appeal Commissioners, must determine a new apportionment. That new apportionment then supersedes the previous apportionment.

How is the R & D tax credit calculated?

(2) If you make a claim to the appropriate inspector (section 950) in respect of an accounting period, your corporation tax for that period is to be reduced by a tax credit equivalent to 25% of the qualifying expenditure (see (3)) referable to that period.

Can a company surrender R & D relief to a key employee?

(2A) A company can surrender all or part of its R & D tax credit to one or more key employees as the company may specify.

The surrendered R & D credit may not exceed the company’s corporation tax liability.

The surrender may not take place if the company owes corporation tax for the accounting period of the surrender or for a previous accounting period.

A claim to surrender R & D credit to a key employee must be made in writing on the Revenue-approved form. The company must notify the employee in writing of the amount of R & D credit that has been surrendered to the employee.

What happens if R & D credit surrendered to an employee is found to be unauthorised?

(2B) If a company R & D credit is found to be unauthorised, the unuthorised amount is attributable to a claim by the company against its own tax.

What happens if R & D relief surrendered to key employees needs adjustment?

(2C) If an amount of R & D credit (the initial amount) surrendered to key employees requires adjustment because part of it was unauthorised, the correct amount (the relevant authorised amount) for each key employee is calculated as A x (B/C) where A is the part of the initial amount attributable to the employee, and B/C is the the correct fraction if the initial amount that may be surrendered – B being the correct amount surrenderable by the company, and C being the initial amount.

The company must notify each key employee of the correct R & D credit available to that employee (the relevant authorised amount).

How do I determine R & D expenditure attributable to a group company?

(3) The qualifying expenditure attributable to a particular group company for a relevant period is the amount specified in a notice made jointly to the appropriate inspector by the group members. Where no such notice is filed, it is the amount calculated by the formula-

Q x C
G

where:

Q is the qualifying group expenditure on research and development in the relevant period,

C is the expenditure incurred by the company on research and development in the relevant period while the company is a group member, and

G is the group expenditure on research and development in the relevant period.

Where the relevant period coincides with a company’s accounting period, the research and development expenditure attributable to the company is the full amount of that expenditure; otherwise the expenditure is time-apportioned to the part of the relevant period falling within the accounting period.

What happens if my R & D credit exceeds my tax liability?

(4) If your R & D tax credit exceeds your corporation tax for an accounting period, the excess is to be carried forward and used against the next (and subsequent) accounting periods.

Can I carry back R & D credit against the CT of the immediately preceding chargeable period?

(4A) Yes. If your tax credit exceeds your CT charge for the period, you may claim to have the excess carried back for offset against the CT of the preceding accounting period.

A condition of this carry-back relief is that it be carried back into an accounting period of equal length to the period in which the relief arises.

Can my R & D tax credit give rise to a refund of tax?

(4B) Yes. If, after carrying back the credit for use against the CT of the preceding accounting period, there remains an excess, you get in three instalments:

(a) The first 33% of the excess is to be repaid before the CT filing date for the accounting period in which the expenditure was incurred.

(b) Any remaining excess is offset against the CT for the next accounting period. 50% of any further excess is to be repaid within 12 months following the CT filing date for the accounting period in which the expenditure was incurred.

(c) Any further remaining excess is offset against the CT for the second accounting period following the accounting period in which the expenditure was incurred. Any final balance is to be repaid within 24 months of the CT filing date for the accounting period in which the expenditure was incurred.

Can a successor company claim unused R & D credits of its predecessor?

(4C) Provided the successor company and its predecessor were members of the same group at the time of the transfer, and the successor continues to carry on the predecessor’s R & D activities for two years after the transfer, the successor may carry forward any unused R & D credits of the predecessor.

What is the time limit for claiming R & D tax credit?

(5) To qualify, a claim for R & D tax credit must be made within 12 months of the end of the accounting period in which the expenditure was incurred. (This is a very short time frame compared to the four year period that was allowed previous to the Finance (No. 2) Act 2008.)

Are there rules setting out what qualifies as R & D activities?

(6) The Minister for Enterprise, Trade and Employment may make regulations providing that certain activities qualify, or do not qualify, as research and development activities.

Such regulations may not be made until a draft of the regulations has been approved by Dáil Éireann.

Who apart from Revenue may assess an R & D claim?

(7) In relation to a claim for R & D relief, Revenue may:

(a) Consult with any person who may help them determine whether expenditure incurred by your company relates to your R & D activities, and disclose details of the claim to the consultant, notwithstanding Revenue secrecy obligations in relation to your tax affairs.

(b) Reveal to you the identity of the consultant, and the information Revenue intends to disclose to the consultant, before making such disclosure. If you can show that the disclosure would be prejudicial to its business, Revenue must not make the disclosure.

Is a refund of R & D tax credit be regarded as “income” for tax purposes?

(7A) No.

Is a refund of R & D tax credit regarded as an overpayment of CT?

(7B) A refund of R & D credit is deemed to be an overpayment of corporation tax, for the purposes of section 960H(2).

Penalties are calculated by reference to the difference between the tax that would have been payable and the tax paid (section 1077E). As regards a claim for a refund of R & D credit (i.e., a claim in respect of a specified amount) “tax that would have been payable” is to be read as if it were a reference to a specified amount.

A company found to have made an unauthorised R & D credit claim may be assessed under Schedule D Case IV for the accounting period in respect of which the payment was made or the amount surrendered, in an amount equal to four times the unauthorised amount.

Where an unauthorised amount is surrendered to an employee the company may be assessed under Schedule D Case IV in an amount equal to 8 times the unauthorised amount.

Where an inspector assesses a company to recover an unauthorised R & D claim, the amount charged is deemed to be tax due and is liable to interest from the date the credit was refunded by Revenue, or in the case of a surrendered credit the date the corporation tax was payable, as the case may be

Can research and development expenditure associated with a ceased centre be clawed back?

(7C) Yes. If a group carries out R & D in several centres, and one such centre ceases to be used for a group member’s trade and is not used by any other group member, the R & D expenditure pertaining to that centre is to be excludedwhen calculating the threshold amount for any relevant period after the cessation.

This clawback is disapplied if

(i) the research and development centre is used for the purposes of a group member’s trade, or

(ii) activities substantially the same as the activities carried on in the ceased centre are carried on by another group member in the State.

The clawback, which is charged under Schedule D Case IV, is based on the increased qualifying group expenditure resulting from the reduction in the threshold amount.

These changes take effect from 1 January 2010.

Can Revenue delegate their authority to consult third parties?

(8) Yes.

 

Section 766A Tax credit on expenditure on buildings or structures used for research and development

Research and Development (R&D) Tax Credits: Tax Briefing Issue 83 – 2009

Finance (No.2) Act 2008 changes

Section 766 provides a tax credit against a company’s corporation tax in respect of expenditure on research and development (R & D). This section supplements section 766 by providing a tax credit on expenditure on buildings used for R & D.

What definitions apply to expenditure on buildings or structures used for R & D?

(1) This section gives an R & D tax credit in respect of relevant expenditure, i.e., expenditure incurred on the construction of a building or structure which is to be used wholly and exclusively for R & D activities in an EU Member State.

It does not include expenditure incurred by an Irish resident company if such expenditure-

(a) is tax-deductible as a business expense,

(b) qualifies for plant and machinery allowance,

(c) qualifies for any other relief,

in relation to foreign tax.

A building is a qualifying building if not less than 35% of the building is attributable to R & D activites carried out over a four year period (the specified relevant period). That period commences on the date that the building is first used for the trade. In the case of a refurbished building, it commences on the date the refurbishment is complete, or the company may elect to commence the four year period within four years prior to the date on which the refurbishment commenced.

Expenditure is not regarded as having been incurred to the extent that it has been met by grant aid from the State or a State-funded body.

Where a building is part of a larger development, the total expenditure on the development is to be apportioned in order to arrive at the qualifying expenditure.

Expenditure on construction includes expenditure on refurbishment, i.e., construction type work carried out in repairing, restoring or maintaining the building or structure. This includes the provision of water, sewerage or heating facilities in the course of such work.

Two companies are members of a group if one is a 51% subsidiary of the other or both are 51% subsidiaries of a third company. In this regard shares held as trading assets do not count as percentage holdings. To ensure a genuine parent-subsidiary relationship exists, the parent must also be entitled to more than half of the subsidiary’s profits (section 414) available for distribution to its equity holders (section 413), and at least 50% of the assets available for the subsidiary’s equity holders on a notional winding up (section 415).

A company and its 51% subsidiaries form a group. A company which is not a member of a group is treated as a member of its own “group”.

Can R & D building tax credit be clawed back?

(2)-(3) Yes. If the building is sold, or ceases to be used for R & D purposes of the trade within 10 years of the beginning of the accounting period in which relief was claimed, there is a clawback. However, see (3A) below, which allows unexpired R & D credits on a building transferred from a predecessor to a successor in the same group to be claimed by the successor.

The clawback is assessed under Schedule D Case IV and is equal to 25% of four times the aggregate amount by which the company’s CT was reduced, plus any tax credits already refunded by Revenue.

Cn a successor company carry forward unused building R & D credits of its predecessor?

(3A) Provided the successor company and its predecessor were members of the same group at the time of the transfer, and the successor continues to carry on the predecessor’s R & D activities for two years after the transfer, the successor may carry forward any unused R & D credits of the predecessor (section 766(4C)).

A similar relief applies for unused R & D credits relating to a building. The clawback rule in (3)(i)-(ii) is suspended, and the successor can carry forward the unused credits of the predecessor.

How can any excess tax credit be used?

(4) If R & D tax credits exceed corporation tax for an accounting period, the excess is carried forward and used against the next (and subsequent) accounting periods.

If a group member has excess credit, it may surrender the excess to another group member for offset against that other member’s corporation tax for the corresponding accounting period.

Any amount surrendered in this manner may not be carried forward by the company.

Can an R & D credit be carried back?

(4A) If a tax credit exceeds the CT charge for the period, the excess may be carried back for offset against the CT of the preceding accounting period.

A condition of this carry-back relief is that it be carried back into an accounting period of equal length to the period in which the relief arises.

Can R & D credit give rise to a refund of tax?

(4B) Yes. If, after carrying back the credit for use against the CT of the preceding accounting period, there remains an excess, you get in three instalments:

(a) The first 33% of the excess is to be repaid before the CT filing date for the accounting period in which the expenditure was incurred.

(b) Any remaining excess is offset against the CT for the next accounting period. 50% of any further excess is to be repaid within 12 months following the CT filing date for the accounting period in which the expenditure was incurred.

(c) Any further remaining excess is offset against the CT for the second accounting period following the accounting period in which the expenditure was incurred. Any final balance is to be repaid within 24 months of the CT filing date for the accounting period in which the expenditure was incurred.

Is there a time limit for claiming R & D tax credit?

(5) To qualify, a claim for R & D tax credit must be made within 12 months of the end of the accounting period in which the expenditure was incurred.

Can R & D credit be claimed on a building that is not used exclusively for R & D?

(6) The proportion of use which is “just and reasonable” may be claimed. If that proportion ceases to be just and reasonable, a new proportion must be agreed with the Inspector.

Is a refund of R & D credit regarded as “income” for tax purposes?

(7) A refund of R & D credit is not regarded as “income” for tax purposes.

Is a refund of R & D credit regarded as an overpayment of CT?

(8) A refund of R & D credit is treated as an overpayment of CT.

Section 766B Limitation of tax credits to be paid under section 766 or 766A

How are payroll liabilities defined for the purposes of R & D credit?

(1) Payroll liabilities are the total of:

(a) the PAYE that must be remitted to the Collector-General in respect of employees and directors,

(b) the PRSI that must be remitted in respect of directors and employees,

(c) any levies that must be remitted in respect of your directors and employees.

In regard to R & D credit, does PRSI include levies?

(2) Yes.

Is there a limit on the R & D credit that may be claimed?

(3) Yes. The maximum claim is the greater of:

(a) the CT paid for accounting periods ending in the 10 years immediately preceding the accounting period in which the expenditure was incurred, as reduced by any credits already repaid, and

(b) the company’s payroll liabilities for the accounting period in which the expenditure was incurred.

Section 767 Payment to universities and other approved bodies for research in, or teaching of, approved subjects

Amendments

Section 767 repealed by section 848A(13), as inserted by Finance Act 2001 section 45(1).

Section 768 Allowance for know-how

What definitions apply to allowances for know-how?

(1) A person controls a company if either through holding shares or through special voting powers, he/she can ensure that the company’s affairs are conducted in accordance with his/her wishes.

A person controls a partnership if he/she has a right to more than half of the partnership income or assets.

Know-how means industrial information and techniques used in agricultural, forestry, fishing, mining and manufacturing operations.

How is pre-trading expenditure on know-how treated?

(2) Pre-trading expenditure on know-how is treated as incurred on the first day of trading.

A trader may deduct the cost of acquiring know-how as a business expense when computing profits for tax purposes.

Is a deduction given if I buy the know-how and a connected person buys the trade?

(3) You are not entitled to a deduction for ‘know-how’ expenditure if you buy the know-how and a person connected with you buys the trade.

This Is intended to discourage a purchaser from inducing a seller of a business to describe part of the consideration as know-how, thereby qualifying for a “deduction”. The “deduction” is not given.

Do anti-avoidance rules apply?

(3A) To qualify for tax relief, expenditure must be on know-how acquired for bona-fide commercial reasons, and not as part of a tax avoidance scheme.

Is a deduction given if the seller controls the buyer or the buyer controls the seller?

(4) No deduction is given for the cost of know-how bought from a body of persons which is controlled by the buyer or sold to a body of persons controlled by the seller.

Can Revenue consult a third party in order to assess a claim?

(5) Revenue may consult an expert in valuing claims for expenditure on know-how. In doing so, they are not bound by official secrecy as regards the details of the claim.

Before consulting the expert, Revenue must notify the claimant of the expert’s identity and the information they intend to disclose.

Revenue must not make the disclosure if it is shown to their satisfaction that disclosure could prejudice the trade.

What happens if know-how allowance is oveclaimed?

(6) Revenue will withdraw the excess relief by making an assessment under Schedule D Case IV for the period in question.

Is the deduction for know how superseded by the new allowance for intangible assets (section 291A)?

(7) The deduction for know how ceases to apply to companies from 7 May 2009. However, a company may elect for a two year extension (see (4)).

When does election for a deduction in respect of know how cease?

(8) During 7 May 2009 to 7 May 2011, a company can elect for a deduction in respect of purchased know how (instead of the period in section 291A).

Such an election must be made in the self-assessment return not later than 12 months after the end of the accounting period in which the expenditure was incurred.

Section 769 Relief for training of local staff before commencement of trading

How is relief for training staff before commencing to trade given?

(1) Pre-trading expenditure by a manufacturer on recruitment and training of staff (a majority of whom are Irish citizens) qualifies for a three year writing down allowance beginning on the first day of trading.

For a company, the allowance is made in computing the company’s income for corporation tax, whereas for an individual, the allowance is made in charging profits for income tax.

What rules apply in computing the amount of the allowance?

(2) In computing the amount of the allowance:

(a) Pre-trading training or recruitment expenditure which would otherwise be non-deductible (section 81) remains non-deductible.

(b) Expenditure met by the State, or any person other than the claimant, is not deductible.

(c) Expenditure is treated as incurred on the day it becomes payable.

Note

In (a), capital expenditure remains non-deductible.

How can excess allowances be used?

(3) Any excess allowance that cannot be offset against taxable profits may be carried forward for set off against taxable profits of the next and later chargeable periods.

How is this allowance claimed?

(4) A claim for this allowance must be included in the income tax or corporation tax return.

Section 769A Interpretation (Chapter 4)

What definitions apply to transmission capacity rights?

(1) A company may write off over seven years capital expenditure incurred on acquiring capacity rights, i.e., the right to use wire, optical, or radio transmission networks to transfer voice, data, or information (see section 769B). From 6 February 2003, the term does not include expenditure on the acquisition of a telecommunications licence.

A person is regarded as controlling (section 432) a company if:

(a) he/she directly or indirectly controls, or can obtain control of, the company’s affairs,

(b) he/she can obtain more than half the company’s share capital or voting power,

(c) he/she is entitled to shares which enable you to receive more than half of the company’s distributable income, or

(d) he/she is entitled to more than half of the company’s assets on a winding up.

Does the sale of capacity rights include the granting of a licence?

(2) The sale of capacity rights includes the granting of a licence to use the such rights. A grant of an exclusive licence to use capacity rights (to the exclusion of the grantor and anyone else) is treated as a sale of the rights.

Section 769B Annual allowance for capital expenditure on purchase of capacity rights

What relief is available for capital expenditure on purchasing capacity rights?

(1) Qualifying expenditure on capacity rights may be claimed, for the duration of the writing down period, as a writing down allowance against the profits of a trade. From 6 February 2003, the definition of qualifying expenditure(section 769A) replaced the term capital expenditure. The new definition excludes expenditure on a telecommunications licence.

How long is the writing down period?

(2) The writing down period is seven years (or the number of years in a specified period greater than seven years), beginning at the start of the accounting period in which the expenditure is incurred.

Each writing down allowance within the writing down period is calculated by the formula-

A  x  B
C

where:

A is the qualifying expenditure on the purchase of the capacity rights,

B is the length of the part of the chargeable period within the writing down period, and

C is the length of the writing down period.

Example

On 1 May 2003, you commenced your e-commerce trade and incurred the equivalent of €840,000 capital expenditure on the purchase of capacity rights for seven years.

Therefore, the writing down period is the seven year period 1 May 2003 to 30 April 2010.

The writing down allowances are:

Chargeable period:
AP 8 months to 31 December 2003 80,000
Y/e 31 December 2004 120,000
Y/e 31 December 2005 120,000
Y/e 31 December 2006 120,000
Y/e 31 December 2007 120,000
Y/e 31 December 2008 120,000
Y/e 31 December 2009 120,000
Y/e 31 December 2010 (4 mths to 30 April 2010) 40,000
840,000

The allowance for a chargeable period shorter than 12 months is reduced in proportion to the number of months in that period.

Pre-trading expenditure is treated as having been incurred on the first day of trading. This rule does not apply if purchased capacity rights are sold by the intending trader before trading begins.

How does the allowance apply for inter group transactions?

(3) This anti-avoidance rule prevents artificial creation of an entitlement to an allowance in respect of capacity rights within a corporate group.

Where a company is a buyer of capacity rights from another company (the seller), it is not entitled to capital allowances on those rights if it and the seller are part of a group of companies, unless it was entitled to an allowance in respect of those rights.

In this regard, a group of companies means a company and any companies which it controls or with which it isassociated.

A company controls (section 432) another company if it can obtain control of that company’s affairs or if it can obtain more than half of the other company’s shares, voting power, distributable income or net assets (if the company is wound up).

A company is associated with another company if:

(a) persons having a reasonable commonality of identity have (or have had) the power to control, directly or indirectly, the trading operations of both companies,

(b) persons having a reasonable commonality of identity control both companies.

Section 769C Effect of lapse of capacity rights

When does a balancing event arise?

(1) A balancing event arises if, before the end of the writing down period:

(a) the rights comes to an end or completely ceases to be used, or

(b) the rights, or the part still owned, is sold,

(c) part of the rights are sold and the net sale proceeds are not less than the remaining unallowed expenditure.

No writing down allowance is given for the chargeable period in which the balancing event occurs, or for any subsequent chargeable period.

The balancing event requires a balancing adjustment, i.e., an additional capital allowance (a balancing allowance) or a reduction or withdrawal of a capital allowance already given (a balancing charge).

The balancing adjustment is to ensure that the trader receives the proper writing down amount (and no more or no less) for the quota.

Once the writing down period has expired, no balancing adjustment can arise.

When is a balancing allowance given?

(2) A balancing allowance equal to the remaining unallowed expenditure less the net sale proceeds (if any) is given where:

(a) the rights comes to an end or completely ceases to be used, or

(b) the company sells all or part of the rights and the net sale proceeds are less than the remaining unallowed expenditure.

Example

Your company spends the equivalent of €700,000 on capacity rights for seven years, which is to be written off at €100,000 per year for each of the chargeable periods y/e 31 December 2003 to 31 December 2009.

remaining unallowed
Year ended 31 December 2003 annual allowance 100,000 600,000
Year ended 31 December 2004 annual allowance 100,000 500,000
year ended 31 December 2005 annual allowance 100,000 400,000
year ended 31 December 2006 annual allowance 100,000 300,000

You sell the quota on 1 January 2007 for €250,000. The sale is a balancing event, and will require a balancing adjustment.

No annual allowance will be given for chargeable period y/e 31 December 2007 to 31 December 2009.

Remaining unallowed expenditure 300,000
Less: net proceeds of sale 240,000
= balancing allowance 60,000

See (4) below to see how the allowance is given.

When does a balancing charge arise?

(3) Where all or part of the capacity rights are sold and the net sale proceeds exceed the expenditure remaining unallowed, a balancing charge equal to the excess arises.

Example

Take the facts of the previous example, but assume you sold the rights for €370,000.

Net proceeds of sale 370,000
Less: remaining unallowed expenditure 300,000
= balancing charge 70,000

Are future allowances affected if part of the capacity rights are sold and no balancing charge arises?

(4) Where an owner of capacity rights sells part of the rights, and no balancing charge arises on the transaction, the future allowances on the part retained must be adjusted.

The expenditure remaining unallowed (for the current and subsequent chargeable periods) is reduced by the net sale proceeds. The resulting figure is allocated in equal instalments to the remaining complete years of the writing down period.

Example

Continuing with the facts to the Example to (2):

Remaining unallowed expenditure 300,000
Less: net proceeds of sale 240,000
= balancing allowance 60,000
This allowance is allocated as follows:
remaining
unallowed
year ended 31 December 2007 annual allowance 20,000 40,000
year ended 31 December 2008 annual allowance 20,000 20,000
year ended 31 December 2009 annual allowance 20,000 nil
60,000 60,000

What is meant by the expenditure remaining unallowed?

(5) The expenditure remaining unallowed means the initial qualifying expenditure, less any capital allowances given before the chargeable period in which the balancing adjustment event takes place, less the net sale proceeds arising from any previous sale of part of the rights.

Are there limits on a balancing allowance or charge?

(6) A balancing allowance is not to be made unless a writing down allowance has been or could have been made.

A balancing charge can never exceed the net allowances which was granted to you for the rights.

Section 769D Manner of making allowances and charges

How is an allowance or charge made under the transmission capacity rights regulations?

(1) An allowance or charge in respect of expenditure on capacity rights which a company uses in its trade is made in taxing the trade, i.e., in charging its profits for corporation tax under Schedule D Case I.

What if the capacity rights are not being used in the trade?

(2) In any other case, an allowance is made by way of discharge or repayment of tax and may be made against income from capacity rights, while a charge (for example a balancing charge) is made under Schedule D Case IV.

Section 769E Application of Chapter 4 of Part 9

Do the normal capital allowance rules apply to capacity rights?

(1) The capital allowance rules in Part 9 Chapter 4 apply to capacity rights capital allowances in this Chapter.

Can companies under common control opt to substitute tax written down value?

(2) A company (or partnership) under common control may, where the tax written down value is lower, opt to substitute the transferred asset’s tax written down value for its open market value.

This option is available where the transferred asset consists of capacity rights.

If this option is taken, the selling company does not have a balancing charge, and the buying company may write off a reduced figure over the remaining life of the asset. However, if the buying company subsequently sells the asset for more than its tax written down value, the balancing charge must take account of the allowances already given to the selling company.

Because this option simply moves a balancing charge from the seller to the buyer, it is not normally available if one of the companies is non-resident, as it might prove impossible to collect any balancing charge from the non-resident buyer.

However, the option is allowed if the non-resident company is trading through a branch or agency in the State.

Section 769F Commencement (Chapter 4)

On what date does this Chapter come into operation?

This Chapter comes into operation from 28 March 2003.

Section 769G Interpretation and general

What definitions apply to this chapter?

(1) Acquisition costs are expenditure on the acquisition of intellectual property or rights over intellectual property but only where the price is an arm’s length price;

 Group acquisition costs are costs of developing intellectual property with would be qualifying expenditure but for the fact that they were incurred outside the EU or were deductible expenditure in another state;

  Intellectual property means a computer program to the extent that it is a derivative work, an invention protected by a patent or other protection certificate or any plant breeders rights; 

 Interest includes interest on debt instruments, any discount on the issue of the instrument or premium on its redemption;

 Overall expenditure on the qualifying asset means the qualifying expenditure on the asset and the acquisition costs and group outsourcing costs relating to the asset for an accounting period;

 Overall income from the qualifying asset means royalties, licence fees, insurance, damages or compensations and sales proceeds (net of VAT and duty). If the sale proceeds do not solely relate to a qualifying      asset they must be apportioned on a just and reasonable basis;

 Qualifying asset means intellectual property other than marketing related intellectual property;

 Qualifying patent means a patent granted for novelty and inventive step which has industrial application;

 Relevant company means a company that carries on a specified trade and is liable to tax in the State;

 Uplift expenditure is the lower of 30% of the qualifying expenditure or the aggregate of acquisition costs and group outsourcing costs.

 What is “qualifying expenditure”?

(2)(a) Qualifying expenditure is expenditure incurred by a relevant company wholly and exclusively on research and development in a EU country that leads to the development of qualifying intellectual property. The expenditure must be deductible in computing the profits of the trade (but does not include capital allowances) and expenditure on plant and machinery (but not on specified intangible assets that qualify for capital allowances). Amounts paid to an outside person to carry on research and development on behalf of the company also qualify.

 (b) Qualifying expenditure does not include, acquisition costs of the asset, interest, amounts paid to a group member to carry on R & D, expenditure under a cost sharing agreement with another company that exceeds an arm’s length amount, an amount paid through a group member to a non-group member for R & D where the amount is retained by the group member and  expenditure that is allowable in another country.

 What is a “specified trade”?

(3)(a) A specified trade is a trade of managing and exploiting intellectual property, R & D leading to an invention or creation of intellectual property and the sale of goods or supply of services that derive their valfrom    the foregoing activities.

 (b)Where a trade consists partly of carrying on the foregoing activities and partly of other activities only the part consisting of the former is a specified trade.

 How is expenditure incurred before the specified trade commences treated?

(4) It is deemed to be incurred in the first accounting period of the company.

Section 769H Families of products and assets

To what does this section apply?

(1) The section applies to relevant companies that have a number of qualifying assets that are so interlinked that it is not possible to identify the costs or income related to the individual qualifying assets.

What are “families of assets”?

(2) “Families of assets” are the smallest grouping of interlinked qualifying assets for which it is possible to identify the related costs and income.

What option is available to a relevant company?

(3) The company can opt to have a family of assets treated as a qualifying asset.

Section 769I Corporation tax referable to a specified trade

How are qualifying profits of a specified trade calculated?

(1) Qualifying profits are calculated by reference to the formula.

How is a claim for relief made?

(2) A relevant company make claim relief in its corporation tax return. The claim must be made within 24 months of the end of the period to which the claim relates. when a claim has been made in respect of a intellectual property then the related income is deemed tyo continue until the asset is disposed of or ceases to be used.

How is the specified trade treated?

(3) It is treated a a separate trade from any other carried on by the company.

How is the profit of the specified trade (QA in the formula) determined?

(4) Income is the income from the intellectual property. Expenses can, if necessary,be determined by a just an reasonable apportionment to the specified trade on an arm’s length basis. The basis of apportionment must be consistently applied in subsequent years unless there is a significant change in the conduct of the company’s business.

What relief is given?

(5) 50% of the qualifying profits from the intellectual property can be deducted as a trading expense. In effect this reduces the CT on those profits to 6.25%.

Can Revenue engage the services of experts?

(6)(a) Yes. Revenue can consult with experts to determine the extent ot which income and expenditure relates to the relevant intellectual property  and whther the intellectual property qualifies for releif and whether the    apportionment of expenses is just and reasonable. Revenue’s obligations of secrecy are waived to the extent that it is necessary to dioclose information to the expert.

 (b) Before disclosing information to an expert a Revenue officer must notify the company of their intention and give details of the information to be disclosed and to whom.The company may within 30 days of the notification show to the officer’s satisfaction that such disclosure could prejudice its business. If the officer is not so satisfied the officer may, 30 days after so notifying the company, make the disclosure. If the company is aggrieved by the officer’s decision it may within that 30 days appeal to the Appeal Commissioners.

Section 769J Interaction with sections 766, 766A and 766B

How is an excess R & D credit affected by this chapter?

The excess R & D credit allowed by section 466(4B) cannot be increased by reference to this chapter.

Section 769K Adaptation of provisions relating to relief for relevant trading losses and relevant charges on income

How are trading losses or trading charges of a “knowledge box” trade treated?

(1) Losses or charges that relate to non-higher rate income (losses and charges allowed on a value basis) are reduced by the amount determined by the formula.

What further reduction is made to loss relief?

(2) The amount of loss relief, charges relief or group relief is reduced by 50% and in the formula for value based relief R is reduced to 6.25%. This reflects the fact that the rate of corporation tax applied to “knowledge box” income is 6.25% not 12.5%.

Section 769L Documentation

What documents are claimant companies required to keep?

(1) The company must keep such documents as are necessary to show that the qualifying profits have been correctly computed. They must show that overall income, qualifying expenditure and overall expenditure in relation to the intellectual property asset have been tracked and they must show the link to the asset. Where the claim relates to a “family of assets” the records must be such as establish that it was reasonable for the company to opt for that treatment and show how the links between the assets and related expenditures were established. A company that claims that derivative or adaption work is a qualifying assets must have records that identify the original work and the derivative or adaptation work, the related costs and how they were apportioned.

From when must documentation be kept?

(2)The section does not apply to expenditure before 1 January 2016.

When must the records be prepared?

(3)-(4) The records must be prepared on a timely basis. They must be retained for a period of 6 years following the end of the period in which an asset ceases to be a qualifying asset.

Can Revenue request information?

(5) An officer of the Revenue Commissioners may by notice in writing require a company to furnish such particulars as are necessary in relation to this relief.

Can Revenue make regulations?

(6) Yes. Revenue may make such regulations as they deem necessary for the efficient operation of the relief. Such regulations must be laid before Dáil Éireann.

What is the consequence of failing to make documentation available to Revenue?

(7) A claimant company that fails to provide required documentation will not qualify for relief in the accounting period to which the failure relates.

Section 769M Anti-avoidance

What anti-avoidance rule applies?

The income and expenditure related to intellectual property assets must be received and incurred for bona fide commercial purposes and not for any purpose of tax avoidance.

Section 769N Application of Part 35A

Do the transfer pricing rules apply to claimant companies?

Where the transfer pricing rules apply to a claimant company they must be applied to determining the market value of intellectual property and any apportionments of income and expenditure required for the purposes of the relief.

Section 769O Transitional measures

Can any pre-1 January 2016 costs be claimed?

(1) Yes. In relation to accounting periods between 1 January 2016 and 31 December 2019 qualifying profits can be determined by including

 (a) acquistion costs incurred before 1 January 2016,

(b) group outsourcing costs, including apportioned costs where there is more than one qualifying asset, incurred before 1 January 2016, and

(c) qualifying expenditure on qualifying assets in the 48 months before the end of the accounting period calculated in accordance with the rules in this chapter and as a portion of total qualifying expenditure which is incurred before 1 January 2016.

How are qualifying profits from 1 January 2020 determined?

(2)(a) Acquisition costs incurred prior to 1 January 2016 can be include;

(b) group outsourcing costs incurred prior to 1 January 2016 can be included, and

(c) no qualifying expenditure incurred before 1 January 2016 can be included.

Must there be records to support these calculations?

(3)-(4) Yes. Records as required by section 769L must be available and records existing before 1 January 2016 can be used if they satisfy the requirements of that section.

 

Section 769P Time limits

Can a claim be made before a patent is granted?

(1) Yes. A company may make a claim

(a) in the period the application for a patent is submitted but if the application is refused each return which claimed relief must be amended and any additional tax must be paid together with interest, or

(b) alternatively, in the year a patent is granted a Revenue officer may amend assessments back to the year of the application and tax may be repaid accordingly.

Can a protective claim be made?

(2) When a company intends to make a claim under (b) above it can make a protective claim in each year prior to the grant of the patent application but the amount claimed in the year of grant cannot exceed the amounts in the protective claim.

Section 769Q Application

To what years does this relief apply?

It applies to accounting periods commencing on or after 1 January 2016 and before 1 January 2021.

Section 769R Companies with income arising from intellectual property of less than €7,500,000

What definitions apply to this section?

(1) Average overall income from intellectual property means the overall income from intellectual property for an accounting period or the monthly average such income from the last 60 months by the number of months in the accounting period;

company threshold income is €7,500,000 which is proportionally reduce if the accounting eriod is less than 12 months;

intellectual property for small companies includes inventions certified by the Controller of Patents, Designs and Trade Marks as being novel and useful. This is a wider definition than applies to larger companies;

overall income from intellectual property means royalties, licence fees, insurance, damages or compensations and sales proceeds (net of VAT and duty). If the sale proceeds do not solely relate to a qualifying      asset they must be apportioned on a just and reasonable basis;

turnover threshold amount is €50,000.000 which is proportionally reduce if the accounting eriod is less than 12 months.

To what companies does this section apply?

(2) The section applies to companies with income from intellectual property which is not in excess of €7,500,000, which does not have a turnover from intellectual property in excess of €50,000,000 and which is a micro, small or medium sized enterprise as defined in EU regulations.

How is this chapter applied to these smaller companies?

(3) For these companies the definition of intellectual property in section 769G included intellectual property for small companies.

Must a smaller company maintain records?

(4) Yes. Such a company must maintain records as required by section 769L.

Section 770 Interpretation and supplemental (Chapter 1)

What definitions apply to occupational pension schemes?

(1) The administrator of a retirement benefits scheme (section 771) is the scheme’s manager or person responsible for administering the scheme. From 1 January 2005, you may be an administrator and also be based in another EU State.

An approved scheme is a retirement benefits scheme that has been approved by the Revenue Commissioners. Astatutory scheme is a retirement benefits scheme established by law.

A company director includes a member of the board of directors, and in the case of a one man company, that person. In addition, in the case of a company whose affairs are managed by the members, it means any member. The term also includes any past or future director.

An overseas pension scheme is a retirement benefits scheme established in another EU State which has implemented the relevant pensions Directive.

A state social security scheme is a system of mandatory protection provided by a government to ensure a minimum retirement income.

Additional voluntary contributions are pension contributions made by an employee:

(a) under a rule of his/her main pension scheme which specifically allows scheme members to make additional contributions, or

(b) under a separately arranged scheme which is associated with the main scheme.

A company employee includes any officer, director or manager of the company. It also includes any past or future employee.

A proprietary director (section 772(3B)) whose pension is held in an approved retirement fund (ARF) (section 784A), may opt on retirement to take up to 25% of the value of his pension fund as a tax-free lump sum.

This option is only available to an individual aged under 75, whose trustees transfer €63,500 (or the fund value if lower) to an approved minimum retirement fund (AMRF) (section 784C), or use that sum to buy an annuity payable to the individual.

In this regard, a proprietary director is a director who is able to control (either alone or through a spouse, minor child, or the trustee of a trust of which he/she is a beneficiary) more than 5% of the voting rights of the company of which he/she is a director. This test of control applies:

(a) at any time in the three year period ending on the date he/she retires or leaves service, or

(b) in the case of a pension payable to the spouse or ex-spouse of the director, on the relevant date, i.e., the date on which the decree of divorce or separation (under which the pension order was made) became final.

A relevant benefit is an employee pension, lump sum or gratuity, given when an employee retires or dies. It also includes such a payment given for past service, after the employee has retired or died. The term also includes a payment given for a change in the nature of an employee’s service. It does not include a death or disability payment arising from an accident at work.

A Personal Retirement Savings Account (PRSA) is an account into which tax deductible pension contributions may be paid (see section 787A).

Does the provision of relevant benefits for employees include providing them through a third party?

(2) For an employer, the provision of relevant benefits for employees includes the provision of benefits by means of a contract with a third person.

What other rules apply in relation to this chapter?

(3) More detailed administrative rules for employee pension schemes are contained in Schedule 23 and Schedule 23C.

Section 771 Meaning of “retirement benefits scheme”

What definitions apply to occupational pension schemes?

(1) The administrator of a retirement benefits scheme (section 771) is the scheme’s manager or person responsible for administering the scheme. From 1 January 2005, you may be an administrator and also be based in another EU State.

An approved scheme is a retirement benefits scheme that has been approved by the Revenue Commissioners. Astatutory scheme is a retirement benefits scheme established by law.

A company director includes a member of the board of directors, and in the case of a one man company, that person. In addition, in the case of a company whose affairs are managed by the members, it means any member. The term also includes any past or future director.

An overseas pension scheme is a retirement benefits scheme established in another EU State which has implemented the relevant pensions Directive.

A state social security scheme is a system of mandatory protection provided by a government to ensure a minimum retirement income.

Additional voluntary contributions are pension contributions made by an employee:

(a) under a rule of his/her main pension scheme which specifically allows scheme members to make additional contributions, or

(b) under a separately arranged scheme which is associated with the main scheme.

A company employee includes any officer, director or manager of the company. It also includes any past or future employee.

A proprietary director (section 772(3B)) whose pension is held in an approved retirement fund (ARF) (section 784A), may opt on retirement to take up to 25% of the value of his pension fund as a tax-free lump sum.

This option is only available to an individual aged under 75, whose trustees transfer €63,500 (or the fund value if lower) to an approved minimum retirement fund (AMRF) (section 784C), or use that sum to buy an annuity payable to the individual.

In this regard, a proprietary director is a director who is able to control (either alone or through a spouse, minor child, or the trustee of a trust of which he/she is a beneficiary) more than 5% of the voting rights of the company of which he/she is a director. This test of control applies:

(a) at any time in the three year period ending on the date he/she retires or leaves service, or

(b) in the case of a pension payable to the spouse or ex-spouse of the director, on the relevant date, i.e., the date on which the decree of divorce or separation (under which the pension order was made) became final.

A relevant benefit is an employee pension, lump sum or gratuity, given when an employee retires or dies. It also includes such a payment given for past service, after the employee has retired or died. The term also includes a payment given for a change in the nature of an employee’s service. It does not include a death or disability payment arising from an accident at work.

A Personal Retirement Savings Account (PRSA) is an account into which tax deductible pension contributions may be paid (see section 787A).

Does the provision of relevant benefits for employees include providing them through a third party?

(2) For an employer, the provision of relevant benefits for employees includes the provision of benefits by means of a contract with a third person.

What other rules apply in relation to this chapter?

(3) More detailed administrative rules for employee pension schemes are contained in Schedule 23 and Schedule 23C.

Section 772 Conditions for approval of schemes and discretionary approval

What is an approved scheme?

(1) An approved scheme is a retirement benefits scheme that meets the conditions listed in (2) and (3).

What conditions must an approved scheme meet?

(2) The conditions are:

(a) The scheme must be a bona fide scheme to provide relevant benefits in respect of your past service, to you or to your widow (or widower), children, dependants or personal representatives.

(b) The scheme is recognised by the employer and employees. Each member must be given written details of the scheme’s features.

(c) In the case of an overseas scheme, the scheme’s administrator has:

(i) entered into a written contract with Revenue which is legally enforceable in an EU State, and which is governed solely by Irish Law, and subject to the exclusive jurisdiction of the Irish courts as regards disputes, or

(ii) appointed an Irish resident agent who will be responsible for such duties and obligations, and notified Revenue of that person’s appointment and name.

(d) The employer must contribute to the scheme.

(e) The scheme is established in connection with your employer’s business in the State.

(f) Employee contributions are not refundable.

What conditions must apply to scheme benefits?

(3) The benefit conditions are:

(a) A pension is payable on retirement between the ages of 60 and 70 years or on earlier retirement through incapacity, in which case the pension must not exceed one-sixtieth of your final (annual) pay for each year of service up to a maximum of 40 years.

(b) The pension payable to a spouse, children or dependants, on death before retirement may not exceed the pension to which the employee would have been entitled had he/she lived.

(c) A lump sum provided to a spouse, children, dependants or personal representatives, may not exceed four times the employee’s final (annual) pay.

(d) The pension payable to a spouse, children or dependants, on the employee’s death after retirement may not exceed two-thirds of the pension to which he/she would have been entitled had he/she lived.

(e) A pension payable to children or dependants on the employee’s death (whether before or after retirement) may not exceed one-third of the pension to which he/she would have been entitled had he/she lived (i.e., one-half the widow or widower’s entitlement).

(f) In general, the pension must not be capable of being surrendered (cashed in), but the scheme may allow of the pension to be encashed on retirement.

The amount that may be cashed in (or commuted) must not exceed three-eightieths of the final (annual) remuneration for each year of service up to a maximum of 40 years.

(g) No other benefits are payable under the scheme.

Note

(a) Revenue accept a normal retirement age of 55 for directors engaged as money-brokers, dealers or managers of dealers (Revenue Precedent 6, October 1988), and firemen (Revenue Precedent, 18 February 1986).

Can a fund be transferred to an ARF?

(3A)(a) Revenue must not approve a retirement benefits scheme unless it allows an option, on or before normal retirement date to transfer to an approved retirement fund (ARF) the figure A – B where:

A is the current value of the fund (after having deducted the tax-free lump sum mentioned in (3)(f)), and

B is the minimum fund value which the trustees must transfer to an approved minimum retirement fund (AMRF) (section 784C) in the individual’s name, or use to buy an annuity payable to the individual.

(aa) A member of a “Defined Benefit” pension scheme may now, on retirement, opt to convert the part of his pension fund that relates to AVCs into an Approved Retirement Fund (ARF). In such cases, the maximum lump sum available is 1.5 times final salary (see subsection 3B(b) below).

(ab) Due to the depressed state of the stock markets, certain retiring individuals were given the option (see Revenue e-Brief 65/08) at retirement to defer the purchase of an annuity for two years. Such individuals may continue to take that option on or before 6 March 2011 provided the scheme rules have been changed to allow such option.

Example

On retirement, you have a fund of €110,000 (AVC derived fund in the case of defined benefit schemes)..

You can take €27,500 as a tax-free lump sum or up to 1.5 times final salary for defined benefit schemes.

If you already have the required minimum pension income (1.5 times the State Contributory Pension – section 784C(4)), or you are aged 75 or over, you can:

(i) withdraw the €82,500 balance in cash, subject to tax, or

(ii) transfer the €82,500 balance to an ARF, or use it to purchase an annuity the income from which will be subject to tax.

If you do not have the required minimum pension income, and you are aged under 75, you must place €63,500 in an AMRF, or use it to purchase an annuity payable to yourself immediately.

What rules apply to the ARF option?

(3B) If the ARF option in (3A) is taken:

(a) any payment in excess of the 25% tax-free lump sum is taxed under Schedule E (section 784(2B), see (iii) below), and the rules relating to ARF managers (section 784A), ARF conditions (section 784B), AMRF (section 784C), AMRF conditions (section 784D) and returns by fund managers (section 784E) apply as if:

(i) the annuity grantor is regarded as the trustee of the retirement benefit scheme,

(ii) the annuity contract is treated as a retirement benefits scheme, and

(iia) the limits (€63,500 ARF minimum, and €12,700 income) apply to individuals who opt on retirement to delay the taking of a deferred annuity.

(b) The tax-free lump sum may not exceed 25% of the value of your pension fund but in the case of a defined benefits scheme or where the individual is only commuting AVC benefits the maximum lump sum is 1.5 times final salary..

What is “the date on which the pension would otherwise be payable”?

(3C) Where the rules of an employee pension scheme allow an annuity to be bought from an annuity provider, “the date on which the pension would otherwise be payable” in (3A) is to be read as the latest date on which the annuity must be bought under those rules.

Can a scheme allow a transfer to a PRSA?

(3D) The fact that a retirement benefit scheme’s rules allow the following will not disqualify a scheme from Revenue approval:

(a) Where a member who has been with a scheme for 15 years or less, changes employment or the scheme is wound up, he/she may transfer the value of his/her entitlement (which has not yet become payable) to a PRSA to which he/she is a contributor.

(b) As a member, you may transfer the accumulated value of your additional voluntary contributions to the scheme to a PRSA to which you are a contributor.

Can a pension scheme borrow?

(3E) A retirement benefits scheme does not cease to qualify for relief if it contains a rule which allows the scheme to borrow.

Can a pension be commuted to pay tax on a BCE?

(3F) A retirement scheme does not cease to qualify because scheme rules entitle a member to commute his/her pension to discharge a tax liability arising from a benefit crystallisation event (BCE).

Can pension trustees pay insurance on the life of the pension owner?

(3G) A scheme does not cease to be approved if the trustees pay insurance premiums on the life of the pension owner.

Can a member encash his pension fund?

(3H) A member may opt to encash some or all of his pension fund by paying marginal income tax plus USC on the value of the fund. This does not prevent a scheme from qualifying.

Can a member encash AVCs?

(3I) A scheme will continue to qualify if a member opts to encash up to 30% of the value of AVCs in the three year period commencing on 27 March 2013.

Can Revenue approve a scheme that does not meet all of the conditions?

(4) Revenue may approve a retirement benefits scheme that does not meet all of the foregoing conditions, but in so doing, they may impose any additional conditions they consider necessary.

In particular, Revenue may approve:

(a) A scheme that provides a pension on retirement through incapacity which amounts to more than one-sixtieth of final (annual) pay for each year of service. They may also approve schemes that provide commutation payments in excess of three-eightieths of final pay for each year of service.

(b) A scheme that allows benefits to be paid within 10 years of the specified retirement age, or on earlier incapacity.

(c) A scheme that provides for the return, in certain circumstances, of employees’ contributions, with interest.

(d) A scheme operated by a business only partly carried on in the State, and a scheme operated by a non-resident.

Revenue must not approve a retirement benefits scheme unless it gives the proprietary director the options mentioned in (3A).

Can Revenue withdraw their approval?

(5) Revenue may, by written notice to the scheme’s administrator, withdraw their approval of a retirement benefits scheme.

Can a scheme change its rules without losing its approval?

(6) If a retirement benefits scheme is altered, the scheme’s approval is automatically withdrawn until the alteration has been approved by Revenue.

Can a scheme relate to a particular class of employees?

(7) In considering whether a retirement benefits scheme that relates to a particular class of employees satisfies the foregoing conditions, the scheme may be compared with other retirement benefit schemes for employees of that class. If the conditions are satisfied by both schemes taken together, they may be regarded as satisfied by each. Otherwise, neither scheme may be treated as fulfilling the conditions.

Section 772A Approval of retirement benefits products

How are “generic” pension products approved?

(1) Prior to the enactment of this section, Revenue needed to approve each retirement benefits product on an individual basis. This section allows Revenue to approve standard “generic” pension products (a single member retirement benefits scheme).

Such a product would typically be sold by a life assurance company authorised to carry on business in the State (apromoter) and secured by an insurance contract.

Can Revenue approve a generic retirement benefits product, i.e. the single member scheme?

(2) Revenue may approve a “generic” retirement benefits product. They may attach conditions to their approval.

Is a generic retirement benefits scheme entitled to tax relief?

(3) A Revenue-approved “generic” retirement benefits scheme is to be treated as an approved retirement benefits scheme for tax-relief purposes.

How is approval for a generic retirement benefits scheme obtained?

(4) In order to have a “generic” retirement benefits scheme approved for tax relief purposes, the promoter must:

(a) apply in writing to Revenue with details of the scheme on the appropriate Revenue form,

(b) supply any information Revenue may require.

What conditions must apply before Revenue can grant approval?

(5) Revenue must not approve a retirement benefits product unless the scheme’s terms and rules ensure that:

(a) the combined contributions paid by the employee and the employer do not exceed the age-related percentage limit,

(b) it meets the approved retirement fund (ARF) conversion conditions.

Is a scheme’s approval affected where its terms and rules are altered?

(6) If a scheme’s terms and rules are altered, then any approval given by Revenue prior to the alteration is ineffective unless Revenue approve the alteration.

Can Revenue withdraw a scheme’s approval?

(7) Revenue may withdraw a scheme’s approval if, in their view, the facts relating to the scheme cease to justify its continued approval. Revenue must notify the scheme’s promoter in writing that they have withdrawn their approval from the date specified in the notice.

What assessments will Revenue make on withdrawing a scheme’s approval?

(8) When Revenue withdraw a scheme’s approval because the rules have been altered (without approval), they must make make any assessments necessary to withdraw any tax relief already granted.

What happens where a retirement benefit product is altered?

(9) If a retirement benefit product (as opposed to its terms and rules: see (6)) is altered, then any approval given by Revenue prior to the alteration is ineffective unless Revenue approve the alteration.

Section 773 General Medical Services: scheme of superannuation

What rules apply to approval of a General Medical Services (GMS) scheme?

(1) Revenue may approve a doctor’s pension scheme (provided under the Health Act 1970 section 58) as if it were a retirement benefits scheme, even though the scheme may not fulfil all of the required conditions (section 772(2)-(3)).

General Medical Services (GMS) superannuation scheme: Inspector Manual 30.1.6, 30.1.7, 30.1.8

What interpretation rules apply in this section?

(2) In approving such a scheme, the doctor providing services under contract to the general medical service is regarded as an employee and his/her agreement is regarded as an employment contract.

Doctors may continue to contribute to a self-employed retirement annuity scheme in respect of non-GMS income. However, GMS income is excluded when calculating net relevant earnings for self-employed retirement annuity contributions (see example in (3)).

Does it make a difference if earnings are Case II?

(3) A scheme member’s contract earnings, if taxed as professional earnings under Schedule D Case II, are regarded as employment income taxed under Schedule E for the purposes of the retirement annuity relief (sections 783787).

Section 774 Certain approved schemes: exemptions and reliefs

The exemptions are for the pension fund; the reliefs are for the contributing employer and/or employee.

What is an exempt approved scheme?

(1) An exempt approved scheme is a Revenue approved retirement benefits scheme that has been established under irrevocable trusts. It also includes an overseas pension scheme and any other approved scheme which Revenue are satisfied qualifies as an exempt approved scheme.

Note

Irrevocable trust: this condition may be satisfied by the execution of a deed, a resolution of the board of directors, a resolution of partners or a separate declaration of trust. In the case of an insured scheme, the condition may be satisfied by including a trust condition in the policy conditions.

Pensions of FÁS and An Comhairle Oiliúna (AnCO) paid before 3 March 1976 are regarded as governmental. If paid on or after 3 March 1976, such pensions are regarded as non-governmental. The FÁS pension scheme received formal approval under section 774 (Revenue Precedent RT 115/93, 9 September 1993)

In what circumstances do the rules in this section apply?

(2) These rules apply to income arising from, and contributions made to, a scheme while it is an exempt approved scheme.

How does the income tax exemption apply?

(3) A scheme’s investment income is exempt from income tax. This exemption must be claimed and is only allowed if Revenue are satisfied that the income derives from scheme investments.

Are financial futures and traded options regarded as investments?

(4) Investment in this context includes a financial futures contract or a traded option, either of which is quoted on any futures exchange or stock exchange.

How is a scheme’s income from underwriting commissions taxed?

(5) A scheme’s income from underwriting commissions (normally taxed under Schedule D Case IV) is exempt from tax. This exemption must be claimed and is only be allowed if Revenue are satisfied that the income is reinvested in the scheme, or is otherwise used for the purposes of the scheme, for example, to meet expenses.

What is the tax treatment of employer contributions?

(6) Employer contributions paid to a scheme by an employer who is a trader or professional person are deductible when computing trading or professional profits for tax purposes. In the case of an investment company, employer contributions are deductible as a management expense.

The contributions are deductible in the computation for the chargeable period (accounting period or tax year basis period) in which the contribution is paid.

In so far as the business profits are subject to income tax or corporation tax, the deduction is limited to contributions you make for employees of your business.

A contribution paid by an employer that is additional to the ordinary annual contribution, may, at the discretion of Revenue, be treated as an expense of the chargeable period in which it is paid, or spread over several years (to be decided by Revenue).

How are an employee’s contributions treated for tax purposes?

(7) An employee’s ordinary annual contribution is deductible when computing employment income for the tax year in which the contribution is paid.

A special contribution paid that is additional to the ordinary annual contribution may, at the discretion of Revenue, be treated as an ordinary annual contribution of the tax year in which it is paid, or apportioned over several years (to be decided by Revenue). From 6 February 2003, the set back to previous years of a special contribution applies only in the case of:

(a) contributions deducted from a lump sum payable on retirement to provide for dependants’ benefits,

(b) contributions made on retirement to pay back a previous refund of contributions or benefits previously provided to the scheme member where the contributor had previously left the scheme.

The employee deduction, whether by way of ordinary or additional annual contributions, is limited to the following percentages of your salary (from the employment in respect of which you pay the contributions) for the tax year:

(a) Aged under 30: 15% of earnings.

(b) Aged 30-39: 20% of earnings.

(c) Aged 40-49: 25% of earnings.

(d) Aged 50-55: 30% of earnings.

(e) Aged 55-60: 35% of earnings.

(f) Aged 60 or over: 40% of earnings.

From 6 February 2003, if a contribution in a tax year exceeds the appropriate percentage limit, the excess is carried forward to the next tax year and treated as a contribution made in that year. If the carried forward contribution cannot be relieved in that next year, it may continue to be carried forward to subsequent years until it is relieved.

What time limit applies for making a contribution deductible for a tax year?

(8) For 2003 and later tax years, a non-ordinary contribution paid between the end of the tax year and the return filing date for that tax year is deductible in that tax year, provided a claim is made by the return filing date. Before 6 February 2003, this option was only available in respect of self-employed pension contributions. This subsection extends the same facility to PAYE employees.

Example

You are a PAYE employee aged 42, who earned €70,000 in the calendar year 2008 and paid pension contributions totalling €14,000 through your monthly salary. This amounts to 20% of your salary.

As you are aged between 40 and 49 inclusive, your maximum deduction is 25% of your employment earnings, i.e., €17,500. Therefore, you can make a further contribution of €17,500 – €14,000 = €3,500 before the return filing date for 2008.

Section 775 Certain approved schemes: provisions supplementary to section 774(6)

Can an employer get a deduction for contributions accrued but unpaid?

(1) The deduction for employer contributions made after 21 April 1997 is limited to the amount paid. No deduction is given for amounts accrued, but not paid.

How is the actual payment calculated?

(2) This is achieved by calculating the difference (the excess) between the total employer contributions for that chargeable period and the amount that would have been allowable (the relevant maximum) had this section applied for the entire period. The deduction is then limited to the amount paid (P) by limiting the deduction to the amount accrued (A) less the difference (if any) between the amount accrued (A) and the amount paid (P):

A – (A – P) = P

Where a chargeable period straddles 21 April 1997, the deduction for employer contributions in the part of the period after that date is limited to the amount paid.

Where an employer contribution is spread over several years, when is it treated as paid?

(3) An employer contribution that is treated as spread over several years (section 774(6)) is treated as paid when it is actually paid.

These rules apply to chargeable periods ending after 21 April 1997.

Section 776 Certain statutory schemes: exemptions and reliefs

What is meant by a “statutory scheme”?

(1) This section applies to a statutory scheme, i.e., a retirement benefits scheme established by law.

The following rules apply in relation to:

(a) Contributory pensions scheme for the spouses and children of civil servants.

(b) Pension schemes for spouses and children of local authority staff.

(c) Other spouses and children’s schemes constituted on the same lines as the above schemes.

How are employee contributions made to a statutory scheme treated?

(2) The ordinary annual contribution to a statutory scheme of an employee is deductible when computing her/his employment income for the tax year in which it is paid.

A special contribution paid that is additional to the ordinary annual contribution may, at the discretion of Revenue, be treated as an ordinary annual contribution of the tax year in which it is paid, or apportioned over several years (to be decided by Revenue). From 6 February 2003, the set back to previous years of a special contribution applies only in the case of:

(a) contributions deducted from a lump sum payable on retirement to provide for dependants’ benefits,

(b) contributions made on retirement to pay back a previous refund of contributions or benefits previously provided to the scheme member where the contributor had previously left the scheme.

“Spouses and childrens” contributions contributions by incentivised early retirees in the public sector also qualify for relief.

Relief is also extended to non-ordinary annual contributions made in the period 1 July 2008 to 31 December 2015 by employees of NUIG who were on fixed term contracts between 14 July 2003 and 30 June 2008.

The employee deduction, whether by way of ordinary or additional annual contributions, is limited to the following percentages of your salary (from the employment in respect of which you pay the contributions) for the tax year:

(a) Aged under 30: 15% of earnings.

(b) Aged 30-39: 20% of earnings.

(c) Aged 40-49: 25% of earnings.

(d) Aged 50-55: 30% of earnings.

(e) Aged 55-60: 35% of earnings.

(f) Aged 60 or more: 40% of earnings.

From 6 February 2003, if the contribution in a tax year exceeds the appropriate percentage limit, the excess is carried forward to the next tax year and treated as a contribution made in that year. If the carried forward contribution cannot be relieved in that next year, it may continue to be carried forward to subsequent years until it is relieved.

Note

An individual repaid to a scheme a refund of pension contributions he had already received, and was charged “interest” to restore the actuarial value of the refund received. Such “interest” is a pension contribution and qualifies for relief when paid (Revenue Precedent IT95-1503, 10 January 1995).

When is the 4 year time limit for claims relaxed?

(2A) Where a contribution on made under the “incentivised retirement scheme” or in respect of NUIG fixed term employees it will be allowed even if the year to which it relates is more than 4 years earlier. Where such a payment is made before 1 January 2015 it is treated as made in 2014.

What time limit applies in order for a contribution to be deductible for a tax year?

(3) For 2003 and later tax years, a non-ordinary contribution paid between the end of the tax year and the return filing date for that tax year is deductible in that tax year, provided a claim is made by the return filing date. Before 6 February 2003, this option was only available in respect of self-employed pension contributions. This subsection extends the same facility to PAYE employees.

Example

You are a PAYE employee aged 42 who earned €70,000 in the calendar year 2008 and paid pension contributions totalling €14,000 through your monthly salary. This amounts to 20% of your salary.

As you are aged between 40 and 49 inclusive, your maximum deduction is 25% of your employment earnings, i.e., €17,500. Therefore, you can make a further contribution of €17,500 – €14,000 = €3,500 before the return filing date for 2008.

Section 777 Charge to income tax in respect of certain relevant benefits provided for employees

Are employer contributions treated as taxable income of the employee?

(1) Contributions paid by an employer on behalf of employees are treated as taxable employment income of the employee for the tax year in which they are paid (but see section 778, which suspends the charge in the case of an approved scheme).

An arrangement (salary sacrifice) under which an employee waives his/her entitlement to remuneration or accepts a reduction in remuneration in return for a corresponding payment by you as the employer into the pensions scheme to enhance the employee’s benefit is regarded as an application of the employee’s income (Revenue Precedent 31, 15 March 1984).

What are the consequences if additional costs are incurred?

(2) Where the pension benefits that will ultimately accrue to an employee are not taxed in the employee’s hands, and those benefits are not adequately funded by her/his contributions, the additional cost of ensuring the ultimate provision of those benefits is taxed as income of the employee (see (3)).

How is the additional cost calculated?

(3) The additional cost may be calculated using whichever of the following methods is most appropriate in the circumstances:

(a) A series of annual payments, for each tax year the scheme is in force, required to fund the pension benefit up to and including the tax year in which the pension accrues (or in which it becomes apparent that it will never accrue).

(b) A single payment in the tax year in which the employee acquires the right to the pension benefit (or an increase in that benefit).

How does an employer treat a contribution made on behalf of a group of employees?

(4) An employer contribution paid on behalf of a group of employees is apportioned to the individual employees. The apportionment is based on the sum required to fund the benefits that will accrue to each particular employee.

What benefits are included for the purposes of this section?

(5) In this section, the benefits provided for an employee include benefits accruing to the employee’s spouse, widow or widower, children, dependants or personal representatives.

Section 778 Exceptions to charge to tax under section 777

When does the income tax charge in respect of employer contributions not apply?

(1) The income tax charge on an employee (in respect of contributions made by the employer) does not apply if the scheme is a Revenue approved scheme, a statutory scheme, or a scheme established by a foreign government for its employees.

Are employer contributions for non-taxable employees taxed?

(2) An employee who is not chargeable to income tax on employment income, or who is chargeable on the remittance basis, is not charged to income tax in respect of employer contributions made on her/his behalf for that tax year.

Is tax on an employer contribution that was in fact not made repayable?

(3) An employee who has been charged to tax in respect of a contribution made by her/his employer, and who can prove that no payment was in fact made, may apply for relief within six years of the event. The Revenue may then discharge the assessment, repay any tax paid or provide whatever relief is just and reasonable.

Section 779 Charge to income tax of pensions under Schedule E

Under what schedule are pensions taxable when paid?

(1) Pensions paid under a Revenue approved scheme, including an overseas pension scheme, or a scheme that is being considered for approval, are to be taxed as employment income under the PAYE system.

See also: Inspector Manual 30.1.3

Children’s pensions and orphans (non-contribution) pension

Inspector Manual 5.1.3, 30.1.9.

Can pensions ever be taxed as Case III income?

(2) Revenue may direct that pensions payable under a Revenue approved scheme or a scheme that is being considered for approval are to be taxed as annual payments under Schedule D Case III. Therefore the payer must deduct tax at the standard rate of income tax from each payment and remit that tax to Revenue.

Section 779A Transactions deemed to be pensions in payment

What rules apply to the use of scheme assets?

(1) This rule applies where use of assets held in a retirement benefits scheme would, if such assets were held by an ARF, be treated as distributed by the ARF. In such a case, the use of the assets is treated as payment of a pension (and accordingly, is subject to PAYE).

Example

You buy a property in Portugal with your pension fund, and you use it one month per year for holiday purposes.

The use of the asset is treated as a pension payment.

When an amount is deemed to be a pension payment, is it still a scheme asset?

(2) Where use of assets held in a retirement benefits scheme is treated as payment of a pension, the assets in question must no longer be treated as assets of the scheme.

How is the purchase or sale of property treated?

(3) If the purchase or sale of property gives rise to a pension payment, the property in question is no longer treated as an asset of the scheme.

Section 780 Charge to income tax on repayment of employees’ contributions

What tax arises if an employee gets a refund of contributions?

(1)-(2) A repayment to an employee during his/her lifetime, of contributions paid to an exempt approved scheme or a statutory scheme, is chargeable to tax.

Is the transfer of contributions to a PRSA treated as a refund?

(2A) Where contributions made to an occupational pension scheme are transferred to a PRSA, the transfer is not taxed as a repayment of contributions.

Does this tax charge apply if the employment was carried on outside the State?

(3) This tax charge does not apply to contribution repayments to an employee who was employed outside the State.

Does the tax charge apply if the scheme is no longer exempt approved?

(4) This tax charge does not apply to contribution repayments made by a scheme that is no longer an exempt approved scheme. The tax charge does apply if the scheme again becomes an exempt approved scheme.

How is the tax charged under this section?

(5) Tax is charged on the scheme’s administrator under Schedule D Case IV at standard rate on the contribution repayment.

The administrator of a statutory scheme established under public statute is entitled to retain the standard rate tax from any contribution repayment made to the employee.

How much tax is charged?

(6) The tax is charged at the standard rate on the gross contribution repayment, before any other deductions (including income tax). The amount taxed at the standard rate is not treated as income for any other purpose.

Can the tax rate in this section be amended?

(7) Yes. The Minister for Finance may make regulations to vary the income tax rate chargeable on the administrator (see (5)). Such regulations must be laid before and passed by Dáil Éireann.

Section 781 Charge to income tax: commutation of entire pension

When is tax chargeable on the commutation of a pension?

(1) Where the rules of an approved scheme or a statutory scheme allow an employee to commute his/her entire pension, tax is charged on the commutation payment made under these rules in so far as it exceeds:

(a) the maximum commutation payment in the case of a scheme that allows three-eightieths of the employee’s final pay, for each year of service up to a maximum of 40 years, to be commuted, or

(b) the maximum commutation payment in the case of a scheme that allows only part of the pension to be commuted,

whichever results in the lower tax charge.

Does the tax charge apply to a foreign employment?

(2) This tax charge does not apply to an employee who is employed outside the State.

How is the tax charged under this section?

(3) Tax is charged on the scheme’s administrator under Schedule D Case IV at 10%.

The administrator of a statutory scheme established under public statute is entitled to retain the 10% tax from any commutation payment made to you as the employee.

The 10% tax is charged on the gross payment, before any other deductions (including income tax). The amount taxed at 10% is not treated as income for any other purpose.

How do Revenue decide what part of the commutation payment is not to be taxed?

(4) In considering scheme rules (see (1)) that decide which part of the commutation payment is not to be taxed, Revenue must consider the terms of comparable retirement benefit schemes.

If the scheme is no longer approved, its rules at the time of withdrawal of approval are taken into account.

Section 782 Charge to tax: repayments to employer

How are contribution repayments taxed?

(1) A repayment to an employer of contributions paid (on behalf of an employee) to an exempt approved scheme is chargeable to tax.

In the case of a trader or professional person, the repayment is taxed as a trading or professional receipt at the time the payment is due, or the date the business ceased, whichever is earlier.

In other cases the repayment is taxed as a receipt under Schedule D Case IV. The repayment is taxed in proportion to the extent that a deduction was allowed on the original contributions.

Is a repayment due before the scheme was approved taxable?

(2) A repayment due before a scheme was approved as an exempt approved scheme is not taxed.

Are non-cash payments subject to these tax rules?

(3) A repayment to an employer includes a non-cash repayment, i.e., in the form of assets or money’s worth.

See Hillsdown Holdings plc and anor v IRC, [1999] STC 561.

Section 782A Pre-retirement access to AVCs

Can AVCs be encashed before retirement?

(1) For a period of 3 years from 27 March 2013 a member of an approved scheme or a statutory scheme may exercise a once-off option to access up to 30% of the accumulated value of the AVCs before retirement.

Where an AVC fund is subject to a pension adjustment order both the scheme member and the spouse/civil partner or former spouse/civil partner may exercise the option independently in respect of their proportion of the fund.

AVC contributions do not include regular contributions under the terms of a scheme, contributions from employers or contributions to purchase notional service.

How is the option to encash exercised?

(2) The individual gives an instruction in writing to the scheme administrator to exercise, only once, the option – called the “pre-retirement access option”. This can be done notwithstanding any other rule prohibiting access to the fund.

What is the “pre-retirement access option”?

(3) It is the transfer to the individual of up to 30% of the individual’s AVC fund.

Is the amount accessed taxable?

(4) The amount transferred is subject to tax under Schedule E. PAYE must be deducted by the administrator at the higher rate of tax unless a certificate of tax credits and standard rate cut-off point has been received by the administrator from Revenue for that year.

(Note: The payments are not subject to USC or PRSI.)

Must the administrator retain records?

(5) The administrator must retain a copy of the instruction for 6 years and produce it to Revenue if so required.

Is a payment a benefit crystallisation event?

(6) The amount transferred is not a benfit crystallisation event under section 787O(1)) or Schedule 23B.

Section 783 Interpretation and general (Chapter 2)

If you are engaged in a trade or profession or you hold a non-pensionable employment, you may make provision for a life annuity in your old age or for benefits payable to your estate or to your widow (or widower) or other dependants, and (subject to certain conditions) you may obtain relief from income tax on payments made under a contract or trust scheme designed to secure such benefits (Inspector Manual 30.2.1).

What definitions apply in relation to retirement annuities?

(1) If you are an individual whose pension is held in an approved retirement fund (ARF) (section 784A), you may opt on retirement to take up to 25% of the value of your pension fund as a tax-free lump sum.

This option is only available if you are aged under 75, if your trustees transfer €63,500 (or the fund value if lower) to anapproved minimum retirement fund (AMRF) (section 784C), or use that sum to buy an annuity payable to you.

A close company is a company controlled by:

(a) five or fewer participators (shareholders or loan creditors of the company (section 433)),

(b) participators who are directors.

A person is connected (section 10) with you if the person is:

(a) your spouse,

(b) a relative,

(c) the spouse of a relative,

(d) a relative of your spouse, or

(e) the spouse of a relative of your spouse.

A director of a body corporate means a member of its board of directors, and in the case of a body corporate whose affairs are managed by one person, that person. In addition, in the case of a body corporate whose affairs are managed by the members, it means any member. The term also includes any past or future director of the body.

An employee of a body corporate includes any officer, director or manager of the company. It also includes any past or future employee.

A proprietary director (or proprietary employee) is a director (or employee) who owns or is able to control more than 15% of the ordinary share capital of the company of which he/she is a director (or employee). In this regard, the director (or employee) is treated as owning or controlling ordinary share capital owned or controlled by his/her spouse, minor child, or the trustee of a trust of which he/she is a beneficiary.

A sponsored superannuation scheme is a scheme to provide future retirement, death or disability benefits for employees on account of their service where part at least of the cost of providing the benefits is borne by the employer, whether or not the employee also contributes.

An investment company is a company whose income consists mainly of investment income, i.e., income that in the hands of an individual would be non-earned income.

What is pensionable employment?

(2) An employment in which service counts under a sponsored superannuation scheme is a pensionable employment. From 1 January 2003, a sponsored superannuation scheme that merely provides pension or lump sum payable to your widow (or widower), children or dependants, on your death before retirement does not count in this regard.

A pensionable employment may include an employment performed outside the State, and an employment of a person not chargeable to tax, i.e., a non-resident.

The service of an employee who has an option to participate in a sponsored superannuation scheme does not count as service in a pensionable employment if he/she does not in fact participate in the scheme.

In calculating net relevant earnings (section 787), a contribution to a pension scheme which relates to a non-pensionable employment is is treated as a qualifying premium that has been relieved under this Chapter.

What is the meaning of relevant earnings?

(3) Relevant earnings means your income for a tax year from:

(a) a non-pensionable employment,

(b) property attaching to or forming part of that employment,

(c) a trade or profession (including, where you are a partner, your share of the partnership income).

Relevant earnings do not include payment from an investment company in which you are a proprietary director or proprietary employee.

Are relevant earnings of a spouse treated as though they were the employee’s own?

(4) Relevant earnings of an employee are considered separately from those of his/her spouse/civil partner even where they are jointly assessed to tax.

Example

01.07.2010 You left an employment to set up a trade in partnership, and you have the following earnings in the tax year 2010:

Salary from X Ltd. to 30 June 2010 (when you left the company) 6,000
Benefit in kind – use of car provided by X Ltd. 1,700
Directors fees from Y Ltd. 6,000
Benefit in kind – use of car provided by Y Ltd. 4,000
Schedule D Case I profits (before capital allowances) from 1 July 2010:
Your share of firm’s profits (as assessable for 2010) 52,000

You were a member of the X Ltd. pension scheme until you left the company – this counts as a sponsored superannuation scheme and therefore as a pensionable employment so that no earnings from that employment are “relevant earnings”. You do not participate in the pension scheme operated by Y Ltd. so that your directors fees do not count as from a pensionable employment.

Your relevant earnings for 2010, including your new trading profits are:

Directors fees from Y Ltd. 6,000
Benefit in kind – use of car provided by Y Ltd. 4,000
Schedule D Case I profits (before capital allowances) 52,000
Total of your relevant earnings 62,000

Each spouse has a separate net relevant earnings limit (section 787), and each spouse may separately fund his or her own retirement annuity, based on the level of his or her income.

What powers do Revenue have to make regulations relating to retirement annuities?

(5) The Revenue Commissioners may make regulations regarding:

(a) the form in which retirement annuity relief claims are to be made,

(b) the time limit for making a claim for retirement annuity relief,

(c) information to be delivered by the trustees of an approved trust scheme, and

(d) the application of income tax rules for the purposes of retirement annuity relief.

Such regulations must be laid before and passed by Dáil Éireann.

Is there a penalty for making a false statement in relation to a pension scheme?

(6) Yes. The penalty for making a false statement in relation to a pension scheme is €3,000.

Section 784 Retirement annuities: relief for premiums

When does retirement annuity relief apply?

(1) An individual who has (or had) relevant earnings chargeable to tax and who pays (or paid) a qualifying premium(under a Revenue approved annuity contract the main purpose of which is to provide a life annuity in old age), is entitled to retirement annuity relief.

From 6 April 1999 relief on premiums paid towards an ARF (see (2A)) may also be claimed.

A person who becomes non-resident may continue to pay premiums if there is a clear indication to return and resume the occupation which is the source of the relevant earnings (Revenue Precedent 15, 21 February 1992).

What conditions must an annuity contract satisfy to obtain Revenue approval?

(2) To obtain Revenue approval, an annuity contract must meet the following conditions:

(a) These conditions are subject to the ARF option (2A), and the Revenue’s right to approve contracts that do not meet all of these conditions (see (3) and section 876):

(i) It must be between the individual and a life annuity provider trading legally in the State. If not resident in the State, or not trading through a fixed establishment in the State, the annuity provider must be authorised under EU law to transact life assurance business.

(ii) The annuity must not be capable of being surrendered (commuted or “cashed in”, but see below) or assigned.

(iii) The annuity must commence to be payable to the individual on “retirement”, i.e., when he/she is between the ages of 60 and 75 (from 6 April 1999, previously 70) years. However, if the individual dies, the contract may provide for an annuity to be paid to his/her surviving spouse.

The contract may also provide, where no annuity is payable to the individual or his widow (or her widower), for the return of premiums together with reasonable interest and/or bonuses to the personal representatives of a deceased individual.

An annuity payable to the individual’s widow (or widower) may not exceed the annuity to which the individual would have been entitled had he/she lived.

The annuity may only be based on the annuitant’s life.

(b) An annuity contract may provide that up to 25% of the value of the annuity may, at the option of the individual, be cashed in (or commuted) to a tax-free lump sum payable on or before retirement (i.e., on or before the time the first annuity payment becomes payable to the individual).

(c) In (b), the value of the annuity may be commuted is to be taken as the gross value, before deducting any tax-free lump sum within (2A).

Note

(a)(i) Relief is given for payments made under a non-commutable, non-assignable annuity contract.

(a)(ii) An annuity may become payable between the ages of 60 and 70 even if the individual has not retired.

(a)(iii) Revenue accept a normal retirement age of 50 for badminton players, cricketers, croupiers, cyclists, dancers, divers, footballers, golfers (tournament earnings), jockeys (flat racing and National Hunt), motor cyclists (competitive), motor racing drivers, offshore riggers, rugby players (professional), speedway riders, squash players, table tennis players, tennis players, trapeze artists, and wrestlers.

Revenue accept a normal retirement age of 55 for airline pilots, firemen (part-time), inshore fishermen, money broker dealers, singers and trawler fishermen (distant water).

Revenue accept a normal retirement age of 60 for musicians (but brass instrumentalists may retire at 55).

(Revenue Precedent, 12 December 1988, Revenue Precedent 12, 7 March 1990, Revenue Precedent 17, 19 January 1998).

What options must be available in a Revenue approved annuity contract?

(2A) Revenue must not approve an annuity contract unless it allows you as a person whose pension rights are to be built up under the contract, the option to elect, on or before the date on which the annuity would otherwise commence to be payable, to take part or all of your pension rights:

(a) as cash (subject to tax: section 784(2B)), or

(b) by transfer to a different approved retirement fund),

the figure A – B where-

A is the current value of your pension fund, i.e., your accrued rights under the contract (after having deducted the €31,750 tax-free lump sum), and

B is the minimum fund value (€63,500 or the fund value if lower), the grantor of the annuity must transfer to anapproved minimum retirement fund (AMRF) (section 784C) in your name, or use to buy an annuity payable to you.

Where you have pension income (including a social welfare pension) of €12,700 per annum for life, or you are aged 75 or over, you need not invest in an AMRF. In other words, B is taken as nil (section 784C(4), (6)).

Example

On retirement, you have accumulated capital in your pension fund of €110,000.

You can take €31,750 as a tax-free lump sum.

If you already have pension income of €12,700 per annum, or you are aged 75 or over, you can:

(i) withdraw the €85,000 balance in cash, subject to tax (see (2B)), or

(ii) invest the €85,000 balance in an ARF, or use it to purchase an annuity the income from which will be subject to tax.

If you do not have pension income of €12,700 per annum, and you are aged under 75, you must place €63,500 in an AMRF, or use it to purchase an annuity payable to yourself immediately.

You may then-

(i) withdraw the €35,000 balance in cash, subject to tax (see 2B)), or

(ii) invest the €35,000 balance in an ARF.

Note

The value of money invested is the property of the investor and on death belongs to his/her estate.

How is encashment of the fund taxed?

(2B) If the value of your pension fund is cashed in (i.e., the option mentioned in (2A)(a)) is taken, income tax under Schedule E is charged on the amount payable (i.e., the amount not transferred to different approved retirement fund, (2A)(b)).

The pension scheme paying the fund value must deduct PAYE from the payment at the higher rate for the tax year in which the payment is made, unless it receives a tax-free allowance certificate or tax deduction card in respect of the recipient of the payment.

Can a retirement annuity contract allow transfer to a PRSA?

(2C) A retirement annuity contract does not cease to qualify for tax relief merely because it includes a provision which allows the fund value to be transferred to a PRSA to which the holder contributes.

Can a retirement annuity contract entitle a member to commute his/her pension to discharge tax on a BCE?

(2D) A retirement annuity contract does not cease to qualify because scheme rules entitles a member to commute his/her pension to discharge a tax liability arising from a benefit crystallisation event (BCE).

Does an an encashment option prevent an RAC scheme from qualifying for tax relief?

(2E) No.

Can Revenue approve an annuity contract that doesn’t meet all conditions?

(3) Revenue may approve an annuity contract that does not meet all of the foregoing conditions, and in so doing they may impose any additional conditions they consider necessary.

In particular, Revenue may approve an annuity contract that allows the annuity:

(a) to be paid to a dependant other than a surviving spouse/civil partner,

(b) to be paid before an individual reaches 60 years of age because mental or physical disability prevents him/her working,

(c) to be paid before 60 years of age, but after 50 years of age, where the normal retirement age for the occupation is between those ages,

(e) to be paid for a fixed period of up to 10 years, even if the annuitant dies within that period, or not to be paid if the recipient (for example, the deceased’s widow or widower) remarries,

(f) payable for a fixed period to be assignable by the individual’s will, or by a deceased individual’s personal representatives in giving effect to his will or to the rights on intestacy of the beneficiaries of his/her estate.

See also: Inspector Manual 20.1.2.

Does RAC relief apply to contributions to a Revenue approved trust scheme?

(4) A person who has relevant earnings is chargeable to tax and who pays a contribution under a Revenue approved trust scheme is also entitled to retirement annuity relief.

The trust scheme must be administered in the State, and established under Irish law to provide retirement annuities to individuals of a particular occupation (and their families or dependants).

The trust scheme must be established under an irrevocable trust by a body of persons representing those individuals. Investment income of the trust is exempt from income tax.

What obligations exist for non-resident annuity providers?

(4A) An annuity provider which is not resident in the State, or is not trading through a fixed establishment in the State, must:

(i) enter into a written contract with Revenue which is legally enforceable in an EU State, and which is governed wholly by Irish law, and subject to the exclusive jurisdiction of the Irish courts as regards disputes, or

(ii) appoint an Irish resident agent who will be responsible for its duties and obligation in relation to tax, and notify Revenue of the agent’s appointment and name.

What details can Revenue demand from an annuity provider?

(4B) Revenue may by written notice, require an annuity provider to provide specified information within 30 days of the date of the notice, and that information may include:

(a) the annuitant’s name, address, and PPS number,

(b) the name, address and PPS number of any person who has received under the contract, and

(c) the amount of the payment in (b).

Can approval for a retirement annuity contract be withdrawn?

(5) Revenue may, by written notice to the annuity provider, or the trust scheme’s administrator, withdraw their approval of a retirement annuity contract. Revenue may also assess any additional tax due as a result of the withdrawal of relief.

Is a retirement annuity contract required to provide a notice of assignment?

(6) Because they are non-assignable, approved annuity contracts are excluded from the legal requirement to provide a notice of assignment.

Does PAYE apply to the payment of the annuity?

(7) From 1 January 2002, the payment of a retirement annuity is subject to PAYE.

Section 784A Approved retirement fund

What is an approved retirement fund (ARF)?

(1) An approved retirement fund is a fund managed by a qualifying fund manager which meets the conditions mentioned in section 784A.

A qualifying fund manager means:

(a) a licensed bank, i.e., the holder of a licence under the Central Bank Act 1971 section 9, or the equivalent law of another EU Member State,

(b) a building society (section 256),

(c) a trustee savings bank (within the Trustee Savings Banks Act 1989),

(g) the Post Office Savings Bank,

(h) a credit union (within the Credit Union Act 1997),

(i) a collective investment undertaking (section 172A),

(j) an insurance company, i.e., the holder of an authorisation:

(i) under the European Communities (Life Assurance) Framework Regulations 1984,

(ii) granted by the EU supervisory body for insurance undertakings under Directive 79/267/EEC, or

(iii) to undertake insurance in Iceland, Liechtenstein and Norway under the EEA agreement,

(k) an authorised member firm of the Irish Stock Exchange, or a firm, trading through a branch or agency in the State, which is a member of a stock exchange in another EU State,

(l) an investment intermediary authorised under the Investment Intermediaries Act 1995 (but not a restricted activity firm), or a firm authorised under the equivalent law of another EU Member State.

An individual’s tax reference number means his/her Revenue and Social Insurance (RSI) number or his/her VAT number.

A reference to an approved retirement fund includes a reference to assets within that fund which are managed by the qualifying fund manager on behalf of the individual who beneficially owns those assets.

The fact that a person is treated for tax purposes as a qualifying fund manager does not imply that he/she is authorised to provide services which he/she would not otherwise be authorised to provide in the State.

A distribution by an ARF includes any payment, transfer or assignment of fund assets to the beneficial owner of the fund assets. It does not include a payment, transfer or assignment of fund assets to another ARF the assets in which are owned by the same beneficial owner.

a distribution out of an ARF by any person is deemed to be made by the QFM.

Are distributed ARF assets still regarded as ARF assets?

(1A) ARF assets that have been treated as distributed are no longer regarded as ARF assets.

When are ARF assets treated as distributed?

(1B) The use of ARF assets in the following circumstances is treated as distributed:

(a) to make a loan or secure a loan to the ARF holder or to a connected person,

(b) to acquire property from the holder or a connected person,

(c) the sale of an ARF asset to the holder or a connected person,

(d) to acquire property to be used as a holiday home by the holder or a connected person,

(e) to acquire shares in a closely controlled company,

(f) to acquire any tangible movable property,

(g) to acquire commercial property, where used in connection with the holder’s business or that of a connected person,

(h) where the beneficiary of an ARF uses assets of the ARF to invest in another fund and a connected person has an interest in that fund and there is an arrangement whereby an increase in the value of the second fund is wholly or partly attributable to units held by the ARF investor, then the amount invested from the ARF assets is treated as a distribution.

Is a distributed ARF asset still an ARF asset?

(1C) An ARF asset that has been treated as distributed (see (1B)) is no longer treated as an ARF asset.

If the sale or acquisition of a property is treated as giving rise to a distribution, is the property still an ARF asset?

(1D) If the sale or acquisition of a property is treated as giving rise to a distribution, that property is no longer regarded as an ARF asset.

How is an ARF asset valued?

(1E) In (1B), the value of an ARF asset means its market value (section 548).

How are income and gains within an ARF taxed?

(2) Income and gains arising in respect of assets held in an ARF are exempt from tax (but see (3)-(4) below).

ARF assets are treated on the same basis as “pension fund” assets. Income and gains earned by the fund are exempt from tax in the hands of the pension fund entity, but are taxed under PAYE (see (3)-(4) below) when paid out to the owner of the assets.

How is a distribution treated in the hands of the recipient?

(3) A distribution by a qualifying fund manager in respect of assets held in an ARF is treated as income of the beneficial owner of the assets and is chargeable to income tax under Schedule E.

A qualifying fund manager must deduct PAYE from the distribution at the higher rate for the tax year in which the payment is made, unless a certificate of tax credits or tax deduction card is received in respect of the recipient of the payment.

In effect, in the absence of a certificate of tax credits, the payment by the qualifying fund manager is taxed under PAYE at the higher rate applicable in the year of the payment.

Example

Your pension fund at retirement is worth €300,000.

You take the tax-free lump sum of 25%, i.e., €75,000.

You already have pension income of €12,700 and so are not required to invest in an AMRF.

You therefore invest the balance i.e. €225,000, in an ARF.

In 2012, the fund earns you €20,000 which is due to be paid to you on 31 December 2012. In the absence of a certificate of tax credits from you, the qualifying fund manager must deduct PAYE of €8,200 (i.e. €20,000 x 41%, from the payment).

What distributions escape income tax treatment?

(3A)(a) A distribution made for the purpose of reimbursing an administrator in respect of a income tax paid by the administrator in respect of a chargeable excess is not caught for income tax under subsection 3.

(b) Payment by a QFM under a pension adjustment order of tax on the chargeable excess of a non-member (spouse or civil partner) is not caught by subsection 3.

What rate of tax applies to post-death distributions?

(4) The following rules also apply in relation to distributions within (3):

(a) A distribution made after the beneficial owner of the assets has died is treated as income of the deceased for the tax year in which he/she died, and is subject to PAYE at the higher rate, as described in (3).

(b) PAYE need not be deducted if the distribution is made:

(i) to another ARF the assets in which are beneficially owned by the individual’s spouse, or

(ii) to, or solely for the benefit of, the individual’s child, or the child of his civil partner, aged under 21 years.

(c) PAYE must be deducted from the distribution on the “emergency” basis but at 30% from a distribution within (b) made:

(i) to a person who is aged 21 years or older on the date of death of the beneficial owner,

(ii) from the ARF of the surviving spouse mentioned in (b)(i) following that spouse’s death, unless it is to, or solely for the benefit of, that deceased’s child aged under 21 years.

The tax deducted under PAYE in this manner is a “final” tax which satisfies the income tax liability of the recipient on the income in question. Thereafter, the income is completely ignored for income tax purposes and need not be included in the recipient’s return of income.

(d) Tax deducted by a qualifying fund manager under (c) counts towards tax payable on a chargeable excess (a lump sum in respect of the lump sum limit).

Example

07.04.2012 X, a single man, dies leaving an ARF which contains €300,000 (this consists of €295,000 transferred into the fund from X’s pension fund on 7 April 2012, and gains of €5,000 since that date).

The fund is to be transferred to X’s mother. The €295,000 is treated as income of X for 2012, and in the absence of a tax credits and standard rate cut-off point from X, the qualifying fund manager must deduct PAYE at 41% for that year.

Example

10.05.2012 Your spouse died leaving an ARF which contains €300,000 (this consists of €295,000 transferred into the fund from his/her pension fund on 07.04.2012, and gains of €5,000 since that date). You have two children: Y aged 17 and Z aged 24.

The fund is to be transferred as follows:

To your ARF: €200,000

To Y (17 year old daughter): €47,500

To Z (24 year old son): €47,500

The amount transferred to your ARF is not subject to tax.

The amount transferred to Y is not subject to tax, as Y is under 21 years of age at the time of the transfer.

The amount transferred to Z (€47,500) is treated as Schedule E income of Z for 2012, and the qualifying fund manager must deduct PAYE at 30% (€14,250) for that year. The PAYE deducted completely satisfies Z’s liability to income tax on the €47,500. Z need not include the €47,500 in his return of income for 2012.

Assume that you died subsequently, and your ARF, now worth €210,000, passes to your surviving children Y and Z as follows:

To Z (son, still aged 24): €105,000

To Y (daughter, now aged 18): €105,000

The amount transferred to Z (€105,000) is treated as Schedule E income of Z for 2012, and the qualifying fund manager must deduct PAYE at 30% (€31,500) for that year. The PAYE deducted completely satisfies Z’s liability to income tax on the €105,000. Z need not include the €105,000 in his return of income for 2012.

The qualifying fund manager need not deduct PAYE from the payment to Y.

Are ARF monies regarded as “pension business”?

(5) Moneys held in an ARF are regarded as “pension business” of a life assurance company (Part 26 Chapter 1).

Does DIRT apply to a deposit held by a qualifying fund manager (QFM)?

(6) No.

What rules apply to a QFM who is not resident or trading in the State?

(7) A qualifying fund manager who is not resident in the State, or who is not trading through a branch or agency in the State, must appoint a person who is resident in the State to be responsible for its tax compliance obligations under this Chapter.

The QFM must pay to the Collector-General any income tax deducted from a payment to the beneficial owner of assets in an ARF, or his/her personal representatives, and the recipient of the payment must allow tax to be deducted. If there are insufficient assets from which tax may be deducted, the tax deductible is a debt due to the QFM from the beneficial owner of assets in an ARF, or the QFM’s personal representatives (if he/she has died).

Must a QFM give notice to Revenue?

(8) A qualifying fund manager must notify Revenue within one month of commencing to act as a QFM.

The notification to Revenue must indicate the date of commencing to act.

What details must be provided to Revenue by a QFM?

(9) Revenue may, by written notice, require a qualifying fund manager or appointed person to provide information they may reasonably require as regards an ARF/AMRE, and this may include:

(a) the name, address and tax reference of the ARF holder,

(b) the name, address and tax reference of any individual to whom a distribution was made,

(c) the amount of the distribution in (b).

Section 784B Conditions relating to an approved retirement fund

What are the conditions for approval of an ARF?

(1) To qualify as an approved retirement fund:

(a) the fund must be held by a qualifying fund manager your name as the individual who is beneficially entitled to the fund assets,

(b) the fund assets may consist only of:

(i) assets transferred to the fund by you from your retirement annuity contract pension fund (section 784(2A)),

(ii) assets transferred from another approved retirement fund held in your name, or in the name of your deceased spouse, and

(iii) assets derived from assets mentioned in (i) and (ii),

(c) an individual in whose name the fund assets are beneficially held must, when opening the approved retirement fund, make a declaration on the official form to the qualifying fund manager, stating:

(i) her/his full name, address and tax reference number,

(ii) that the fund assets consist only of assets mentioned in (b) to which she/he is beneficially entitled,

(iii) any other information that Revenue may reasonably require.

What documentation must a QFM obtain?

(2)-(3)A qualifying fund manager may not accept assets into an approved retirement fund unless she/he receive a certificate from an annuity grantor lawfully carrying on business in the State, or from another qualifying fund manager, stating:

(a) that the individual named in the certificate is beneficially entitled to the assets referred to in the certificate, and that the assets are being transferred to the fund by the individual from his/her retirement annuity contract pension fund (section 784(2A)),

(b) that the assets referred to in the certificate are not part of an approved minimum retirement fund (section 784C), and

(c) where assets are transferred from another approved retirement fund, the residue in relation to that fund and the balance on the income and gains account.

How long must these certificates be kept?

(4) A qualifying fund manager must keep the certificate mentioned in (3) for six years.

Who can make other rules in relation to ARFs?

(5) The Minister for Finance may make an order detailing how approved retirement funds are to be operated.

Section 784C Approved minimum retirement fund

What is an approved minimum retirement fund (AMRF)?

(1) An approved minimum retirement fund is a fund managed by a qualifying fund manager (section 784A) which meets the conditions mentioned in section 784D.

How much must be kept in an AMRF?

(2) A person aged under 75 years who opts to transfer her/his pension fund to an ARF (section 784(2A)), must transfer to an AMRF the lower of:

(a) the amount of the fund after payment of any lump sum, and

(b) €63,500.

What if a person has several pension funds?

(3) Where a person has several pension funds and makes more than one transfer to an ARF the transfers are aggregated in determining whether the AMRF total of €63,500 has been reached.

Must funds always be transferred to an AMRF?

(4) A person who already has pension income (specified income) of €12,700 per annum need not transfer any amount to an AMRF. Specified income includes Irish or foreign social welfare pensions.

Can assets be transferred out of the AMRF?

(5) The qualifying fund manager must not transfer assets out of the AMRF except:

(a) into an AMRF managed by another qualifying fund manager, or

(b) an annual single payment or transfer to the individual beneficially entitled to the assets held in the fund of an amount not exceeding 4% of the value of the assets..

From 6 February 2003, the prohibition on transfers from an ARF includes distributions within section 784A(1B).

When does my AMRF become an ARF?

(6) An AMRF becomes an ARF when the holder:

(a) reaches 75 years of age,

(b) reaches the minimum required income not to need an AMRF (€12,700 per annum), or

(c) dies.

Can a person qualify for the pre-FA 2011 thresholds in converting an AMRF to an ARF?

(6A) Yes. An individual who held an AMRF before 6 February 2011 may, in the three year period beginning on that day, opt to convert the AMRF to an ARF provided he has income of €12,700 in that period.

Are distributions from an AMRF taxed?

(7) Distributions made from an AMRF are subject to PAYE taxation as described in section 784A.

Section 784D Conditions relating to an approved minimum retirement fund

What conditions relate to an AMRF?

(1) To qualify as an approved minimum retirement fund:

(a) the fund must be held by a qualifying fund manager in the name of the individual who is beneficially entitled to the fund assets,

(b) the fund assets may consist only of:

(i) assets transferred to the fund by an individual from his/her retirement annuity contract pension fund (section 784(2A)),

(ii) assets transferred from another approved minimum retirement fund held in the individual’s name, or in the name of his deceased spouse, and

(iii) assets derived from assets mentioned in (i) and (ii).

(c) the individual in whose name the fund assets are beneficially held must, when opening the approved minimum retirement fund, make a declaration on the official form to the qualifying fund manager, stating:

(i) the individual’s full name, address and tax reference number,

(ii) that the fund assets consist only of assets mentioned in (b) to which the individual is beneficially entitled,

(iii) any other information that Revenue may reasonably require.

What documentation is needed to accept assets into an AMRF?

(2)-(3) A qualifying fund manager may not accept assets into an approved minimum retirement fund unless she/he receives a certificate from an annuity grantor lawfully carrying on business in the State, or from another qualifying fund manager, stating:

(a) that the individual named in the certificate is beneficially entitled to the assets referred to in the certificate, and that the assets are being transferred to the fund by the individual from his/her retirement annuity contract pension fund (section 784(2A)),

(b) that the assets referred to in the certificate are not part of an approved minimum retirement fund (section 784C), and

(c) where assets are transferred from another approved minimum retirement fund, the residue in relation to that fund and the balance on the income and gains account.

How long the certificate be kept?

(4) The qualifying fund manager must keep the certificate mentioned in (3) for six years.

Who can make other rules in relation to AMRFs?

(5) The Minister for Finance may make an order detailing how approved minimum retirement funds are to be operated.

Section 784E Returns, and payment of tax, by qualifying fund managers

What returns must be filed by a QFM?

(1) A qualifying fund manager (QFM) must file a return to the Collector-General within 14 days of the end of the month in which a distribution was made from the residue of an approved retirement fund, stating:

(a) the name and address of the individual in whose name the fund is held,

(b) the tax reference number of the individual in whose name the fund is held,

(c) the name and address of the recipient of the distribution,

(d) the amount of the distribution,

(e) the appropriate tax which must be accounted for in relation to the distribution.

How is the tax assessed?

(2) The tax shown due on the approved retirement fund return is to be self-assessed and paid by the QFM on or before the due date for the return. There is no need for an inspector to estimate and assess tax due, unless the tax has not been paid by the due date.

Can Revenue make an assessment on a QFM?

(3) Inspectors retain the right to estimate and assess any appropriate tax underpaid. Interest on tax underpaid for an interim period accrues from the interim payment date.

Can an inspector assess unpaid tax?

(4) An inspector of taxes can make any assessments, adjustments or set offs necessary to recover any unpaid or underpaid appropriate tax.

When does the tax assessed on a QFM become due for payment?

(5) If there is no appeal against the assessment, tax assessed or estimated by an inspector is due within one month of the date of the notice of assessment.

That due date does not displace any earlier payment date. Any tax found, on appeal, to have been overpaid, must be repaid.

Can Revenue enforce payment of tax owed by a QFM?

(6) The tax collection procedures (Part 42) are available to the Collector-General to enforce payment of any unpaid appropriate tax and interest.

Interest on appropriate tax underpaid is charged at 0.0322% for each day or part of a day the tax remains unpaid.

Such interest is not an annual payment from which income tax must be withheld by the payer at the standard rate. It is a debt due to the Minister for Finance, for the benefit of the Central Fund, and is payable to the Revenue Commissioners.

In any court proceedings to collect unpaid interest on retention tax, a certificate signed by the Collector-General stating that an amount is due may be given in evidence and such a certificate is evidence, until the contrary is proved, that the amount is so due.

The tax appeal procedures (Part 40) apply to any disputed amount of appropriate tax due. This means that a QFM is entitled to appeal to the Appeal Commissioners on any matter relating to her/his retention tax liability. The Appeal Commissioners must hear and determine such an appeal in the same manner as an appeal against an income tax assessment. She/he has a right, where necessary, to have the case re-heard by a Circuit Court Judge. She/he also has a right to have a case stated for the opinion of the High Court on a point of law.

Must a QFM return be made on the appropriate form?

(7) The return must be made on the appropriate Revenue form and must contain declaration that it is correct and complete.

Is a QFM obliged to file an annual return?

(8) A QFM must file a return to the appropriate inspector, on or before the self-assessment return date for the chargeable period, in relation to each holder of an approved retirement fund, stating:

(a) the name, address, and tax reference number of the individual who is beneficially entitled to the fund assets,

(b) income and gains arising to the fund, and any tax deducted from such income and gains,

(c) distributions from the fund,

(d) any other details that Revenue may reasonably require.

Section 785 Approval of contracts for dependants or for life assurance

Can Revenue approve an annuity contract for dependants or for life assurance?

(1) Revenue may approve an annuity contract between an individual and a life annuity provider (the insurer) trading legally in the State:

(a) the main purpose of which is to provide an annuity payable on her/his death to her/his spouse or dependants (a contract for dependants), or

(b) the sole purposes of which is to provide for the payment of a lump sum to her/his personal representatives in the event of her/his death before reaching 75 (from 6 April 1999, previously 70) years (a contract for life insurance).

Does an annuity provider include a body non-resident and not trading through an Irish branch?

(1A) An annuity provider includes a person authorised under EU legislation to transact insurance business in the State that is not resident in the State or does not trade through an Irish branch.

What conditions must an annuity for a spouse or dependants satisfy?

(2A) Revenue may not approve an annuity contract that provides an annuity for a spouse or dependants unless:

(a) The contract’s main benefit is an annuity payable on death to the surviving spouse or dependants.

(b) In so far as the contract provides for payment of an annuity, that annuity only becomes payable on retirement, i.e., between the ages of 60 and 75 (from 6 April 1999, previously 70) years, but these age limits do not apply where the annuity is payable to a survivor of a deceased annuitant.

(c) The only payments that may be made by the insurer under the contract are annuity payments to an individual, her/his spouse or dependants.

The contract may also provide, where no annuity becomes payable under the contract for the return of premiums together with reasonable interest and/or bonuses to the personal representatives of a deceased individual.

(d) The annuity may only be based on the annuitant’s life.

(e) The annuity must not be capable of being surrendered (i.e., commuted or “cashed in”) or assigned.

Can Revenue approve a contract that does not meet all of these conditions?

(3) Revenue may approve an annuity contract that does not meet all of the foregoing conditions.

Do the other conditions for annuity contracts apply to these contracts?

(4) The conditions which an annuity contract must meet to obtain Revenue approval (section 784(2)), and the Revenue power to approve contracts that do not meet those conditions (section 784(3)), do not apply to annuity contracts approved under this section.

Can Revenue approve a scheme whose main purpose is to provide annuities for a spouse or dependant?

(5) Revenue may approve a trust scheme administered in the State and established under Irish law to provide retirement annuities to an individual’s spouse and dependants (or to provide a lump sum on her/his death to her/his personal representatives).

The trust scheme must be established under an irrevocable trust by a body of persons representing those individuals. Investment income of the trust is exempt from income tax.

Does a reference in the Income Tax Acts to an annuity contract include a contract under this section?

(6) A reference in the Income Tax Acts to an annuity contract approved under section 784 includes a reference to an annuity contract applied under this section.

Section 786 Approval of certain other contracts

Are there any further requirements for an annuity to be approved?

(1) Revenue may not approve an annuity contract (section 784) unless it allows the accrued rights under the contract:

(a) to be paid by the annuity provider to a person (i.e., another annuity provider) specified by the individual, and

(b) to be applied by that person (i.e., the second annuity provider) towards paying premiums or other amounts due under an approved annuity contract between that person and the individual.

Revenue may approve annuity contracts with accrued rights that are transferable to another provider at the option of the annuitant. This option is known as “an open market option”.

RP funds may not be transferred between retirement annuity contracts, except at the point of maturity (Revenue Precedent 16, 11 April 1994).

Does a reference to the individual refer to a widow or other dependant with accrued rights?

(2) Yes.

What are the consequences where accrued rights are transferred to a new contract?

(3) Where the accrued rights under an annuity contract (section 784) or insurance contract (section 785) (the original contract) are transferred to a new contract (the substituted contract), if the annuity under the original contract was treated as earned income of the recipient, then the annuity under the substituted contract is also to be treated as earned income of the recipient.

Section 787 Nature and amount of relief for qualifying premiums

What is meant by “relevant earnings”?

(1) Relevant earnings means

income from carrying on a trade or profession together with income from non-pensionable employments (see section 783(3)) before loss relief or capital allowances.

Example

You have the following income:

Case I 50,000
Case III 500
Case V 800

Source: Inspector Manual 30.2.3(modified and updated)

Relevant earnings Other income
Case I 50,000
Salary (non-pensionable) 5,000
Case III 500
Case V 800
55,000 1,300

Relevant earnings includes:

(a) balancing charges,

(b) income payable under an approved permanent health benefit policy, provided the contributions to the scheme are not maintained by the policy (Revenue Precedent 18, 28 March 1991).

It does not include (see definition of earned income in section 3(2)):

(a) profits from a trade etc. in which an individual is not actively engaged (for example, where he/she is a sleeping partner),

(b) income from a pensionable office/employment (including pensions),

(c) deposit interest, dividends, rents or other investment income, and

(d) income received under a deed of covenant (Inspector Manual 30.2.3),

(e) income of an artist, writer or composer that is exempt under section 195 (Revenue Precedent 14, 23 January 1992).

What is meant by “net relevant earnings”?

(2) Net relevant earnings are your relevant earnings for a tax year as reduced by:

(a) annual payments and any other payments deducted in arriving at total income for that year, and

(b) your trading (or professional) losses and capital allowances of the activities which give rise to the relevant earnings.

Net relevant earnings are relevant earnings less deductions losses and capital allowances which would be made in computing total income for tax purposes.

If an individual has relevant earnings and other income, the deductions (apart from capital allowances and losses arising from the trade, profession etc.) deductible in arriving at net relevant earnings are first set against the other income and only any balance set against relevant earnings. Losses and capital allowances from the trade, profession, etc. are set primarily against relevant earnings.

Examples of such deductions are: payments made under a deed of covenant, annuities, interest on a loan to acquire an interest in a partnership (section 253) and interest on a loan to purchase shares in a company in which you have a material interest (section 248).

Deductions for items such as BES investments, medical insurance, in respect of which specific relief is available under the tax acts are made, not in computing total income but, in arriving at taxable income. These items accordingly are not deducted in arriving at net relevant earnings (Inspector Manual 30.2.3, modified).

The relevant earnings figure on which benefits are based is the figure before foreign earnings deduction (section 823).

Is there a limit on net relevant earnings for retirement annuity relief?

(2A) Net relevant earnings for the purposes of retirement annuity relief may not exceed the earnings limit, or an amount specified in regulations made by the Minister for Finance).

Example

You are aged 51, and in a given tax year, had earnings from self-employment after deducting losses and capital allowances, of €300,000.

Your net relevant earnings are regarded as €115,000, and the limit on your allowable pension contributions is therefore €115,000 x 30% = €34,500(see (8)).

Assume that you paid €45,000 in pension contributions in the previous tax year. The excess of €10,500 is carried forward and treated as a pension contribution in a later year (see (10)).

What procedure applies for regulations to change the earnings limit?

(2B) The regulations mentioned in (2A) must be laid before and passed by Dáil Éireann.

Are net relevant earnings affected by deducting annual payments etc. from other income?

(3) Where annual payments, trading losses or capital allowances are deducted from income other than relevant earnings for a tax year, net relevant earnings for the next year (or if necessary, later tax years) are reduced by the deduction.

This rule only applies if relief for a retirement annuity premium (or trust scheme contribution)is obtained in the year of the loss. If the loss (and/or capital allowances) and any deductions for payments exceed relevant earnings so that an individual has nil net relevant earnings, the following year’s net relevant earnings are not affected.

How are deductions treated if there are relevant earnings and other income?

(4) Where income for a tax year consists partly of relevant earnings and partly of other income, trading losses and capital allowances of activities giving rise to the relevant earnings must be set firstly against the relevant earnings (to the extent of the relevant earnings) and then against the other income. Annual payments and any other payments deducted in arriving at total income are set firstly against the other income and only then, if they exceed the other income, does the excess reduce the relevant earnings.

Example

Continuing with the facts of the example to subs (1):

Relevant earnings Other income
Case I 50,000
Salary (non-pensionable) 5,000
Case III 500
Case V 800
55,000 1,300
You had the following allowances and deductions:
Capital allowances 4,000
Balance of Case I loss brought forward 3,000
Mortgage interest paid 5,000
Deed of covenant to individual aged 65 years or over 1,500
Relevant earnings and net relevant earnings are:
Primary offset rule:
Case I loss 3,000
Capital allowances 4,000
Deed of covenant 1,300
7,000 1,300
Balance of deed against relevant earnings 200
7,200
Net relevant earnings (€55,000 – €7,200) 47,800

Source: Inspector Manual 30.2.3 (modified and updated)

Are net relevant earnings impacted by a spouse’s earnings?

(5) In joint assessment cases net relevant earnings are also taken after deducting any trading (or professional) losses and capital allowances from any “relevant earnings” activity of the spouse, but only where the spouse’s losses and capital allowances are not absorbed by his/her own income (see section 381(3)). Annual and other relevant payments made by the spouse are not deducted from the individual’s relevant earnings.

In calculating net relevant earnings, no deduction is made for any part of the retirement annuity premiums paid.

Example

You have relevant earnings for 2010 of €62,000 (see section 783(4)), and you are entitled to capital allowances of €5,800 in taxing your share of the “X” firm profits for the tax year 2010.

You make the following payments in 2010 which are deductible in computing your total income:

Annual payment (deed of covenant) to your mother, aged 68 2,000
Interest on loan used to invest capital in partnership 5,500
Gift to approved body for education in the arts (section 484(4)) 1,000
8,500

You are married and taxed jointly with your spouse who has no separate income of his/her own. Your other income for 2010 is limited to your pensionable salary and benefit in kind from your former employer, Y Ltd., a total of €7,700. You are entitled to set the above payments first against this other income as follows:

Earnings other than relevant earnings 7,700
Deduct:
Payments €8,500 but limited to total of your other income 7,700

The remaining €800 of the payments has to be set against your relevant earnings, as has all your capital allowances. Your net relevant earnings for 2010 are calculated:

Relevant earnings 62,000
Deduct:
Capital allowances (share of firm’s) 5,800
Payments allowed in arriving at total income (balance) 800 6,600
Net relevant earnings 55,400

Example

Same facts as in the preceding example, except assume that your spouse carries on a farming trade giving him/her relevant earnings when profits arise. Assume also that your spouse has Schedule D Case V rental income from a building in an urban renewal area. Your income and deductions for the year are the same as in preceding example.

Your spouse has a tax loss in his/her farming year ending 31 December 2010 and they claim to set off this loss against their joint income (see section 381). They also elect to increase this loss set off by his/her farming capital allowances for 2010 (see section 392). The relevant figures and your spouse’s Schedule D Case V rental income for 2010 are:

Schedule D Case I farming loss (before capital allowances) as adjusted 6,100
Capital allowances 2010 added to farming loss (section 392) 1,800
total “loss” for set off under section 381 7,900
Schedule D Case V rental income
(Net rents received (after expenses) 4,440
Deduct:
Capital allowances (renewal area building) 960
Net amount for inclusion in total income 3,480

Since your spouse has nil relevant earnings in 2010, the section 381 “loss” of €7,900 has to be set off first against his/her other income (the €3,480 net Case V amount). Since the loss exceeds the other income, the excess loss (€4,420) is next set off in the joint assessment against your relevant earnings (before your other income) (see section 381(3)).

Your net relevant earnings for 2010 may now be calculated:

Relevant earnings 62,000
Deduct:
Your capital allowances (share of firm’s) 5,800
Your payments allowed in arriving at total income (balance) 800
Your spouse’s section 381 “loss”
(balance not set off against spouse’s income) 4,420 11,020
Your net relevant earnings 50,980

Example

Take the facts of the previous example in which €3,480 of your spouse’s farming loss (as increased by capital allowances) was set against his/her net Schedule D Case V income in 2010 in the joint tax assessment.

Assume that your spouse has farming taxable profits for the next tax year, 2011, of €11,700, and farm capital allowances for that year of €1,900. He/she does not make any payments deductible in arriving at total income. His/her net relevant earnings are calculated:

Relevant earnings – farming profits 11,700
Deduct:
Farm capital allowances 1,900
Part of loss set against non-relevant earnings in 2010 3,480 5,380
Your spouse’s net relevant earnings 2010 6,320

Your net relevant earnings for 2010 are calculated normally separately from your spouse’s.

Note

There is no adjustment in his/her computation for the €4,420 part of your spouse’s loss set against your relevant earnings for that year.

Can a qualifying premium be deducted from net relevant earnings?

(6) The cost of one or more qualifying premiums paid in the tax year from net relevant earnings for that year can be deducted, but see (8) for the upper limit to the deduction.

Can a premium paid after the tax year be deducted?

(7) A premium paid between the end of the tax year and the return due date for that tax year (section 950(1)) can be treated as having been paid in that tax year. Election must be made on or before the return due date.

This election may not increase the deduction over the percentage contribution limit mentioned in (8).

Anticipated premiums: Tax Briefing 16.

Election before return filing date: Tax Briefing 44.

What is the maximum deduction for qualifying premiums?

(8)-(8A) The maximum deductions for qualifying premiums paid (or deemed to have been paid) in any tax year are:

(a) aged up to 30: 15% of net relevant earnings,

(b) aged 30-40: 20% of net relevant earnings,

(c) aged 40-50: 25% of net relevant earnings,

(d) aged 50-55: 30% of net relevant earnings,

(e) aged 55-60: 35% of net relevant earnings,

(f) aged 60 or more: 40% of net relevant earnings.

The 30% limit also applies to sportsmen and sportswomen (specified individuals) whose earnings are derived from the sporting professions or occupations listed in Schedule 23A.

Example

You are aged 45, and in the tax year 2010, you had self-employment income, after allowing losses and capital allowances, of €71,000, and paid retirement annuity premiums of €8,000.

Your maximum allowable pension contribution is €71,000 x 25% = €17,750.

You may immediately reduce your tax bill for 2010 by electing (see (7)) on or before 31 October 2011 (the return filing date for 2010) to make a further contribution of €9,750 (i.e., €17,750 – €8,000) to the pension scheme.

Retirement annuity relief is computed as a percentage of net relevant earnings after deductions (such as covenants) made in arriving at total income: Statement of Practice SP IT/2/90.

An employer may pay retirement annuity contributions on behalf of an employee, but the employer payment is taxed as income, and is chargeable to PAYE, PRSI and levies. The individual is entitled to relief on the payment subject to the appropriate percentage limit.

Is the list of sporting professions in Schedule 23A fixed?

(8B) No. The Minister for Finance may, after consulting with the Minister for Tourism, Sport and Recreation, add to or delete from the list of sporting occupations and professions in Schedule 23A.

How are changes to the list of sporting occupations and professions approved?

(8C) The regulations mentioned in (8B) must be laid before and passed by Dáil Éireann.

What happens where qualifying premiums exceed the allowable amount?

(10) Where qualifying premiums exceed the amount allowable for a tax year, the excess may be carried forward and treated as a qualifying premium paid in the next tax year.

Can the excess continue to be carried forward?

(11) Where a carried forward excess of qualifying premiums over net relevant earnings is not used in the next tax year, it may be carried forward to the next tax year and so on for later tax years.

Is the relief adjusted if there is a later alteration of an assessment?

(13) Where retirement annuity relief is given for a tax year, and an adjustment on additional assessment is later made for that year, the relief (including relief carried forward to later years) may be adjusted by reference to the revised relevant earnings figure (for example, to reflect an increased level of profit).

Is there a deduction under any other tax provision as well?

(14) This prevents a double deduction for the same payment. Once relief has been given for a retirement annuity payment, a deduction may not be claimed under any other tax provision for that payment.

Can a refusal of a claim by the inspector be appealed?

(15) Retirement annuity relief must be claimed. If the inspector refuses or restricts relief, the refusal may be appealed in writing to the Appeal Commissioners within 21 days of being notified of the decision.

Self assessment

RAC certificates: Tax Briefing 29.

See also: Inspector Manual 30.2.1.

What rules apply to the appeals process?

(16) The Appeal Commissioners must hear and determine such an appeal in the same manner as an appeal against an income tax assessment. There is a right, where necessary, to have the case re-heard by a Circuit Court Judge. There is also have a right to have a case stated for the opinion of the High Court on a point of law.

Section 787A Interpretation and supplemental

A PRSA is a long-term personal retirement account introduced by the Pensions Act 2002. It is designed to enable people, especially those with no pension provision, to save for retirement in a flexible manner. A PRSA will be a contract between an individual and a PRSA provider in the form of an investment account. Subject to age-based limits, tax relief will be given for contributions to a PRSA.

See also: Tax Briefing 47.

In what circumstances does tax relief apply on PRSAs?

(1) This Chapter provides tax relief where a contribution (or additional voluntary PRSA contribution) is made by an employee (or his/her employer) to a personal retirement savings account (PRSA).

To qualify for relief, the PRSA contribution must be made under a PRSA contract into a PRSA product sold by aPRSA provider.

What Act influences the interpretation of expressions used in this Chapter?

(2) If a word or expression used in this Chapter is also used in the Pensions Act 1990, it takes the same meaning as it has in the that Act.

Section 787B Relevant earnings and net relevant earnings

What are “relevant earnings” in relation to PRSA?

(1) Relevant earnings are your income for a tax year from:

(a) an employment,

(b) property attaching to or forming part of that employment,

(c) a trade or profession (including a share of the partnership income).

Relevant earnings do not include payment from an investment company fo a proprietary director or proprietary employee.

Does “relevant earnings” include earnings of a spouse?

(2) Relevant earnings are considered separately from those of a spouse, even where both are jointly assessed to tax.

Does “relevant earnings” include deductions for loss relief or capital allowances?

(3) Relevant earnings means income from carrying on a non-pensionable employment before loss relief or capital allowances.

What are “net relevant earnings” in relation to PRSA?

(4) N

met relevant earnings are relevant earnings for a tax year as reduced by:

(a) annual payments and any other payments deducted in arriving at total income for that year, and

(b) trading (or professional) losses and capital allowances of the activities which give rise to the relevant earnings.

How are deductions from income other than relevant earnings in a tax year treated?

(5) Where annual payments, trading losses or capital allowances are deducted from income other than relevant earnings for a tax year, net relevant earnings for the next year (or if necessary, later tax years) are reduced by the deduction.

This rule only applies if relief for a retirement annuity premium (or trust scheme contribution) is actually obtained in the year of the loss. If the loss (and/or capital allowances) and any deductions for payments exceed relevant earnings so that there are nil net relevant earnings, the following year’s net relevant earnings are not affected.

How are deductions treated if I have both relevant earnings and other income arise?

(6) Where your income for a tax year consists partly of relevant earnings and partly of other income, trading losses and capital allowances of activities giving rise to the relevant earnings must be set firstly against the relevant earnings (to the extent of the relevant earnings) and then against other income. Annual payments and any other payments deducted in arriving at total income are set firstly against the other income and only then, if they exceed the other income, does the excess reduce the relevant earnings.

Are net relevant earnings affected by relief given to spouses?

(7) In joint assessment cases net relevant earnings are also taken after deducting any trading (or professional) losses and capital allowances from any “relevant earnings” activity of a spouse, but only where your spouse’s losses and capital allowances are not absorbed by his/her own income (see section 381(3)). Annual and other relevant payments made by the spouse are not deducted from relevant earnings.

In calculating net relevant earnings, no deduction is made for any part of the retirement annuity premiums paid by either spouse.

Is there a limit to my net relevant earnings for PRSA relief?

(8) Your net relevant earnings for the purposes of PRSA relief may not exceed the annual earnings limit. This limit does not apply to AVC PRSA contributions.

Section 787C PRSAs – method of granting relief for PRSA contributions

Where does the PRSA relief apply?

(1) A person who has relevant earnings (see section 787B(1)), is entitled to tax relief in respect of contributions to a PRSA.

How are the PRSA contributions treated?

(2) The cost of one or more contributions paid in the tax year may be deducted from net relevant earnings for that year, but see section 787B(8) for the upper limit to the deduction.

Can relief be obtained for premiums paid after the tax year?

(3) A premium paid between the end of the tax year and the return due date for that tax year (section 950(1)) can be treated as having been paid in that tax year. An election must be made on or before the return due date.

This election may not increase the deduction over the percentage contribution limit mentioned in section 787B(8).

What happens if contributions exceed the maximum allowable in a tax year?

(4) Where contributions exceed the amount allowable for a tax year, the excess may be carried forward and treated as a contributions paid in the next tax year.

Can any excess continue to be carried forward?

(5) Where a carried forward excess of contributions over net relevant earnings is not used in the next tax year, it may be carried forward to the next tax year and so on for later tax years.

Is the relief adjusted where there is a later alteration of an assessment?

(6) Where PRSA relief is given for a tax year, and an adjustment on additional assessment is later made for that year, the relief (including relief carried forward to later years) may be adjusted by reference to the revised relevant earnings figure (for example, to reflect an increased level of earnings).

Is there a deduction for a contribution under any other section in addition to the PRSA relief?

(7) Where relief is given under this Chapter for PRSA contributions, relief may not be claimed under any other section. In other words, relief cannot be claimed more than once on the same contributions.

Section 787D Claims to relief

How is PRSA relief claimed?

(1) PRSA relief must be claimed. If the inspector refuses or restricts relief, the refusal may be appealed in writing to the Appeal Commissioners within 21 days of being notified of the decision.

What appeal procedures apply?

(2) The Appeal Commissioners must hear and determine such an appeal in the same manner as an appeal against an income tax assessment. You have a right, where necessary, to have your case re-heard by a Circuit Court Judge. You also have a right to have a case stated for the opinion of the High Court on a point of law.

Section 787E Extent of relief

What is the maximum deduction for PRSA in a tax year?

(1) From 1 January 2003, the maximum deductions for contributions paid (or deemed to have been paid) in any tax year are:

(a) aged up to 30: 15% of net relevant earning,

(b) aged 30 to 40: 20% of net relevant earnings,

(c) aged 40 to 50: 25% of net relevant earnings,

(d) aged 50-55: 30% of net relevant earnings,

(e) aged 55-60: 35% of not relevant earnings,

(f) aged 60 or more: 40% of net relevant earnings.

Are employer contributions included in the relief?

(2) Where employer’s contributions to a PRSA are taxed as a benefit in kind on the employee, he/she is treated as having made the contributions to the PRSA.

What is the maximum deduction for an additional voluntary contribution (AVC) PRSA?

(3) From 1 January 2003 a member of a Revenue-approved scheme (not being a scheme that merely provides pension or lump sum payable to an employee’s widow, widower, children or dependants) may only claim relief for additional voluntary contributions to a PRSA subject to the following limits:

(a) aged up to 30: 15% of net relevant earnings,

(b) aged 30-40: 20% of net relevant earnings,

(c) aged 40-50: 25% of net relevant earnings,

(d) aged 50-55 : 30% of net relevant earnings,

(e) aged 55-60: 35% of net revelant earnings,

(f) aged 60 or more : 40% of net relevant earnings.

Is there a minimum amount of relief?

(4) If the percentage limits in (1) have the effect of imposing a maximum allowable PRSA contributions figure in a year which is less than €1,525, then the maximum allowable contributions figure is taken to be €1,525. This does not apply top AVCs.

Example

You are aged 25 and you have an income of €8,000.

The percentage limit in (1) imposes a maximum allowable PRSA contributions of 15% x €8,000 = €1,200.

Your percentage limit is to be taken as €1,525 instead of €1,200.

What happens if both RAC and PRSA contributions are paid?

(5) In such a case, the maximum potential PRSA relief (other than PRSA AVCs) is reduced by the RAC relief.

Example

You are aged 47 and have income of €100,000 from a non-pensionable employment.

You pay €4,800 in the tax year in respect of RAC premiums.

You pay €28,000 in PRSA contributions.

Your maximum PRSA relief is €100,000 x 30% = €30,000, less the RAC contributions of €4,800 = €25,200.

Therefore, you get €25,200 PRSA relief and €4,800 RAC relief.

Section 787F Transfers to PRSAs

Is a transfer to a PRSA from another scheme tax deductible?

A transfer to a PRSA is not tax deductible if it derives from another pension product, i.e.:

(a) the value of accrued rights under a self-employed pension,

(b) the value of accrued rights under an employment pension,

(c) a repayment of employment pension contributions.

This is because tax relief would already have been given for contributions to the pension product from which the transfer is being made.

Section 787G Taxation of payments from a PRSA

How is receipt of a payment or assets from a PRSA taxed?

(1) A payment or transfer of assets from the PRSA administrator to a PRSA contributor is subject to PAYE. The PRSA administrator must deduct tax from assets transferred at the higher rate unless he/she has received a certificate of tax credits and standard rate cut-off point from the beneficiary.

Who operates PAYE deductions from PRSA assets?

(2) The PRSA administrator must pay the Collector-General the PAYE deducted from the assets in the PRSA. The PRSA owner (or his/her personal representative) must allow such deduction. If there are insufficient funds in the PRSA, the shortfall is a debt owed to the PRSA administrator by the beneficiary or, if he/she has died, his/her estate.

Are there exceptions to the operation of PAYE on transfers?

(3) PAYE need not be deducted where the transfer from the PRSA:

(a) is a first payment to the contributor, which takes the form of a lump sum that does not exceed 25% of the value of the assets in the PRSA at the time,

(b) is paid to an approved retirement fund (ARF) or an approved minimum retirement fund (AMRF),

(c) is paid to a contributor’s personal representatives before the assets would have become payable to the contributor had he/she lived,

(d) is paid from a PRSA which has not yet been the source of a lump sum payment, to another PRSA to which he/she contributes or to an occupational pension scheme of which the contributor is member,

(e) is an amount of a PRSA benefit that is commuted to meet a tax charge arising on a chargeable excess (in relation to a benefit crystallisation event), and

(f)(i) is an amount made available fro a vested PRSA to reimburse an administrator in respect of income tax charged on a chargeable excess that has been paid by the administrator,

(ii) Payment by a PRSA administrator under a pension adjustment order of tax on the chargeable excess of a non-member (spouse or civil partner) is not caught by this section.

When is a PRSA administrator regarded as making assets available?

(4) A PRSA administrator is regarded as having made assets availableu where:

(a) he/she makes a relevant payment (section 787A(1)),

(b) PRSA assets cease to be assets of the PRSA,

(c) assets cease to be beneficiary owned by the contributor to the PRSA.

Do any deemed distribution rules apply?

(4A) A qualifying fund manager is treated as making a distribution from an approved retirement fund (ARF) if the transaction meets certain conditions (section 784A(1B)). A PRSA administrator is also treated as making a distribution to the PRSA holder if the transaction meets those conditions.

What requirements apply to a PRSA administrator not resident or trading in the State through a fixed establishment?

(5) A PRSA administrator who is not resident in the State, or is not trading through a fixed establishment in the State, must, as regards his/her duties and obligations in relation to PRSAs:

(i) enter into a written contract with Revenue which is legally enforceable in an EU State, and which is governed solely by Irish law, and subject to the exclusive jurisdiction of the Irish courts as regards disputes, or

(ii) appoint an Irish resident agent who will be responsible for such duties and obligations, and notify Revenue of the agents’s appointment and name.

What information may Revenue demand from a PRSA administrator?

(5A) Revenue may, by written notice, require a PRSA administrator to provide specified information within 30 days of the date of the notice, and that information may include:

(a) the PRSA contributior’s name, address, and PPS number,

(b) the name, address and PPS number of any person to whom payment have been made by the PRSA administrator, and

(c) the amount of the payments in (b).

What happens to PRSA assets on death?

(6) If an individual dies after taking possession of his/her PRSA, the assets in the PRSA are treated in the same way as assets in an ARF (section 784A(4)). In other words, the value may be transferred to an ARF free of income tax in the name of the individual’s spouse or to his/her child under 21 years of age. A transfer to a child aged 21 or more, or a transfer from the spouse’s ARF, is taxed at the standard rate.

Section 787H Approved retirement fund option

Can PRSA assets be transferred to an ARF?

(1) A beneficiary taking PRSA assets may opt to transfer the accrued value to an ARF. The PRSA administrator must make the transfer.

What value is transferred to the ARF?

(2) The transfer value to an ARF (see (1)) is the value of the assets in the PRSA less:

(a) any lump sum the PRSA administrator can pay tax-free,

(b) the minimum amount (if any) the PRSA administrator must transfer to an AMRF.

Can a lump sum be taken?

(3) Where PRSA funds are transferred to an ARF, the transfer is subject to the same treatment as a transfer of the accrued value of an annuity fund to an ARF (section 784(2A)). In other words, a lump sum may be taken subject, if necessary, to a minimum figure being placed in an ARMF.

Section 787I Exemption of PRSA

How is a PRSA income taxed?

(1) A PRSA fund’s investment income is exempt from income tax. This exemption must be claimed and is only allowed if Revenue are satisfied that the income derives from fund investments.

Are financial futures and traded options counted as “investments”?

(2) Investment in this context includes a financial futures contract or a traded option, either of which is quoted on any futures exchange or stock exchange.

How is income from underwriting commissions taxed?

(3) A PRSA fund’s income from underwriting commissions (normally taxed under Schedule D Case IV) is exempt from tax. This exemption must be claimed and is only be allowed if Revenue are satisfied that the income is reinvested in the fund, or is otherwise used for the purposes of the fund, for example, to meet expenses.

Section 787J Allowance to employer

What is meant by a chargeable period?

(1) A chargeable period means an accounting period or a tax year basis period, i.e., the period the trading or professional profits of which form the basis of assessment for your liability to income tax.

How is an employer contribution to a PRSA treated?

(2) Where an employer makes a contributions to a PRSA, the sum is treated as a tax-deductible expense of the employer’s trade or profession.

If the employer is an assurance investment company, it is treated as a tax-deductible management expenses.

Relief is only given for amounts paid (not amounts accrued).

Is there a limit to the employer’s allowable deduction?

(3) An employer is are only entitled to a tax deduction in respect of contributions to an employee’s PRSA if the profits of the business in which the employees are employed are subject to income tax or corporation tax. In other words, if the employees are employed in a tax-exempt activities, for example a charity, the employer gets no deduction.

Section 787K Revenue approval of PRSA products

What conditions must be met for a PRSA to be approved?

(1) Revenue may not approve a PRSA unless it meets the following conditions:

(a) the PRSA contract may only be entered into between an individual and a legitimate PRSA provider,

(b) no annuity payable under the PRSA can be surrendered, committed or assigned,

(c)(i) no transfer may be made to the individual from the PRSA during the individual’s lifetime, except by way of: annuity, lump sum, transfer to an ARF or ARMF, or transfer to the contributor after the PRSA administrator has retained sufficient funds to transfer to an AMRF,

(ii) no annuity or lump sum may be paid to the individual before he/she reaches the age of 60 or after he/she reaches the age of 75,

(iii) no other payment may be made by the PRSA provider, except by way of annuity to the individual’s widow, widower or surviving civil partner, or where no such annuity is payable, by transfer of assets to the PRSA contributor’s estate,

(iv) any annuity payable to your widow, widower, or surviving civil partner may not exceed the annuity that would have been paid to you had you lived,

(v) any annuity which is not a life annuity.

Can Revenue approve a PRSA with additional features?

(2) Revenue may approve a PRSA product which satisfies the conditions in (1) but also allows:

(a) an annuity to be payable, or PRSA assets to be made available, before the age of 60 where he/she has become permanently mentally or physically incapacitated from carrying on his occupation or a similar occupation for which he/she has been trained,

(b) an annuity to be payable, or PRSA assets to be made available, to an employee on reaching normal retirement age at 50,

(c) an annuity to be payable, or PRSA assets to be made available, to an individual on reaching retirement age before 60 (but not earlier than 50),

(d) an annuity to be payable to a person for a certain number of years (not exceeding 10 years) though the person may dies during that period, or an annuity to be terminated or suspended on marriage or remarriage,

(e) the assignment of an annuity to any person while the person entitled to it is alive and to his/her personal representatives if he/she dies.

Can a PRSA product allow for the administrator to pay tax on a BCE?

(2A) Revenue will not be prevented from approving a PRSA product by any rule in the product which allows the administration to discharge a chargeable excess arising from a benefit crystallisation event.

Does an option to encash rights under a PRSA product prevent it from qualifying for tax relief?

(2B) No.

Does the exercise of the pre-retirement access option prevent a PRSA from qualifying for tax relief?

(2C) No.

Who must Revenue inform if they withdraw approval of a product?

(3) If in Revenue’s option, approval of a pension product ought to be withdrawn, Revenue may notify the Pensions Board accordingly specifying the grounds for their opinion.

How can Revenue withdraw relief?

(4) If approval of a pensions product is withdrawn, Revenue must make any assessment necessary to withdraw relief given.

Section 787L Transfers to and from PRSA

What transfers out must a PRSA allow?

(1) Revenue may not approve a PRSA product unless it provides that:

(a) the individual making contributions can require the PRSA provider to transfer the accrued value of the assets in the PRSA to another specified person,

(b) the assets to be applied by the transferee towards another PRSA of the contributor.

What transfers in must a PRSA allow?

(2) Revenue may not approve a PRSA product unless it provides that the PRSA provider may receive contributions from:

(a) another PRSA of the same contributor,

(b) an occupational pension scheme of which the PRSA contributor is a member,

(c) a retirement annuity contract entered into by the contributor.

For PRSA contributions, does an individual include a widow or other person with accrued rights?

(3) The individual making the contributions within (1) includes that individual’s widow, widower or other person having rights in the PRSA assets.

Section 787M Interpretation and general

This section corrects a situation where the Irish government was in breach of EU law. Under EU law, an infringement arises where a government extends favourable treatment to its own citizens but does not extend similar treatment to citizens of other EU member States. The Irish tax code provided tax relief in respect of contributions to Irish pension schemes but did not extend equivalent relief to EU citizens who, although working in Ireland, opted to continue making contributions to their pension scheme in their home State. This state of affairs was clearly discriminatory and this Chapter attempts to redress the issue.

What is the purpose of the Chapter on migrant member relief on overseas pension plans?

(1) This Chapter extends tax relief to a relevant migrant member who provides Revenue with a certificate of contributions detailing the contributions he/she has paid under a qualifying overseas pension plan.

A relevant migrant member is an individual who is tax resident in Ireland and who, as a member of a qualifying overseas pension plan:

(a) was a resident of an EU State other than Ireland when he/she first joined the Scheme and entitled, in that EU State, to tax relief on his/her contributions,

(b) was a member of the scheme when he/she became tax resident in Ireland,

(c) before coming to Ireland, was resident outside Ireland for a continuous three year period, and

(d) was a national or resident of another EU State before coming to Ireland.

In this regard, resident has the same meaning in relation to a country that has a tax treaty with Ireland as it has in the treaty. If there is no tax treaty, it means resident according to the laws of that country.

An overseas pension plan is an agreement, trust or arrangement other than a state social security scheme (i.e., mandatory protection to provide a miniumum level of retirement income) which is established in another EU State.

A qualifying overseas pension plan is one that meets the following conditions:

(a) it is established in good faith to provide pension income to contributors on retirement,

(b) tax relief is avoidable on contributions,

(c) the relevant migrant member meets the conditions in (2).

A certificate of contributions is a certificate provided to Revenue in the approved format detailing the relevant migrant member’s:

(a) name, address, PPS number and policy reference number,

(b) the contributions paid by him/her under the plan in that year,

(c) the contributions paid by his/her employer on his/her behalf in that year.

What conditions apply to a relevant migrant member?

(2) The conditions to be met by a relevant migrant member are as follows:

(a) he/she must provide Revenue with evidence to verify the plan’s bona fides, and in particular:

(i) the name, address and tax reference of the institution operating the plan,

(ii) the policy reference number,

(iii) the date he/she joined the plan,

(iv) the date on which contributions first became payable under the plan,

(v) the date on which benefits first become payable under the plan.

(b) He/she must irrevocably instruct the administrator to provide Revenue with any information they may reasonably require in relation to payments made under the plan.

Section 787N Qualifying overseas pension plan: relief for contributions

How is relief given for contributions to an overseas plan?

(1) This rule applies for a tax year where a relevant migrant member of a qualifying overseas pension plan pays contributions to the plan – or contributions are paid by his/her employer on his/her behalf. In such a case, if the member has provided a certificate of contributions, relief is given as if the qualifying overseas pension planqualified under the appropriate heading:

(a) as a Revenue-approved occupational pension scheme, where he/she is an employee,

(b) as a Revenue-approved retirement annuity contract, where he/she is a self-employed individual,

(c) as a PRSA product, in the case of a self-funded pension.

What happens if the three year prior non-residence requirement is not met?

(2) Revenue may disregard the three year requirement if a member would qualify as a relevant migrant member but for the fact that he/she has not been resident outside Ireland for a continuous three year period before coming to Ireland.

What information can Revenue require?

(3) Revenue may by written notice require an administrator to provide within 30 days of the date of the notice any information they may reasonably require in relation to payments under a qualifying overseas pensions plan. That notice must specify the required information and the format in which it must be provided.

Section 787O Interpretation and general (Chapter 2C)

What is the purpose of the Chapter on tax-relieved pension fund limits?

(1) This Chapter imposes a maximum on the value that a pension fund (a relevant pension arrangement) may hold, for 2005 and later tax years. It also seeks to apportion the taxation of excess funds where a pension adjustment order (PAO) has been made for the benefit of a divorced or separated spouse or civil partner.

The maximum value is:

(a) The standard fund threshold. For 2014, this is €2,000,000.

(b) The personal fund threshold. For 2014, this is the lower of

(i) €2,300,000, and

(ii) the value of the pension fund, i.e., uncrystallised pension rights, on 1 January 2014, together with with the value of benefits crystallised since 7 December 2005.

A PFT certificate issued before the passing of Finance (No. 2) Act 2013 continues to have effect.

Non-member means a spouse or civil partner in respect of whom a PAO has been made. It does not include dependent children.

A relevant pension arrangement means:

(a) A Revenue-approved retirement benefit scheme,

(b) a Revenue-approved annuity contract or trust scheme,

(c) a PRSA contract,

(d) a qualifying overseas pensions plan,

(e) a public service pension scheme,

(f) a (non-public service) statutory pension scheme.

A member of a relevant pension arrangement is a person who becomes entitled to the pension benefits under the arrangement.

A benefit crystallisation event (BCE) occurs where a contributor:

(a) becomes entitled to a pension, annuity or lump sum,

(b) exercises an option to take a payment from the pension fund or make a transfer to an approved retirement fund (ARF) or to an approved minimum retirement fund (AMRF),

(ba) leaves funds in a PRSA at the point of retirement rather than transferring such funds to an ARF,

(c) makes a payment or transfer to an overseas arrangement,

(d) becomes entitled to be paid a pension at an increased annual amount which exceeds by more than thepermitted margin the annual amount payable on the date he/she becomes entitled to it.

In this regard, the permitted margin means the amount by which the pension would be greater if it had been increased by calculation A or calculation B, whichever gives the greater amount.

Calculation A is a calculation which increases the annual pension amount at a rate of 5% (APR) for the period beginning with the month of becoming entitled to the pension and ending with the month of becoming entitled to payment of the pension at an increased annual amount.

Calculation B is a calculation which increases the annual pension amount at a rate of 2% plus inflation, beginning with the month in which you become entitled to the pension and ending with the month in which you become entitled to payment of the pension at an increased annual amount.

A current cost is a benefit crystallisation event that occurs on or after 7 December 2005. The date of the current event is the date on which:

(a) he/she becomes entitled to be paid a benefit under the relevant pension arrangement,

(b) the annuity becomes payable where he/she has opted to transfer the amount to an approved retirement fund (ARF),

(c) a transfer is made, by his/her direction, to an overseas arrangement,

(d) he/she becomes entitled to be paid a pension at an increased amount which exceeds by more than the permitted amount the annual amount payable on the date he/she becomes entitled to it.

A defined contribution arrangement is a relevant pension arrangement that provides benefits for its members, whether the amount available to provide such benefits is calculated by reference to contributions made by or on behalf of the member, and the investment return earned by those contributions, or otherwise.

It includes a Revenue-approved annuity contract or trust scheme and it also includes a PRSA contract.

A defined benefit arrangement is a relevant pension arrangement which is not a defined contribution arrangement.

An accrued pension amount in relation to a BCE in respect of a defined benefit scheme is the amount determined by P in the formula in para. 3(aa) of Schedule 23B that had accrued to the individual on 1 January 2014.

Subsequent administrator means the administrator of a fund to which a non-members benefits may be transferred.

Transfer amount is the actuarial value of the benefits payable to a spouse or civil partner under a PAO.

Transfer arrangement is a pension arrangement to which an amount has been transferred to cover the non-member’s benefit. It includes the member’s pension scheme if those benefits are to be provided from it.

What is meant by the “relevant valuation factor”?

(2)(a)

(i)The relevant valuation factor, in relation to a relevant pensions arrangement, is 20 on 1 January 2014, and

(ii) after that date, an age-related factor as set out in the Table to Schedule 23B.

(b)The administrator of a relevant pensions arrangement may have, by agreement with Revenue, used an alternative valuation factor. In such cases the factor to be used in determining a PFT is-

(i) on 1 January 2014 that alternative valuation factor, and

(ii) after that date the higher of the alternative factor and the age-related valuation factor.

What is the accrued pension amount?

2A(a) In the case of a PFT declaration made under the revised SFT values it is the amount which is AP in the formula in subsection (2)(a) of Schedule 23B

(b) in a case where there is a previous PFT certificate or no PFT certificate it is the amount which is AP in the formula in subsection (2)(b) of Schedule 23B if the individual’s uncrystallised benefits were being calculated by the administrator on 1 January 2014.

What happens if more than one BCE occurs on the same day?

(3) The beneficiary must decide the priority in which they occur.

What other rules apply in interpreting this Chapter?

(4) The rules in Schedule 23B supplement the rules in this Chapter.

How does a pension adjustment order affect a BCE calculation?

(5) A pension adjustment order (PAO) generally arises in the context of separation or divorce proceedings. Part of one spouse’s pension is effectively transferred to the other spouse.

This rule applies when calculating the amount crystallised under a benefit crystallisation event (BCE) under a pension scheme that is subject to a PAO.

In such a case, the benefit payable under the PAO is deemed to be a benefit in determining whether the individual has exceeded his standard fund threshold (€5m as indexed) or personal fund threshold and the chargeable excess is to be calculated as if no pension adjustment order had been made.

The rule applies even where the PAO benefit is paid from the member spouse’s scheme or following a transfer amount under family law legislation.

Section 787P Maximum tax-relieved pension fund

What is the maximum tax-relieved pension fund?

(1) The maximum tax-relieved pension fund cannot exceed-

(a) the standard fund threshold (SFT), or

(b) the personal fund threshold (PFT) where Revenue have issued a PFT certificate.

What conditions must be met for the issue of a PFT?

(2) For applications from 1 January 2014 onwards an individual must-

(a) obtain from the administrator of the pension scheme a statement-

(i) certifying his/her crystallised or uncrystallised pension rights on 1 January 2014 calculated in accordance with this Chapter ans Schedule 23B,

(ii) in the case of defined benefit schemes certifying the amount that is AP in the formula in para. 1(2)(b) of Schedule 23B, and

(iii) in the case of defined contribution schemes specifying the Revenue Approval Reference Number, and

(b) the individual must notify Revenue by electronic means within 12 months of such means becoming available that he/she has a PFT. If the crystallisation event happens earlier the notification must be made in a manner approved by Revenue (see subsection 4). The individual must provide Revenue with his/her name, adress, telephone number and PPS number and with-

(i) the name, address and telephone number of the admisistrator,

(ii) the name and reference number of the pension fund,

(iii) a statement as to whether the fund is a defined benefit or a defined contribution scheme, and

(iv) the amount of the individual’s pension rights as certified by the administator

(v) where the pension fund is a defined benefit scheme the amount which is AP in the formula (as above), and

(vi) such other information a Revenue may reasonably require for the purpose of this chapter and Schedule 23B.

Must the administrator’s statement be retained?

(3) Yes. Both the individual and the administrator must retain the statement for 6 years after the last benefit crystallisation event and must produce it if required to do so by a Revenue officer.

What if a notification is required before the electronic means are available?

(4) The notification must be made in a manner approved by Revenue.

Is a declaration required?

(5) A PFT notification made electronically is deemed to include a declaration that it is correct and complete.

What administrators must provide a statement?

(6) The administrators of each fund of which the individual is a member must comply with requests for a statement.

When must Revenue issue a PFT certificate?

(7) Revenue must issue a PFT certificate within 30 days, or such longer period as they require, of receipt of a notification.

Can Revenue withdraw a PFT certificate?

(8) Yes. If they find that the information provided in the notification is incorrect or that the individual is not entitled to a certificate they may withdraw the certificate. Where it is appropriate they may issue a revised certificate.

Section 787Q Chargeable excess

What happens if a standard (or personal) fund threshold is exceeded?

(1) This rule applies if a pension fund has a benefit crystallisation event (the current event) on or after 7 December 2005 and the conditions in (2) are met.

What causes a chargeable excess?

(2) A chargeable excess arises where:

(a) some of a standard fund threshold, or personal fund threshold, remains available, but the current event causes the threshold to be exceeded, or

(b) none of a standard fund threshold, or personal fund threshold, remains available.

Example

01.05.2012 P retires at age 65 (benefit crystalllisation event – BCE).

His retirement fund valued at €2,700,000.

P does not have a personal fund threshold. His standard fund threshold is €2,300,000.

The chargeable excess is €400,000 (€2,700,000 – €2,300,000).

How is the remaining threshold determined?

(3) The rule in Schedule 23B para 4 is to be used in determining whether any part of a standard fund threshold, or personal fund threshold, remains available.

What is meant by the “chargeable excess”?

(4) Where either condition in (2) is met, the amount by which the current event exceeds the standard fund threshold, or personal fund threshold, is referred to as the chargeable excess.

What is the treatment of tax paid by the administrator on a chargeable excess?

(5) Where tax arising on a chargeable excess is paid by the administrator of the relevant pension arrangement, that tax itself is treated as part of the chargeable excess unless:

(a) the individual’s pension rights are reduced to take account of the tax paid, or

(b) he/she reimburses the administrator for the tax paid.

What happens if a divorced/separated spouse receives a pension before the BCE?

(5A)(a) This deals with a situation where the “non-member” is already receiving a pension when the BCE giving rise to a chargeable excess happens. Any tax paid by the subsequent administrator is treated as part of the tax on the chargeable excess unless the non-member’s benefits are reduced or the non-member reimburses the administrator for the tax paid.

(b) a fund administrator who is liable to pay a non-members’s share of chargeable excess tax may dispose of sufficient assets oif the funds as are needed to pay the tax. The non-member must allow this.

(c) Where pension benefits are reduced or assets disposed of to pay excess tax a fund administrator cannot be challenged in court.

What happens if the tax is paid by the administrator of a public service or statutory pension?

(6) Where tax arising on a chargeable excess is paid by the administrator of a public service pension scheme, or a statutory pension scheme:

(a) The tax paid is a debt due to the administrator from the individual (or if deceased, from his/her estate), and

(b) The administrator must be reimbursed in accordance with the rules in (7).

How is a PAO in respect of a public sector pension dealt with?

(6A) In such cases both parties (the member and the non-member) may use the reimbursement options available for public sector schemes, i.e. for reimbursing the scheme administrator of chargeable excess tax.

What special rules apply to public sector pensions?

(7) An administrator of a public sector pension can collect the tax arising on a chargeable excess as follows:

(a) Where the tax paid is not more than 20% of the net lump sum, by

(i) appropriating that percentage of the net lump sum,

(ii) having the individual pay him the tax he has paid on behalf of that individual, or

(iii) a combination of (i) and (ii),or

(iv) by the individual exercising the option in subsection 8.

(b) Where the tax paid is more than 20% of the net lump sum, by exercising the option in subsection 8, or by

(i) appropriating not less than 20% of the net lump sum or such higher percentage as may be agreed between him and the individual,

(ii) having the individual pay him not less than 20% of the net lump sum or such higher percentage as may be agreed between him and the individual, or

(iii) a combination of (i) and (ii),

and by

(i) reducing the gross pension payable to the individual (the pension reduction) for such period as does not exceed 10 years (the agreed period) with the pension reduction over the agreed period being sufficient to reimburse the tax that remained to be appropriated (the balance),

(ii) having the individual pay the balance within three months of the date of the BCE that gave rise to the chargeable excess, or

(iii) a combination of (i) and (ii).

(c) The individual must pay the tax within (a)(ii) and (iii) and (b)(ii) and (iii) before the administrator pays the net lump sum and the administrator may withhold payment of the lump sum until the individual pays the tax.

Example

01.06.2012 Q, aged 60, retires after 40 years working in a government department.

Q is entitled to a pension of €150,000 per annum.

Q’s pension fund is valued (on a 20:1 basis) at €3,000,000.

Q is entitled to a lump sum of 20% x standard fund threshold (SFT).

This works out at €575,000; the first €200,000 is tax-free; the next €375,000 is taxed at 20% = €75,000 tax.

The net lump sum is therefore €500,000 (€575,000 – €75,000).

Q’s chargeable excess is €3,000,000 – €2,300,000 = €700,000.

The tax on the chargeable excess is €287,000 (€700,000 x 41%).

The administrator can appropriate not more than 20% of the net lump sum (€100,000) toward the €287,000.

What is the option available to the individual?

|8) The option is to reduce the pension payable for a period not exceeding 20 years by an amount sufficient to reimburse the tax paid to the administrator.

When must a payment by the individual be made to the administrator?

(9) where the individual agrees to make a payment to the administrator to reimburse tax paid he/she mus do so before the administrator pays the net lump sum due to the individual.

Section 787R Liability to tax and rate of tax on the chargeable excess

What tax rate applies to the chargeable excess?

(1) The chargeable excess is taxed under Schedule D Case IV at the higher rate for the year in which the BCE occurs without any relief or deduction. The annual exemption limits do not arise to tax arising on a chargeable excess.

Who is liable to pay the tax?

(2) The pension fund administrator and the pension fun holder are jointly and severally liable to pay the tax on a chargeable excess.

Who is liable for the tax where a PAO has been made?

(2A) The liability is apportioned between the member and the non-member. This subsection sets out how the apportionment is to be determined in various circumstances.

is a non-resident liable to pay tax on chargeable excesses?

(3) The person in (2) is liable to pay the tax on the chargeable excess, irrespective of whether he/she is resident or ordinarily resident in the State.

Can tax paid on an excess lump sum be credited against income tax under (1)?

(3A) Yes. Tax paid by a fund administrator, a member or a non-member may be credited against chargeable excess tax.

What ahppens if a non-member’s benefits have been transferred to another fund?

(3B)-(3E) These subsections deal with the circumstances where the non-members benefits have been transferred to another fund. When a BCE giving rise to chargeable excess tax (CET)occurs the administrator must establish who the subsequent administrator is and provide him/her within 21 days of the BCE with a certificate showing the apportionment of the CET. The non-member must also be notified of his/her share of the CET. If the non-member is the sole person responsible for the CET a copy of the administrator’s notice to the non-member must be sent to Revenue at the same time.

If a BCE is due to occur, what information can be requested?

(4) Where a benefit crystallisation event is due to occur, the administrator of a relevant pension arrangement may request a declaration, on the Revenue-prescribed form, stating:

(a) the individual’s name, address, and PPS number,

(b) the date of each crystallisation event, and the amount crystallied by each such event,

(c) in relation to future events, the expected date of each such event and the amount expected to be crystallised by each such event,

(d) a copy of the relevant Revenue certificate stating his/her personal fund threshold,

(e) details of unpaid chargeable excess tax required to be paid by the administrator to the Collector-General,

(f) any other relevant information Revenue may reasonably require.

What happens if the declaration is not provided?

(5) This rule applies to failure to provide a written declaration to the administrator of a relevant pension arrangement. In such a case, the administrator may:

(a) withhold the payment of a benefit if the benefit crystallisation event arises as the result of the individual becoming entitled to a pension, annuity, or lump sum,

(b) withhold the payment of any increased pension, if the benefit crystallisation event arises as the result of him/her becoming entitled to an increased annual pension amount which exceeds, by more than the permitted margin, the pension that was payable on the day he/she became entitled to such pension,

(c) refuse to make a transfer to him/her, an approved retirement fund or an approved minimum retirement fund, if the benefit crystallisation event arises as a result of him/her exercising an option to make such a transfer,

(d) refuse to make a payment or transfer to an overseas pension arrangement if the benefit crystallisation event arises as a result of such payment or transfer.

What retention requirements apply in relation to the declarations?

(6) The administrator of a relevant pension arrangement must:

(a) keep the declarations mentioned in (4) for six years, and

(b) on receipt of a written notice from an authorised Revenue officer, produce such declarations within the time limit specified in the notice.

For how long must administrators keep records?

(6A) Administrators, subsequent adminitrators and fund administrators must retain copies of certificates and notifications issued in accordance with subsections (3B), (3C) and (3D) for 6 years. These copies must be made available to Revenue on request.

Section 787RA Credit for tax paid on an excess lump sum

Can lump sum tax be credited against chargeable excess tax?

(1) A lump sum that exceeds the tax-free threshold (€200,000) is referred to as an excess lump sum. If the recipient of the lump sum also has a chargeable excess (because the value of his fund exceeds the standard fund threshold (€2.3m), the tax chargeable on the excess lump sum (the lump sum tax) can be used to reduce the tax on the chargeable excess (the chargeable excess tax).

Can excess lump tax on one pension be credited against chargeable excess tax on a second pension?

(2) Yes, provided the first pension administrator obtains from the second administrator a certificate stating:

(a) that administrator’s name and address,

(b) the individual’s name, address and PPS number,

(c) the pension arrangement in which the BCE arose,

(d) the date on which the lump sum was paid, and the amount of the lump sum,

(e) the lump sum tax charged, deducted by and remitted to the Collector-General by the administrator.

What happens if the lump sum tax exceeds the chargeable excess tax?

(3) If the lump sum tax exceeds the chargeable excess tax, the excess (the tax balance) can be carried forward for use against tax (future chargeable excess tax) arising on the next and subsequent BCEs until used up.

Can an unused tax balance be used against future chargeable excess tax on a second pension?

(4)-(5) Yes, provided the second pension administrator gets a certificate from the first pension administrator stating:

(a) the first pension administrator’s name and address,

(b) the individual’s name, address and PPS number,

(c) the unused tax balance.

Does the rule in (4)-(5) apply whenever a BCE administrator and the administrator of the previous BCE are different persons?

(6) Yes.

Does the certificate in (2) and (4) count as a declaration for record-keeping purposes?

(7) Yes. The certificate must be kept for six year and produced to Revenue on request.

Can a double credit for lump sum tax or for a tax balance be obtained?

(8) No.

Can a credit be given to a “non-member?”

(9) Yes. Where there has been a PAO a non-member spouse or civil partner who pays excess lump sum tax can have it set off against their share of chargeable excess tax.

Section 787S Payment of tax due on chargeable excess

What returns are required in relation to the tax on a chargeable excess?

(1) The administrator of a relevant pension arrangement must file a return with the Collector-General within three months of the end of the month in which the benefit crystallisation event occurs, setting out:

(a) his/her name and address,

(b) the name, address and PPS number of the pension holder (the individual to whom the benefit crystallisation event relates),

(c) the relevant pension arrangement that gave rise to the benefit crystallisation event,

(d) the amount of, and the basis for calculating, the chargeable excess in respect of the benefit crystallisation event,

(e) the tax he/she must pay in relation to the chargeable excess.

The administrator must also submit details of the excess tax for whichhe/she is responsible and, whee there has been a POA, must supply the foregoing details in respect of the non-member. If a transfer of funds has taken place the administrator must supply the most recent information he/she has in respect of the non-member and the details of the subsequent administrator or fund manager together with details of the member’s and non-member’s share of the excess tax due.

What returns must a subsequent administrator make?

(1A) Where a non-members’s share of a fund has been transferred to a new fund the subsequent administrator or fund manager must, within 3 months, make a return showing:

(a) the subsequent administrator or fund manager’s name address and telephone number,

(b) the name, address and telephone number of the non-member,

(c) the name, address and telephone number of the administrator of the member’s fund from which the transfer was made,

(d) the amount and basis of calculation of the non-member’s share of the excess tax, and

(e) the amount of the non-member’s share of the tax for which the subsequent administrator is responsible.

If the amount in (d) is greater than the amount in (e) the subsequent administrator must notify the non-member of the amount for which he/she is responsible.

Must a notification to a non-member be copied to Revenue?

(1B) Yes.

Must a non-member make a return to Revenue?

(1C) Where a non-member has received a notification that he/she is solely or partially responsible for excess tax hee/she must, within 3 months, submit a return to Revenue showing:

(a) the name, address and telephone number of the subsequent administrator,

(b) the name, address and PPS number of the non-member,

(c) the amount of the non-member’s share of the excess tax,

(d) the amount of that share paid by the subsequent administrator, and

(e) the amount the non-member is liable to pay.

What rules apply if there is a BCE before 25 March 2006?

(2) This rule applies where, between 7 December 2005 and 25 March 2006, benefit crystallisation events in excess of €3,750,000 have occurred in relation to pension arrangements. In such a case, the administrator of a relevant pension arrangement must, on or before 25 May 2006, file a statement with Revenue.

The statement in (2) must:

(a) be made on the Revenue-prescribed form,

(b) contain:

(i) the name, address and PPS number of the pension holder (the individual to whom the benefit crystallisation event relates),

(ii) the pension arrangement that gave rise to the benefit crystallisation event,

(iii) the amount crystallised by each such event, and

(iv) a declaration that the statement is correct and complete.

When is the appropriate tax due?

(3) The appropriate tax relating to a chargeable excess is due at the same time as the return filing date. It is payable on a self-assessment basis. Revenue may issue an assessment in relation to unpaid tax if it is not paid by the due date.

Can Revenue make an assessmentin relation to underpaid tax?

(4) Yes. Interest on such tax accrues from the date on which the return in question was due.

What happens if an item is incorrectly included in a return?

(5) If an item has been incorrectly included in a return, a Revenue officer may make any assessment, adjustment or set off necessary to ensure that the tax liability is correct.

When is the tax under a notice of assessment due?

(6) Appropriate tax is generally due within one month of the date of the notice of assessment. This is subject to any appeal, or application by an administrator for discharge from tax. Any such appeal or application does not affect the return filing date mentioned in (1).

Once an appeal has been determined, any appropriate tax overpaid must be repaid.

Do the normal income tax procedures apply to appropriate tax?

(7) The income tax procedures in relation to assessments, appeals against assessments, and collection and recovery, apply in relation to appropriate tax.

Unpaid appropriate tax is subject to interest at 0.0219% for each day the tax remains unpaid.

Such interest is not an “annual payment” from which income tax must be withheld by the payer. It is a debt due to the Minister for Finance for the benefit of the Central Fund and is payable to the Revenue Commissioners.

The tax collection procedures apply in collection unpaid interest as if the interest were a part of the outstanding tax. In bankruptcy or liquidation proceedings, unpaid interest ranks equally with unpaid tax for payment in priority to other debts.

In court proceedings to collect unpaid interest, a certificate signed by the Collector-General stating that an amount is due, is evidence, until the contrary is proved, that such amount is so due. Such a certificate may be tendered in evidence without proof and is deemed, until the contrary has been proved, to have been signed by the Collector-General.

What are the requirements for a return?

(8) Every return must be made on the Revenue-prescribed form, and must include a declaration that it is correct and complete.

Section 787T Discharge of administrator from tax

When can an administrator apply for a discharge from tax?

(1) The administrator of a relevant pension arrangement may apply to Revenue for a discharge from tax if he/she reasonably believed that:

(a) the benefit crystallisation event did not give rise to an income tax liability, or

(b) the income tax liability was less than the actual amount.

When will Revenue allow the discharge from tax?

(2) Revenue may, on receipt of an application within (1), discharge the administer from tax. They must notify their decision in writing.

If an administrator is discharged, who becomes liable?

(3) The individual in respect of whom the income tax charge arises is liable to pay the tax.

Section 787TA Encashment option

What is the encashment option?

(1) The encashment option is a special option available to a public sector employee with both a private sector pension and a public sector pension, i.e., a relevant individual who is a member of a private sector scheme and apublic sector scheme, and who remains an active member of the public sector scheme until retirement date, which means age 60 (or earlier if retirement arises from incapacity).

Who can claim the encashment option?

(2) A public sector worker with both private and public sector pensions (a relevant individual – see (1)) can claim the encashment option if the following conditions are met:

(a) He/she must not have accessed his/her pension (had a BCE) between 7 December 2005 and 7 February 2012 (the relevant period).

(b) On retirement, the combined value of his/her private and public sector pensions exceeds his/her €2.3m standard fund threshold (SFT), or, if applicable, his/her personal fund threshold (PFT). This excess is the specified amount.

(c) He/she accesses his/her private sector pension before the public sector pension.

How is an encashment option exercised?

(3) (a) To exercise an encashment option, the conditions in (4) must be met and the administrator of the private sector pension must be given an irrevocable written instruction (see (6)).

(b) An encashment option can be exercised on one occasion only and on the same date.

(c) An administrator of a pension fund must retain for six years all written encashment option instructions he has received, and must produce such instructions to Revenue on request.

What conditions must an individual meet?

(4) To exercise an encashment option an individual must:

(a) notify Revenue in writing at least three months before accessing the public sector pension and provide Revenue with the following information:

(i) his/her name, address and PPS number,

(ii) his/her estimate of the value of the private sector pension fund,

(iii) details of the private sector pension for which he/she wishes to exercise the encashment option,

(iv) the name, address and phone number for the administrator of the private sector pension, and

(v) any other information Revenue may reasonably require in relation to the encashment option, and

(b) notify Revenue in writing within seven days of having exercised the encashment option and provide Revenue with a schedule setting out the amount to which the exercise applies (for each pension scheme, if applicable).

How must a notification be made to Revenue?

(5) A notification required by subsection 4 must be made in a form authorised by Revenue and must contain a declaration that it is correct and complete.

Can the time limit in subsection 4 be extended?

(5A) Yes. Revenue may extend the 7 day deadline where they deem it appropriate.

How is an encashment option exercised?

(6) An encashment option is exercised when a pension scheme administrator transfers the accrued rights (including AVCs) under the scheme to a member on or after his/her retirement date (but not before 60 years of age).

If a public sector pension exceeds the SFT/PFT, the amount treated as exercised is the value of the private sector pension.

Otherwise, the amount treated as exercised is the specified amount., i.e., the difference between the combined value of the private and public pensions, and the applicable SFT/PFT.

If on exercise of an encashment option the encashment amount equals the accrued private pension rights, the tax-free lump sum is not payable. This is broadly intended to secure that the tax benefits of the pension are eliminated.

If the encashment amount is less than the accrued rights under the scheme, the restricted tax-free lump sum is payable.

A, the tax-free lump sum means 25% of the SFT/PFT.

The restricted tax-free lump sum means

A x [ 1 – (B / C) ]

where

B is the excess of the combined value of the private and public sector pensions over the SFT/PFT (the specified amount), and

C is the value of the private pension rights.

Example

R is due to retire from a semi-state company with a pension of €200,000 per annum.

His public sector pension is therefore valued (20:1 rule) at €4,000,000.

He also has a private sector pension fund of €1,400,000.

He does not have a PFT.

His SFT is €2,300,000.

His tax-free lump sum is €575,000.

He has a chargeable excess of €1,700,000 (€4,000,000 – €2,300,000).

The tax on the chargeable excess is €697,000 (41% x €1,700,000).

Assume he encashes his private pension fund giving rise to a tax charge of €574,000 (41% x €1,100,000).

R is not entitled to a tax-free lump sum.

The tax can be offset against the tax arising on the chargeable excess.

Example

Assume R’s public sector pension is only worth €2,000,000.

The specified amount is the combined value of his private and public sector pensions (€3,400,000) less the SFT (€2,300,000) = €1,100,000.

Assume that he encashes 50% of his €1,400,000 private pension, i.e., €700,000, giving a tax charge of €287,000 which can go against the tax on the chargeable excess (€1,100,000 x 41% = €451,000.

R, in this circumstance, can get a restricted tax-free lump sum of

€575,000 x [1 – ( B / C) ]

= €575,000 x [1 – ( 1,100,000 / 1,400,000) ] = €123,214.

Is the encashment amount treated as income?

(7) Yes. When an encashment option is exercised, the entire encashment amount is treated as income (under Schedule D Case IV) for the tax year in which the amount is paid.

Who is responsible for payment of tax arising on an encashment option?

(8) The administrator of the private sector pension scheme is responsible for payment of the encashment tax arising on the encashment of the pension.

Does income arising by virtue of an encashment option qualify for tax deductions?

(9) No. Sucn income is computed without regard to any tax deductions, allowances or tax credits and the income exemption limits do not apply to such income.

How is encashment tax collected?

(10) Encashment tax is collected in the same manner as tax on a chargeable excess (section 787S).

Can a private sector pension which has already been accessed be encashed?

(11) Yes. In such a circumstance the modified rules apply and the administrator (or relevant manager) of a private pension can be instructed to encash the fund as if the prior BCEs had not taken place.

This transitional measure sets out rules that apply to a private pension accessed before 8 February 2012. An individual must have had one or more BCEs in relation to the private sector pensions, and the amounts crystallised by such BCEs must exceed his/her SFT/PST. The excess is referred to as the other specified amount.

If the fund was already accessed, subsection (6) applies as if the reference in that subsection to an administrator were a reference to a relevant manager – since it is the relevant manager (i.e. the qualifying fund manager of an ARF or AMRF or the PRSA administrator of a PRSA) that will transfer the encashment amount you.

Can a private sector pension which has already been accessed be encashed?

(12) To exercise an encashment option for a private sector pension fund for which a BCE has already occurred, an individual must:

(a) notify Revenue in writing at least three months before accessing his/her public sector pension and provide Revenue with the following information:

(i) his/her name, address and PPS number,

(ii) his/her estimate of the value of the private sector pension rights in respect of which the option is to be exercised,

(iii) even though a BCE may already have occurred, details of the private sector pensions for which he/she wishes to exercise the encashment option,

(iv) the name, address and phone number for the administrator for each private sector pension, and

(v) any other information Revenue may reasonably require in relation to the encashment option.

(b) notify Revenue in writing within seven days of having exercised the encashment option and provide Revenue with a schedule setting out the amount to which the exercise applies (for each pension scheme, if applicable)

How is encashment tax collected for an already accessed a private sector pension?

(13) The tax treatment depends on when the fund has been accessed

(a) if not accessed before 8 February 2012, the rules in (7) to (10) apply, and

(b) if accessed before 8 February 2012, the rules in (14) or (15) apply.

What is the deemed encashment amount when a pension fund has already been fully accessed?

(14) When encashing a private pension that has already been accessed, the part of the encashment amount from which encashment tax is to be deducted (i.e. the deemed encashment amount) is

(i) in the case of a lump sum that would have been paid tax-free, the amount of the tax-free lump sum,

(ii) in the case of a transfer to an ARF, the lesser of the amount transferred to the ARF at the time the pension was accessed and the value of the assets in the ARF when the option is exercised,

(iii) in the case of a transfer to an AMRF, the lesser of the amount transferred to the AMRF at the time pension was accessed and the value of the assets in the AMRF when the option is exercised,

(iv) in the case of the retention of assets in a PRSA (a vested PRSA), the lesser of the value of the assets retained in the vested PRSA at the time the pension was accessed and the value of the assets in the vested PRSA when the option is exercised,

(v) in any other case, nil. This deal with situations where a pension or annuity is already in payment or where an individual took a transfer of the pension benefits as a taxable lump sum.

A contributor is subject to tax on the deemed encashment amount under Schedule D Case IV in the year in which he/she exercises the option.

What is the deemed encashment amount when a pension fund has been partly accessed?

(15) In the case of a pension that has been partly accessed, the deemed encashment amount is calculated by the formula (A x B/C) where

A is the value of the BCE and

B/C represents the fraction of your accrued rights under the scheme that are being encashed.

You are subject to tax on the deemed encashment amount under Schedule D Case IV in the year in which you exercise the option.

How is the deemed encashment amount taxed?

(16) The deemed encashment amount is chargedunder Schedule D Case IV in the year the option is exercised.

The relevant manager (i.e. the qualifying fund manager of the ARF/AMRF and the administrator of the vested PRSA) must deduct higher rate income tax and remit such tax to the Collector-General.

The deemed encashment amount is taxed without regard to any tax deductions, allowances or tax credits and the income exemption limits do not apply to such income.

In deducting tax from a deemed encashment amount relating to an ARF/AMRF or vested PRSA, the relevant fund manager must include the tax relating to a lump sum paid under the scheme rules.

A standard rate tax credit in respect of income tax paid on the lump sum can be claimed against encashment tax on that sum. If only part of the lump sum paid is subject to encashment tax a proportionate standard rate tax credit is given. The formula in (15) is used to calculate the correct portion.

The relevant manager must obtain a certificate from the administrator of the private pension fund providing the following details:

(a) The administrator’s name and address,

(b) the individual’s name, address and PPS number,

(c) details of the pension arrangement under which the lump sum giving rise to the excess lump sum was paid,

(d) the date on which the lump sum was paid,

(e) the tax that the administrator has to account for in relation to the lump sum.

Credit given against encashment tax for standard rate income tax paid on a lump sum is not available for use against any chargeable excess tax.

The certificate from the relevant manager must be retained for six years and produced to Revenue on request.

How should the relevant manager fund the payment of encashment tax?

(17) The relevant manager must pay the encashment tax from the ARF/AMRF/PRSA assets. Any balance of unpaid tax must be paid in accordance the rules in (18).

How is unpaid encashment tax to be funded and paid?

(18) Encashment tax that cannot be paid from the ARF/AMRF/PRSA assets is deemed to be chargeable excess tax. The public sector pension scheme administrator must pay the tax when the individual accesses his public sector scheme (i.e., on his retirement). Such tax is a debt owed to the administrator by the individual, or if the individual dies, by his estate.

The public sector pension scheme administrator must collect the tax from the individual’s public sector lump sum or by deducting it from the pension payable to the individual.

Encashment tax that is treated as chargeable excess tax for collection purposes in this manner is not treated as chargeable excess tax for any other purpose.

How is unpaid encashment tax to be paid where there is no qualifying fund manager or PRSA administrator?

(19) Where a private sector pension is accessed and a tax-free lump sum is taken with remaining benefits being taken as a pension, annuity or taxable lump sum (i.e., there is no qualifying fund manager or PRSA administrator to deduct the tax), it is subject to higher rate tax on the deemed encashment amount under Schedule D Case IV.

The encashment tax is treated as unpaid chargeable excess tax to be collected by the public

sector pension scheme administrator from your pension and not from your public sector lump sum.

A standard rate tax credit in respect of income tax paid on the lump sum can be claimed against encashment tax on that sum. If only part of the lump sum paid is subject to encashment tax a proportionate standard rate tax credit is given. The formula in (15) is used to calculate the correct portion.

Credit given against encashment tax for standard rate income tax paid on a lump sum is not available for use against any chargeable excess tax.

The certificate from the relevant manager must be kept for six years and producd to Revenue on request.

Is income earned by encashed pension assets exempt from tax?

(20) No. Once an encashment option is exercised in relation to an ARF/AMRF/PRSA (the fund), the assets cease to be regarded as assets of the fund from the date of the exercise of the option. Accordingly, income earned by such assets is taxable.

Is a fund treated as accessed if an encashment option is exercised?

(21) No. The encashment amount is ignored for SFT/PFT purposes and BCE events relating to a private pension that has already been accessed are ignored for future SFT/PFT purposes.

An encashment amount cannot be used as a contribution to, or premium in respect of, a tax relieved pension arrangement.

The encashment amount is not treated as a distribution of ARF/AMRF/PRSA assets and acccordingly is not taxed by the qualifying fund manager/ PRSA administrator as if it was a distribution.

Does a tax free lump sum count in determining excess lump tax on a lump sum paid?

(22) Where an encashment option is exercised for a private sector pension already accessed, and the deemed encashment amount is the tax free lump sum paid, that lump sum (or the relevant part of it) is ignored in determining excess lump sum tax on a lump sum paid on or after 8 February 2012.

Who is liable to pay the tax due on the encashment amount?

(23) The persons liable for payment of the tax due on the encashment amount are the individual and the pension scheme administrator (including the administrator of the public sector scheme) or the qualifying fund manager/PRSA administrator. Each person is jointly and severally liable and is liable irrespective of that person’s tax residence status.

Section 787TB Penalties

What penalty applies for failure to comply with obligations?

A person who fails to comply with any of the obligations imposed by this Chapter and Schedule 23B is liable to a fine of €3,000 for each failure.

Section 787U Regulations

What type of matters can the Revenue regulations deal with?

(1) Revenue may make regulations detailing the procedures to be followed in relation to pension fund arrangements. Such regulations may provide a procedure for specifying who is to be treated as the administrator of:

(a) a public service pension scheme,

(b) a (non-public service) statutory pension scheme.

How are such regulations approved?

(2) Such regulations must be laid before Dáil Éireann. If annulled within 21 days, the regulations are cancelled, but any thing done under the regulations within that 21 day period remains effective.

Section 788 Capital element in certain purchased annuities

What definitions apply in relation to life annuities?

(1) A life annuity is an annuity that remains payable until, or is ascertainable only by reference to, a person’s death. A life annuity may cease at the end of a fixed term while the person is still alive, or continue, in certain circumstances, after the person dies.

A purchased life annuity is a life annuity bought from a life business (i.e., a person in the business of granting annuities on human life).

An individual approaching old age may agree with a life business to exchange a capital sum (for example €50,000) for an income stream (for example €5,000 per year) for as long as he/she remains alive. Such an income stream is referred to as a purchased life annuity. The annuity may be for a fixed term (for example 10 years), and it may continue to be paid after death.

Examples of persons granting annuities on human life: an assurance company (Irish or foreign), insurance departments of foreign governments, the British National Debt Commissioners, the British Post Office Savings Bank, friendly societies and trade unions (Inspector Manual 30.3.1).

What types of annuities are not purchased life annuities?

(2) The following annuities are not regarded as purchased life annuities:

(a) An annuity treated under any other provision of the Income Tax Acts as the repayment of a capital sum.

(b) An annuity bought through a sponsored superannuation scheme (an employee pension scheme which is not entirely funded by the employees’ contributions (section 783)).

An annuity bought through a Revenue approved trust scheme established to provide retirement annuities to individuals of a particular occupation (section 784).

Any other annuity bought by a person in recognition of another person’s past services.

(c) An annuity under a substituted contract (the accrued rights under which were transferred from an original contract (section 786(3)).

(d) A self-employed retirement annuity bought through the payment of qualifying premiums (section 787).

(e) An annuity bought under the terms of a will, or an annuity funded by a trust or a deceased person’s estate.

(f) An annuity bought from the proceeds of an approved retirement fund (section 784A) or an approved minimum retirement fund (section 784C).

(g) An annuity bought from PRSA assets.

(e) This exclusion is because the executors as such would not be carrying on the business of granting life annuities. If however, a legatee were able to obtain from the executors a cash sum in lieu of the annuity to which he/she was entitled under a will, and utilised that cash sum to purchase an annuity from an assurance company, the annuity so purchased would not be excluded from relief (Inspector Manual 30.3.1).

How is the capital element of a purchased life annuity treated?

(3) The part (if any) of a purchased life annuity that consists of repayments of the purchaser’s capital (a capital payment) is not treated as an annual payment (i.e., income of the recipient).

However, the capital part of a payment (the capital element) is to be taken into account when computing a profit or loss on the receipt of a lump sum.

A purchaser of such an annuity is simply drawing on his/her own capital, which is being managed by the life business. The “income” stream payments are repayments of his/her own capital and are not, therefore, taxed as income.

A capital sum obtained by commuting an occupational pension or retirement annuity policy may be used to purchase a life annuity, the capital element of which is exempt: Rose v Trigg, (1963) 41 TC 365.

Transferred property

In return for transferring a property, a transferor may receive payments of a fixed amount of money payable annually until his/her death. Are such payments instalments of a capital sum, or annual payments chargeable to income tax (under sections 237, 238)? The Revenue view is that if the payments are not for a fixed period of time, the payments are annual payments assessable to income tax. The income tax charge depends on the capitalised value of the annuity calculated by reference to actuarial tables (Revenue Precedent IT97-2511, 18 September 1997).

Judge 16.302

How is the capital element calculated?

(4) The capital element of an annuity is determined by the capital proportion of the payment given for the grant of the annuity.

That proportion remains constant for all the annuity payments to be made.

Example

At age 64, you pay a capital sum of €50,000 to a life business in return for a life annuity of €5,000 for 10 years.

As the annuity is entirely funded by a capital payment, the annuity payments are regarded as capital repayments to you, and cannot be taxed as income.

What about where the annuity payments depend on the duration of a life?

Where the annuity payments are contingent solely upon the duration of a human life, the capital proportion of the annuity payments is to be determined by comparing the capital sum paid for the annuity with the actuarial value of the annuity payments to be made to the annuitant.

Example

At age 64, you pay a capital sum of €50,000 to a life business in return for a life annuity of €5,000 for the rest of your life.

€60,000.

Five-sixths (50,000/60,000) of the annuity payments are regarded as capital repayments to you and are not, therefore, taxed as income.

What about where the annuity payments depend on another contingency?

Where the annuity payments depend on contingencies apart from the duration of a human life, the capital proportion of the annuity payments is to be determined on a “just” basis.

Note

Contingencies apart from the duration of human life: for example, a “tax-free” annuity, the gross payment for which will vary with the standard rate of income tax, or an annuity payable to a widow for life or until remarriage (whichever is earlier).

How is a payment made for the annuity grant and another benefit treated?

(5) A payment for the grant of the annuity and some other matter is to be apportioned on a just basis (but not treating the right to a refund of premiums or to the future annuity payments as a separate matter from those annuity payments).

Where the payment for the grant of an annuity has been affected by a payment given for some other matter, the separate payments are to be aggregated and treated as a single payment.

The actuarial value of any annuity payments is their value when the first annuity payment is due to you as the recipient of the annuity. The value is calculated using prescribed mortality tables. That value is not to be reduced on account of a time lapse between the due date for the first payment and the date it is actually paid.

What protection has an annuity payer to ensure the correct tax treatment?

(6) Where annuity payments are made to a purchaser of a life annuity and the tax treatment of the capital element contained in the annuity has been notified, that notification is evidence until the contrary is proved as to the income tax to be deducted from the payment.

This protects the rights and obligations of the person paying the annuity.

What if notification is not given in relation to a capital element?

(7) Where annuity payments are made to a purchaser of a life annuity and notification as to the tax treatment of the capital element contained in the annuity has not been given, income tax must be deducted from the full amount of the payment (i.e., no part is treated as capital).

Can a life assurer get a repayment of excess tax resulting from the exemption of the capital part?

(8) Excess tax payable by a life assurer (other than a company chargeable to corporation tax) on its investment income as a result of exemption given to the capital part of annuities on a purchased life annuity is to be repaid.

A life assurer normally suffers tax on the investment income of its annuity fund and deducts tax from the annuities it pays. If the annuities it pays are less than the investment income, the assurer retains the tax deducted from the annuities. If the annuities it pays are greater than the investment income, the assurer must pay to Revenue the tax on the excess. Where the annuities exceed the investment income, the assurer pays no tax on the investment income.

Because this section applies tax only to the interest element of the annuity (not the entire annuity payment), the tax on the annuities is less than it might otherwise have been, and therefore, the tax on the investment income is greater than it might otherwise have been. In such circumstances, as the payer of the annuity, you are to be reimbursed the additional tax payable. In other words, to the extent that an assurer’s investment income is more heavily taxed as a result of the exemption of the capital part of life annuity payments, that investment income remains exempt (see also sections 715716).

Does this section apply to all life annuities?

(9) This section applies to life annuities (see (1)) whenever bought or beginning. A self-employed retirement annuity bought through the payment of qualifying premiums does not qualify as a purchased life annuity, irrespective of the time it was bought or the time it begins.

Simons B5.314, E7.415 Judge 16.301

Understanding annuities, Owen Morton, Irish Tax Review, May 1998.

Section 789 Supplementary provisions (Chapter 3)

How is a dispute over the capital proportion of an annuity payment dealt with?

(1) Where there is a dispute over the capital proportion of an annuity payment, the inspector’s decision may, on appeal, be amended by the Appeal Commissioners or a Circuit Court Judge

The time limit is 21 days from the date of such determination. An appeal that is not withdrawn and cannot be settled by agreement in the district, should be referred to Head Office before being put down for hearing by the Appeal Commissioners.

On settlement of an appeal, an amended form PLA4 should, where necessary, be sent to the payer and any necessary repayment should be made of tax overdeducted by reference to the original form PLA4. Regulation 13 provides for the recovery by a Case IV assessment of any tax which has been underdeducted (Inspector Manual 30.3).

Can Revenue make more detailed rules for this Chapter?

(2)-(4) The Revenue Commissioners may prescribe more detailed rules for taxing purchased life annuities. To do so, they may make regulations governing:

(a) The hearing or rehearing of an appeal, and the statement of a case for the opinion of the High Court on a point of law.

(b) The time limit for making a claim for relief.

(c) Information to be provided when determining whether an annuity paid under a purchased life annuity contains a capital element, and the persons who may be required to provide that information.

(d) How a decision is to be given effect, and assessments on the annuitant.

(e) The circumstances in which a decision is binding, and the circumstances in which it may be reviewed.

Is there a penalty for false statements in relation to a pension scheme?

(5) The penalty for making a false statement in relation to a pension scheme is €3,000.

Section 790 Liability of certain pensions, etc to tax

What is the tax treatment of a voluntary pension paid to an ex-employee?

A pension voluntarily paid by an employer or his/her heirs or successors to you as an ex-employee (or your widow/widower, or child, relative or dependants) is to be taxed as income of yours under Schedule E.

This section taxes a gratuitous (unfunded) pension paid to you as an ex-employee. Without this section, such a pension would not be regarded as income of yours, and would be taxed (if at all) as a gift.

Section 790A Annual limit on contributions

Tax Relief for Pension Contributions: Application of Earnings Limit: Tax Briefing Issue 74 – 2009

Is there an overall limit to the earnings that get pension relief?

(1) €254,000, as indexed in line with the earnings adjustment factor (see (2)), is the overall annual limit for pension contributions (of an individual), whether made to an employee pension scheme, a self-employed pension contract, a PRSA, or a qualifying overseas pension plan.

(2)-(3) From 1 January 2009, the pensions earning limit is €150,000.

What is the pensions earnings limit for 2011?

(4) The pensions earnings limit for 2011 is €115,000.

What is the pensions earnings limit for 2010 if the payment is made in 2011?

(5) If a pension payment is made in 2011, in respect of the year 2010, the pensions earnings limit is €115,000.

Section 790AA Taxation of lump sum payments in excess of the lump sum limit

What pension lump sum payments are liable to taxation?

(1) This section imposes an income tax charge on lump sum payments where you receive such a payment under arelevant pension arrangement and it exceeds €200,000 (the tax-free amount).

The administrator of a relevant pension arrangement is broadly the person responsible for managing it, and includes:

(i) the administrator of a Revenue-approved retirement scheme,

(ii) the administrator of a retirement annuity contract, and

(iii) a PRSA administrator.

In certain cases the balance of a pension fund may be transferred, after payment of the lump sum, to an approved retirement fund (ARF). As such, it might be claimed that, because no actual pension is paid when the fund has been placed in the ARF, the lump sum limit does not apply. In such cases, by way of anti-avoidance measure, the commutation is to be construed as referring to the value of the pension before the exercise of the ARF option.

A lump sum “paid” includes a lump sum obtained by, given, or made available.

If no lump sum was paid since 7 December 2005, the amount taxed is the amount by which the current lump sum exceeds €200,000, or

(I) if the earlier lump sum was less than €200,000, the amount by which the total of earlier lump sum plus the current lump sum exceeds €200,000,

(II) if the earlier lump sum was equal to or exceeded €200,000, the amount of the current lump sum.

As an anti-avoidance measure: Two lump sums may not be treated as paid at the same time. If two lump sums are paid on the same day, the earlier lump sum (the first-mentioned lump sum) is treated as paid before the second-mentioned lump sum. If two lump sums are paid at the same time, as the individual receiving the payment, you must decide the order in which they are deemed to be paid.

How is the excess lump sum treated for tax purposes?

(2) Where a lump sum is paid on or after 1 January 2011, the excess lump sum is treated as income for the tax year in which the lump sum is paid. See (3).

How is the excess lump sum taxed?

(3) The excess lump sum is treated as employment income (relevant emoluments). The part which does not exceed thestandard chargeable amount. i.e.:

(SFT/4) – TFA

where SFT is €2.3m (the standard fund threshold) and TFA is €200,000 (the tax free amount), is taxed at the standard rate under Schedule D Case IV.

Any balance in excess of the standard chargeable amount is taxed as employment income relevant emoluments and subject to PAYE.

These figures are cumulative, so that previous payments are taken into account in deciding whether the amount receivable by an individual exceeds the standard chargeable amount.

Who is responsible for payment of income tax deductible from a pension lump sum?

(4) The administrator of the pension scheme, and the individual to whom the lump sum is payable are jointly and severally liable for payment of the tax.

Does the residence status of the administrator or the recipient of a lump sum affect their liability to tax?

(5) No. The administrator or the recipient of a pension lump sum are liable to tax, irrespective of whether they are resident, or ordinarily resident, in the Republic of Ireland.

How is pension lump sum tax paid by the administrator treated?

(6) Unless the lump sum is paid net of tax, the tax is treated as part of the excess lump sum.

In the case of a public sector pension scheme, or a statutory scheme, the individual (or if he is deceased, his estate) owes the tax to the administrator, and the administrator may appropriate part of the pension fund to pay the tax.

Is the recipient of a pension lump sum entitled any tax deductions against the sum?

(7) In the case of a lump sum payment taxed at the standard rate (i.e., a payment that exceeds the tax-free amount of €200,000 but does not exceed €575,000 – one quarter of the standard fund threshold), the recipient is not entitled to any deductions.

Otherwise, the administrator must deduct income tax at the higher rate, unless he has received a certificate of tax credits and standard rate cut-off point.

What obligations has the administrator in relation to lump sum tax deducted?

(8) A pension scheme administrator must, within three months of the end of the month in which the lump sum is paid, file a return with the Collector-General, containing the following details:

(a) the administrator’s name and address,

(b) the name, address and PPS number of the recipient of the lump sum,

(c) the pension arrangement under which the lump sum was paid,

(d) the calculation of the excess lump sum,

(e) the tax the administrator must account for in relation to the excess lump sum.

When is the tax deductible from an excess lump sum due?

(9) The tax deductible from an excess lump sum (relevant tax) is payable, on a self-assessment basis, on or before the return filing date (see (8)).

Revenue may make an assessment of relevant tax due by any person if such tax is not paid by the due date.

Can Revenue assess underpaid lump sum tax?

(10). Yes. If a Revenue official believes that relevant tax has not been included in a return, he may make an assessment on any person liable for the tax. Interest on such tax us due and payable from the return filing date.

What happens if an item has been incorrectly included in a return as an excess lump sum?

(11). If an item has been incorrectly included in a return as an excess lump sum, Revenue may make any assessments, adjustments or set-offs necessary to ensure that the liability to tax and interest, are what they would have been had the item been excluded.

When is assessed tax due?

(12) Relevant tax that is the subject of a notice of assessment is due within one month of the issue of the notice, subject to any appeal.

Is there a right of appeal against a notice of assessment in relation to relevant tax?

(13) Yes. The income tax rules relating to assessments and appeals against such assessments apply in relation to appeals against assessments to relevant tax.

Unpaid relevant tax carries interest at 0.0219 per cent for each day or part of a day the tax remains unpaid.

Such interest is not deductible for tax purposes, and is recoverable as if it were tax.

Can the administrator apply to Revenue to have tax liability in respect of an excess lump sum discharged?

(14) Yes. A pension fund administrator can apply to Revenue to have tax in respect of an excess lump sum discharged, if he believed that no tax was due.

On receipt of an application from an administrator, Revenue may discharge him from the liability, if they are satisfied it would not be just and reasonable to make him liable for the tax.

Where the administrator is discharged, the individual in respect of whom the tax charge arises is liable for the tax.

Must a return by a pension fund administrator in respect of lump sum tax be made on any special form?

(15) Yes. A return by a pension fund administrator in respect of lump sum tax must be made on the official form and must contain a declaration that the return is correct and complete.

Who operates PAYE deductions from relevant lump sums?

(16) The administrator of the pension fund must pay the Collector-General the PAYE deducted from the relevant lump sum. As the owner of the pension fund, you (or your personal representative) must allow such deduction. If there are insufficient funds in the fund, the shortfall is a debt owed to the pension administrator by you or, if you have died, your estate.

How is a lump sum from a foreign pension taxed?

(17) Where a lump sum is paid on or after 7 December 2005 under the terms of a qualifying overseas pension plan, the excess lump sum is taxed under Schedule D Case IV in the tax year in which it is paid.

Do these tax rules apply to a lump sum paid to a dependant or personal representative on death?

(18) The rules relating to PAYE taxation (see (2)) and taxation under Schedule D case IV (see (4)) do not apply to a lump sum paid to widow, widower, child, dependant or personal representative of a deceased individual.

Can the “death’s door exemption” still apply?

(19) Section 781 allows exceptionally ill individuals (at “death’s door”) to fully commute their pensions, subject to tax at 10%. Any lump sum paid in these circumstances is not subject to excess lump sum taxation (see (2)).

Section 790B Exemption of cross-border scheme

Are foreign pension schemes exempt from tax on income and gains?

(1)-(2) In general, under Irish law, trustees of a pension scheme is exempt from tax on income and gains derived from gains on assets which they manage.

This section extends equivalent exemption, under Irish tax law, to the trustees of across-border scheme, i.e., to aEuropean undertaking with European members. This will take effect for tax purposes after the European pensions Directive has been transposed into Irish law.

What is an “investment” for the purposes of cross-border scheme exemptions?

(3) The exemption applies to income from investments and deposits held for the purpose of the scheme. In this regard, a financial futures contract or a traded option counts as an investment.

The exemption also covers underwriting commissions, which become pension assets, and which would otherwise be traded under Schedule D Case IV.

Does the extended definition of a pension scheme apply in other areas?

(4) As regards dividend witholding tax, deposit interest retention tax, and collective investment undertakings, the definition of pension scheme is broadened to include a cross-border scheme.

Section 790C Relief for deduction under Financial Emergency Measures in the Public Interest Act 2009

Can a public servant claim a tax deduction for pension levy payments?

A public servant is entitled to a tax deduction in respect of pension levy payments.

Section 790E Taxation of certain investment returns to relevant pension arrangements

To what does this section apply?

(1) The section amounts regarded as distributions under section 784A(1B)(h), i.e. where the beneficiary of an ARF uses assets of the ARF to invest in another fund and a connected person has an interest in that fund and there is an arrangement whereby an increase in the value of the second fund is wholly or partly attributable to units held by the ARF investor. Where these circumstances arise the various reliefs available under the other sections cited for income or gains are not given.

How are income or gains denied relief taxed?

(2) They are charged under Case IV of Schedule D on the trustees or administrator of the pension investor.

Section 791 Income under revocable dispositions

See also sections 567568 (capital gains tax liability of trustees), sections 10451046 (persons chargeable in representative capacity, sections 799804 (personal representatives) and section 805 (surcharge on undistributed trust income).

What is a “disposition”?

(1) A disposition includes any trust, covenant, agreement or arrangement.

What is the tax treatment of income from a revocable disposition?

(2) Where a covenantor retains power to revoke a covenant, the covenant is not recognised for income tax purposes. In other words, income covenanted under a revocable disposition is deemed to be income of the covenantor (not of the covenantee).

A promise to pay money, that can be withdrawn at any time, is not regarded for tax purposes as a promise to pay that money. In Hughes v Smyth (Sister Mary Bernard), 1 ITR 411, a covenant by a nun applying her income for the purposes of her religious order while she remained a nun was held to be revocable, as it was possible, although unlikely, that she would at some future date leave the order.

In D’Ambrumenil v IRC, (1940) 23 TC 440, a settlor made a settlement which provided that trustees were to advance him funds at his request. The settlor was held assessable on all income arising to the trust as the settlement was, in effect, revocable.

A covenant made in consideration of child-minding services where the parties are cohabiting was not regarded as an effective disposition of income, as the payment was not pure income profit in the hands of the recipient (Revenue Precedent IT93-2022, 28 October 1993).

Revenue accept that a pension payable to a former partner is paid for valuable and sufficient consideration. Thereforesection 792 and section 242 do not apply to such payments (Revenue Precedent IT95-2003, 9 June 1995).

What if the consent of a spouse is required?

(3) A retained power that is exercisable jointly by the covenantor and his/her spouse is deemed to be exercisable without the consent of another person (unless the spouses are legally separated).

If one spouse can exercise a retained power, is the other entitled to do the same?

(4) A retained power that is exercisable by a spouse is deemed to be exercisable by the other.

In Young v Pearce, Young v Scrutton, [1996] STC 743, preference shares which entitled a wife to a dividend equivalent to 30% of a company’s net profit were held to be income of the husband.

Section 792 Income under dispositions for short periods

What definitions apply for the purposes of income under dispositions for short periods?

(1) A disposition for a short period is commonly known as a covenant.

A deed of covenant is a legally binding written agreement to pay income to a person, without receiving consideration in return. To be legally effective, it must be properly drawn up, signed, witnessed, sealed and delivered to the individual receiving the payments. The individual who makes the payment is called the covenantor. The person who receives the payment is called the covenantee.

Covenanted income is deemed to be income of the covenantor and not that of the covenantee, unless:

(a) It arises from capital which the covenantor has entirely given to the covenantee.

(b) It is payable, for a period that exceeds or may exceed three years, to a university or college to carry onresearch.

(c) It is payable, for a period that exceeds or may exceed three years, to a recognised international body that promotes human rights.

(d) It is payable, for a period that exceeds or may exceed six years, to a relevant individual for his own use.

(e) It is applicable, for a period that exceeds or may exceed six years, to the benefit of a named relevant individual.

A relevant individual is an individual who is aged 65 or over, or who is permanently mentally or physically incapacitated.

This subsection lists “tax recognised” covenants. The covenantor and the covenantee obtain tax relief by submitting claims to their particular tax offices.

Covenants to charities are not tax-effective, but see section 848A which provides relief for gifts to charities and other approved bodies.

Payments

An open-ended covenant (one that does not set out the exact period for which the covenant is to last, or the payment date) is void on the grounds of uncertainty (Revenue Precedent CHY 5846, 14 March 1972).

The deed of covenant must be made before any payments are made, as the deed may only apply from the current date, and cannot be backdated. Payments must be made at the times, and in the amounts, specified in the deed. Payments under the deed must be made without any consideration being received by the covenantor, directly or indirectly, from the covenantee.

There is no rule that requires a covenant to be witnessed (Revenue Precedent IT93-2016, 10 June 1993).

If the date of the second payment falls before the anniversary of the first payment, a “seven year” covenant may in fact require eight payments. Thus in IRC v Vernon-Roe, (1940) 40 TC 541, a covenant to pay a yearly sum during the period of seven years from 14 March 1958, the first on 14 March 1958 and subsequent payments on 1 March in every year, was held to require eight payments (until 1 March 1965).

If the last payment falls within a period that cannot exceed six (or if applicable, three) years, the covenant is not effective: IRC v St Lukes Hostel Trustee, (1930) 15 TC 682; Becker v Wright, (1966) 42 TC 591; Racal Group Services Ltd v Ashmore and others, [1995] STC 1151.

A payment made before the date of the deed of covenant is not effective. To be effective, the payment must be made by virtue of or in consequence of the covenant (Revenue Precedent IT92-2015, 6 January 1992).

The amount of a deed of covenant may vary from year to year, i.e., the amounts may be front-loaded. For example, the first payment may be €1,000, with remaining payments of €5 (Revenue Precedent CHY 7633, 29 September 1996).

Time period

The fact that payments are made for a period less than six (or if applicable, three) years does not render the deed ineffective. UK case law is relevant. What is important is that the deed be capable of lasting beyond six (or if applicable, three) years (Revenue Precedent IT93-2009, 2 March 1993).

A covenant to a college or university should be capable of lasting four years (Revenue Precedent IT95-2528, 19 May 1995).

A deed that includes the wording “for as long as I shall remain a member of Seanad Éireann” is, according to the Revenue solicitor, capable of lasting four years (Revenue Precedent CHY3968, 5 October 1979).

Covenantor

The covenantor must deduct standard rate income tax from the payments made to the covenantee (section 237).

Covenantee

The covenantee, in the case of a first claim, must submit the original deed of covenant to the tax office, together with a properly completed form R185 and form 54 claims (available from any tax office). For later claims, he/she must provide the form R 185 and form 54 claims will be automatically issued from the tax office.

The minimum period (three years for colleges and human rights bodies, otherwise six years) is measured from the date of the first payment to the date of the last payment.

The income need not be paid to the individual but must be applied for the covenantee’s benefit. In Revenue Commissioners v HI, 3 ITR 242, three members of a religious order covenanted their income to 17 named members of a religious order, each of which had taken a vow of poverty. A named individual could not obtain any of the covenanted income without applying to the Prior. The High Court held that the income was applied for the benefit of the covenantees.

See also Action Aid Ltd v Revenue Commissioners, HC, 1997.

An individual does not include a company. Covenants may be made to two or more individuals (Revenue PrecedentIT90-3000, 28 February 1990).

Meaning of permanently incapacitated

The meaning generally applied for tax purposes to the word “incapacitated” is incapable of doing or unable to do something. The test as to whether a person is incapacitated is therefore a functional one. Normally an incapacity is regarded as being permanent if it is lasting or of indefinite duration. While it is expected that the permanence or otherwise of the incapacity will be self-evident in most cases, each case should be dealt with on its merits with due regard being had to any medical evidence that may be provided.

The permanence or otherwise of the incapacity will be self-evident in most cases. Where a claim to incapacity is not immediately apparent, medical evidence in support of a claim will be required.

Claims of permanent incapacity can be categorised into two main groups:

(a) Elderly individuals. An individual is not necessarily permanently incapacitated by reason of the fact that he/she is elderly but, of course elderly individuals can be permanently incapacitated. In determining the question of permanent incapacitation Revenue will apply the functional test. In practice, an elderly individual who is incapable of looking after himself/herself and who for that reason requires to be maintained long-term in residential care (as that approved for the purposes of section 469) will be regarded as permanently incapacitated.

By contrast, an individual who chooses to be in residential care on the basis that he/she does not wish to reside alone or prefers the lifestyle offered in such care will not be treated as permanently incapacitated. Should such an individual subsequently become permanently incapacitated, the covenant would become tax effective from the date of such incapacity.

(b) Other individuals. In considering the question of permanent incapacity for individuals other than elderly the functional test also applies. Although an individual may suffer from physical or mental infirmity he/she will not be regarded as permanently incapacitated by the infirmity if he/she is otherwise capable of functioning normally. However, an individual whose incapacity prevents him/her, or in the case of a child, is likely to prevent him/her, from aspiring to a normal range of employments, will be treated as permanently incapacitated (Tax Briefing 18).

Medical evidence

In may cases, it will be possible to accept claims without medical evidence. In other cases, a doctor’s certificate stating the incapacity of the individual will be clear evidence of permanent incapacity. Cases may, however, arise in which a statement of the incapacity does not provide sufficient evidence for the purposes of making a decision as to permanent incapacity.

In such cases medical evidence should be requested. While the evidence which is to be sought will depend on the particular circumstances of each case, it will normally be appropriate to request one or more of the following:

(a) Information as to the nature of the illness/incapacity in general.

(b) Report on the severity of the illness/incapacity in the particular case.

(c) Medical opinion as to the individual’s future prospects (lifestyle, employment opportunities).

(d) Information as to the likelihood of recovery from the illness/incapacity in general.

(e) Report on the likelihood of recovery, in the particular case.

Any refusal of a claim on the basis that the covenantee is not permanently incapacitated should be approved by the District Manager.

A person suffering from chronic back pain is regarded as permanently incapacitated if there is evidence to show the person is in fact incapacitated, and that the condition is permanent (Revenue Precedent IT95-2544, 19 June 1995).

Sample deed: Revenue leaflet CHY5, Deeds of covenant for the conduct of research, February 1996. Explanation of benefit of the relief to the covenantee: Revenue leaflet CHY6, Deeds of covenant for the conduct of research.

Is there a limit to the amount that can be covenanted to another person where it is still treated as income of that person?

(2) In general, for tax purposes, the maximum amount of income that may be covenanted, and therefore be treated as income of the covenantee, is 5%. This 5% limit does not apply to income covenanted to a permanently physically or mentally handicapped person.

Capital dispositions are not subject to the 5% limit and are not treated as income of the recipient.

Example

You are a single person (section 1016) who has total income of €50,000. You pay €5,000 to your permanently incapacitated brother X, who is aged 66, under a deed of covenant in a given tax year. The 5% income restriction does not apply to the covenant. X has no other income.

Your tax position (as the covenantor): no covenant with covenant
Total income 50,000 50,000
Deduct payment to X nil 5,000
Taxable income 50,000 45,000
Tax payable
€35,400 at 20% 7,080 7,080
balance at 41% 5,986 3,936
Covenant €5,000 at 20% 1,000
Gross tax liability 13,066 12,016
Personal tax credit 1,650 1,650
Net tax liability 11,416 10,336

Tax saving arising from covenant: €11,416 – €10,336 = €1,080

Savings to you in terms of tax:

As your income is reduced by €5,000, liability is reduced by €5,000 at the top rate of tax, i.e., 41% in the above example = €2,050. You must, however, account for the standard rate tax on the €5,000 payment to your brother – €5,000 at 20% = €1,000. Net savings: €2,050- €1,000 = €1,050.

Tax position of X (the covenantee): no covenant with covenant
Total income Nil covenant income 5,000
exemption (over 65) 5,000
Tax payable Nil Nil
Refund from tax office 1,050

Overall tax savings arising from the covenant: there is a tax saving of €2,050, i.e., €1,050 saved by the covenantor and €1,050 repaid to the covenantee.

Example

You are a single person assessed jointly (section 1016) and you have a total income of €50,000. You pay €3,000 to your widowed mother, aged 67, under a deed of covenant in a given tax year. As the 5% income restriction applies to the covenant, you are therefore limited to tax relief on 5% of total income, i.e., €2,000.

Your mother, the covenantee, has other income amounting to €2,500.

Your tax position no covenant with covenant
Total income 50,000 50,000
Deduct payment to your mother
(restricted to 5% of total income) nil 2,500
Taxable income 50,000 47,500
Taxable income 50,000 47,500
Tax payable
€35,400 at 20% 7,080 €35,400 at 20% 7,080
€14,600 at 41% 5,986 €12,100 at 41% 4,961
Covenant €3,000 x 20% 600
Gross tax liability 13,066 12,641
Personal tax credit 3,300 3,300
Net tax liability 9,766 9,341

Tax savings arising from covenant: €9,766 – €9,341 = €425.

Savings to you in terms of tax:

As your income is reduced by €2,500, liability is reduced by €2,500 at the top rate of tax, i.e., 41% in the above example = €1,025. You must, however, account for the standard rate tax on the €3,000 payment to your mother: €3,000 at 20% = €600.

Net savings: €1,025 – €600 = €425.

Tax position of your mother: no covenant with covenant
Covenant income 3,000
Other income 2,500
Total income 2,500 5,500
Exemption (single person aged over 65) 20,000 20,000
Tax payable Nil Nil
Refund from tax office 600

Your mother claims a refund of the €600 tax deducted by you. As a result of the covenant, your mother receives €3,000, i.e., €2,400 paid by you and €600 refund of tax from the tax office.

Overall result: there is a tax saving of €1,025 (i.e., €425 saved by you and €600 repaid to your mother).

How does the 5% limit apply if there are several covenants?

(3) If the donor has made several covenants, and the total covenanted income exceeds the 5% limit, the excess is regarded as his/her income. The 5% limit is then apportioned among the covenantees in proportion to the amount covenanted to each.

Example

Your income in 2010 was €80,000.

You covenanted €3,000 to a university to carry out research, and €6,000 to maintain an uncle who is aged 75. Total covenanted income: €9,000.

5% limit for valid covenants: €4,000 (€80,000 x 5%).

University’s share of the 5% limit: €4,000 x (€3,000/€9,000) = €1,333.

Uncle’s share of the 5% limit: €4,000 x (€6,000/€9,000) = €2,667.

5% means 5% of provisional total income before retirement annuity payments (Statement of Practice SP IT/2/90).

Income that qualifies for the foreign earnings deduction (section 823) is excluded from the covenantor’s total income when calculating the 5% restriction (Revenue Precedent IT96-2508, 10 June 1996). In other words, the 5% restriction is applied to net income after the foreign earnings deduction.

The 5% restriction applies in relation to a covenant from a parent to that parent’s child even when the child has been given up for adoption. The adopted child remains the child of its natural parent for the purposes of covenant relief (Revenue Precedent IT95-2503, 9 February 1995).

Did any transitional rules apply?

(4) For 1997-98 only, transitional rules (Schedule 32 para 27) applied to ensure that the restriction of the 5% limit to covenants to colleges, human rights bodies and aged or incapacitated relatives need not apply in cases of hardship. Covenants to other relatives were, therefore, allowed for that year, to the extent that Revenue consider just.

Meaning of hardship: Tax Briefing 18.

Section 793 Recovery of tax from trustee and payment to trustee of excess tax recoupment

Can a covenantor recover the tax from the covenantee?

(1) Where covenanted income is treated as income of the covenantor (section 792), he/she remains obliged to withhold income tax at the standard rate from the payments made to the covenantee.

The covenantor is entitled to recover any additional tax he/she may be required to pay (at the higher rate of income tax) from the covenantee (see (4)).

He/she may require Revenue to provide him/her with a certificate stating the gross income from which the tax was deducted, and the amount of tax paid. Such a certificate is evidence, until the contrary is proved, that the stated amount was paid.

What happens if a covenantee obtains relief because of a covenant?

(2) A covenantee who, because of the covenant, obtains relief to which he/she is not entitled, must pay to the covenantor the tax underpaid by him/her.

What if there are several covenantees?

(3) Where there are several covenantees, the tax underpaid is apportioned among them on a basis to be decided by the Appeal Commissioners.

At what rate is tax charged under this Chapter?

(4) The tax underpaid includes the part taxed at that highest rate payable by the disponer.

Example

Your total income for 2011 was €40,000. In that year, you paid €5,000 under covenant to your uncle (aged 55). You deducted income tax of €1,000 (20% x €5,000) from the payment. Your uncle, who has no taxable income of his own, obtained a tax refund of €1,000.

Assume that you are not allowed to deduct as a charge the covenant payment to your uncle as it is not a tax-recognised covenant.

For the tax year in question, you are taxed on €40,000, and because you must also pay over the €1,000 tax withheld from the covenant income, you are effectively taxed twice on that part of your income. You may therefore recover the €1,000 tax from your uncle.

Assume your tax liability for the tax year is:
Total income 40,000
Taxable income 40,000
Tax on income
36,400 at 20% 7,280
3,600 at 41% 1,476
40,000 8,756
Less tax credits
Basic personal tax (section 461) 1,650
Tax on income 7,106
Add: Tax on covenant 1,000
Total tax payable 8,106

You can recover the €1,000 from your uncle. Because the €5,000 is included in your 41% taxed income, you can also recover from your uncle the additional tax required to ensure that you do not lose out as a result of the transaction, i.e., €5,000 x (41% – 20%) = €1,050.

Section 794 Interpretation and application (Chapter 2)

How is a “settlement” defined?

(1)-(2) A settlement means a disposition, trust, covenant, agreement, arrangement and any transfer of money or property or the right to money or property.

These rules apply to a settlement of income, wherever and whenever made by a parent on his/her child. Unless otherwise indicated, income includes income subject to withholding tax, and income that would have been chargeable had it been received in the State by a person resident or ordinarily resident in the State.

A settlement must have some element of bounty, i.e., a benefit freely conferred: IRC v Leiner, (1964) 41 TC 589;Bulmer v CIR, (1966) 44 TC 1; IRC v Plummer, [1979] STC 793; [1982] STC 396; IRC v Levy, [1982] STC 442.

A settlement may include:

(a) An outright gift: Thomas v Marshall, (1953) 34 TC 178. In that case, a father made gifts of Post Office Savings Bank investments to his children. The income arising on the investments was held to be the income of the father.

(b) A gift of shares: Hood Barrs v IRC, (1945) 27 TC 385; Young v Pearce, Young v Scrutton, [1996] STC 743.

(c) The surrender of a life interest: IRC v Buchanan, (1957) 37 TC 365.

An arrangement can include a tax avoidance scheme: Chinn v Collins [1981] STC 1. See also Copeman v Coleman, (1939) 22 TC 594. Settlement arrangements were considered in Crossland v Hawkins, (1961) 39 TC 493 and Mills v IRC, [1974] STC 130.

Do these rules apply to income where the settler is not resident?

(3) These rules do not apply to income settled for a tax year for which the settlor is not resident in the State.

Do these rules apply to all children?

(4) These rules do not apply to income settled on a permanently mentally or physically incapacitated minor child who is not a child of the settlor.

When is an instrument regarded as irrevocable in this Chapter?

(5) The anti-avoidance rules that deem income transferred to a child to be income of the settlor do not apply to income accumulated for the benefit of the child under an irrevocable instrument (whenever made).

An instrument is not regarded as irrevocable if the settlor can recover any of the transferred income from the child, i.e., if the instrument provides for:

(a) payment of any capital or income from the settlement to the settlor during the life of the child,

(b) payment, during the settlor’s life, of any capital or income from the settlement to his/her spouse during the life of the child,

(c) termination of the settlement by the act or default of any person,

(d) payment of a penalty by a settlor who fails to comply with any provisions of the settlement.

An instrument may continue to be regarded as irrevocable, even though it may provide:

(a) for capital or income to be paid to the settlor (or his/her spouse) on the bankruptcy of the child, or through assignment (to another person) by the bankrupt child,

(b) that the settlement may be terminated on such terms that it would benefit any person other than the child, his/her spouse or their children.

In EG v MacSamhrain, 2 ITR 352, an appointment by a mother to her minor daughter of part of the mother’s life interest in income of a trust was held to be a revocable disposition. Accordingly, the income was treated as the income of the mother, and not the child.

Section 795 Income settled on children

What is the tax treatment of income settled on a child?

(1) Income settled during the settlor’s life on a child aged under 18, is deemed to be the settlor’s income. The settlement is effectively ignored.

Example

By deed of settlement, you transfer €100,000 to trustees to pay income from the fund to your two children aged 12 and 19, in equal shares until they reach the age of 18, and thereafter to hold the capital for the children in equal shares absolutely.

Tax consequences: half of the trust income is aggregated with your income for tax purposes, until the younger child reaches the age of 18.

Note

Because the trustees pay (i.e., do not accumulate: section 796(2)) the income, it is aggregated with your income.

See IRC v Countess of Longford, (1928) 13 TC 573.

How is income treated where it is not yet payable?

(2) Where income (or underlying assets) of a settlement is (or are) payable for the benefit of a child at some future date (for example, on the happening of some future event, or at the settlor’s discretion), the income is deemed to be paid for the benefit of the child (even though it has not yet been paid).

Where income settled on several children is not allocated when it is deemed to have been paid, the income is treated as allocated to those children in equal shares at that time.

Example

By deed of settlement, you transfer €100,000 to trustees to accumulate income from the fund to your two children aged 12 and 19, in equal shares until they reach the age of 18, whereupon the accumulated income and capital vests in each child on attaining 18 years of age.

Tax consequences: the accumulating income belongs to the children, but half of it is aggregated with your income for tax purposes, until the younger child reaches the age of 18.

Note

If the settlement is irrevocable (section 796(2)), the child’s income is not aggregated with yours.

Income payable, for example, under a contingent or discretionary trust.

Section 796 Irrevocable instruments

What is the definition of “property”?

(1) Property (see (2)) does not include any annual payment secured by a covenant of yours as the settlor or by a charge made by you against your property or future income (or a combination of a covenant and charge).

What rules apply to income settled on children under irrevocable dispositions?

(2) Income settled during his/her life on a minor child is deemed to be the settlor’s income (section 795).

However, where property is placed in trust under an irrevocable instrument, to be accumulated for the benefit of a minor, then a payment:

(a) of such property,

(b) from accumulated income of such property, or

(c) income of such property,

is deemed to be the child’s income.

Example

By irrevocable deed of settlement, you transfer €100,000 to trustees to accumulate income from the fund to your spouse and two children aged 12 and 19, in equal shares until they reach the age of 18, whereupon the accumulated income and capital vests in each child on attaining 18 years of age.

Tax consequences: the accumulating income belongs to your spouse and children, but because the settlement includes a beneficiary other than your children, it does not qualify.

Note

To avoid aggregation of accrued settlement income with that of yours, the deed must be irrevocable and the beneficiaries must be confined to minor children of yours.

A payment from the trust property or income to a minor is deemed to be paid as income (not capital), insofar as total “income” payments made to minors since 5 April 1937 do not exceed the income accumulated in the trust since that date.

As regards payments made before 6 April 1971 (or made between 6 April 1971 and 28 April 1971 inclusive for the benefit of a child born after that date), whether a person is a minor in relation to a tax year is to be determined by reference to the person’s age at the beginning of the tax year.

A person is to be regarded as a minor if, at the time of payments made before 6 April 1986, he/she was under 21 years of age and unmarried.

From 6 April 1986, the age of majority was reduced to 18 years.

Any payment from an irrevocable trust to a minor is deemed to have been paid as income until all income payments going back to 5 April 1937 have been exhausted.

Where there is no present debt, but an undertaking to make a series of payments, the payments are treated as annual payments which would reduce the income of the payer and be income in the hands of the recipient (Revenue Precedent 92-2047, 22 October 1992).

Section 797 Recovery of tax from trustee and payment to trustee of excess tax recoupment

Can tax on a settlement on a child be recovered from the child?

(1) Where income is settled on a child is treated as income of the settlor (section 795) remains obliged to withhold income tax at the standard rate from the payments made to the child.

In such a case, the settlor is entitled to recover any additional tax he/she may be required to pay (at the higher rate of income tax) from the child.

The settlor may require Revenue to provide a certificate stating the gross income from which the tax was deducted, and the amount of tax paid. Such a certificate is evidence, until the contrary is proved, that the stated amount was paid.

What happens if a child obtains relief that he/she was not entitled to?

(2) A child who, because of the settlement, obtains relief to which he/she was not entitled, must pay to the settlor the tax underpaid.

What if there are several children?

(3) Where there are several children, the tax underpaid is apportioned among them, on a basis to be decided by the Appeal Commissioners.

At what rate is income taxed in the case of general settlements on children?

(4) If the settlor is taxed at the higher rate on part of his/her income, the tax underpaid includes the part taxed at that higher rate.

How is accumulated income treated?

(5) A trust may contain a term instructing the trustees to accumulate income on behalf of the beneficiaries until some future event (section 795(2)). The accumulated income is deemed to accrue on behalf of the child (and is not treated as income of the settlor).

On the happening of the future event, the child may opt to be taxed retrospectively on the income for all the tax years in which the income accumulated, claiming personal allowances in each of those years (Schedule 32 para 21). This may result in repayments being made to the child.

Example

By will trust, you leave shares worth €60,000 to your brother’s daughter. The income is to be accumulated contingent upon the child reaching the age of 18 years. The income is not regarded as your income. When the child reaches 18, she may opt to be taxed for the years in which the income accumulated, claiming personal allowances for each of those years.

No such repayment is to be made if the settlor is the person to be taxed in respect of the income.

Section 798 Transfer of interest in trade to children

What are the tax consequences of transferring a trade to a partnership consisting of parent and children?

(1) If a trade carried on by a sole trader (or a group of partners) becomes a trade carried on by him/her in partnership with his/her children (or the group of partners with one or more of their children), the means (or series of operations) used to give effect to the transition is treated as a settlement (the settlor being the sole trader or partners in question).

The income that stood to be transferred to the children is deemed to be income of the settlor.

Note

The underlying legislation was introduced to counteract the type of scheme used in O’Dwyer v Cafolla and Co, 2 ITR 82, where a sole trader converted his business to a partnership with his three sons aged 20, 19 and 17 and his mother-in-law aged 80. A week later, the mother-in-law transferred her one-quarter share in the business to the sole trader as trustee for four more children of his (aged 10, 14, 14 and 15).

The text of the section is broadly drawn to also ensure that the means, i.e., intermediate operation (including the mother-in-law as an intermediary), does not prevent the “partnership” income of the children being taxed as the father’s income.

Can bona fide wages be paid to a child?

(2)-(3) Allowance is made for bona fide wages or salaries (the appropriate sum) paid to a minor child. Such income of the child is not treated as income of the parent.

Section 799 Interpretation (Chapter 1)

See also sections 567568 (capital gains tax liability of trustees), sections 10451046 (persons chargeable in representative capacity), sections 791798 (revocable dispositions and dispositions in favour of children), and section 805 (surcharge on undistributed trust income).

When a person dies, income arising up to the date of death is treated as his/her income, and income arising to his/her estate after his/her death is treated as income of his/her personal representatives acting in that capacity. Income arising to his/her estate is not be be regarded as income of the deceased: IRC v Henderson’s Executors, 16 TC 282;Bryan v Cassin (Scott’s Executor), 22 TC 468; and Wood v Owen, 23 TC 541.

The deceased’s personal representatives are treated as a distinct body of persons (section 52), separate from the individuals concerned. Strictly, income arising during the administration period (i.e., while the estate’s affairs are being completed) is not regarded as income of the deceased’s beneficiaries, until it has been finally distributed to them:Reid’s Trusees v IRC, (1929) 14 TC 512; Duncan v IRC, (1931) 17 TC 1; Bennett vs Ogston, (1930) 15 TC 374;Westminster Bank Ltd v Barford, (1958) 38 TC 68.

The personal representatives pays the deceased’s debts and funeral expenses, and ensures that the property of the deceased is allocated in accordance with the deceased’s wishes (as expressed in the deceased’s will) or fairly in accordance with the laws of the State (where the deceased has left no will).

The administration period is the time from the deceased’s death until the administration of the estate is completed (section 800). Income arising to an estate during this period is chargeable on the personal representatives (at the standard rate of income tax).

Thus, a charity, although entitled to exemption from income tax itself, could not claim exemption in relation to income arising during the administration period, as that income arose to the personal representatives: R v Special Commissioners of Income Tax (ex parate Dr Barnardo’s Home), 7 TC 646 and Marie Celeste Samaritan Society of London Hospital v CIR, 11 TC 226.

In practice, in similar cases, payments made to the beneficiaries are regarded as provisional income of the beneficiaries (not the personal representatives) subject to final adjustment when the administration of the estate is completed (sections 800(2), 801(3)). Formally, the strict position was that no income can arise to a person having an interest in the residue of the estate until the administration is completed and his/her part of the residue has passed to him/her: Corbett v CIR, (1937) 21 TC 449.

The personal representatives are not entitled to any personal allowances against such income. Such allowances are only given to individuals.

By Revenue concession, where all the beneficiaries of an estate are resident in the State (or a tax treaty country providing reciprocal arrangements), income arising from a deceased’s person’s estate may be treated as passing directly top the beneficiaries from the date of death (whether the beneficiary has an absolute or limited interest in the estate).

Charities are not entitled to reclaim deposit interest retention tax suffered on the income during the administration of an estate (Revenue Precedent CHY1333, 9 June 1992).

What definitions apply to estates of deceased persons in administration?

(1) A deceased person’s personal representative means the executor or administrator of the deceased’s estate. The term also includes:

(a) any person who takes possession of the deceased person’s property, and

(b) any person having the equivalent function under the law of a foreign country.

These provisions, in referring to a personal representative, refer to him/her in his/her capacity as a personal representative. In other words, any tax charge on a person while acting as personal representative is to be distinguished from a tax charge on him/her in his/her own right.

An Irish estate means, in relation to a tax year, an estate having only Irish income that has been subject to withholding tax, or an estate in respect of which the personal representatives are directly assessable to Irish income tax. It does not include an estate part of the income of which may be exempt from Irish income tax on the basis that the personal representatives are not resident or ordinarily resident in the State.

A foreign estate means a non-Irish estate.

A specific disposition means a specific gift or bequest made in a will (by a testator). It includes the equivalent type of gift under the law of a foreign country.

The charges on residue of a deceased person’s estate are the following liabilities (including interest) that may be charged to the estate:

(a) funeral and administration expenses,

(b) general legacies, demonstrative legacies and annuities,

(c) any other liabilities of the personal representatives (in their capacities as such).

However, a liability of the estate that is charged against a specific disposition, legacy or annuity, may not be charged against the residue of the estate.

The aggregate income of a deceased person’s estate, means the aggregate income from all sources accruing to the personal representatives for that year consisting of:

(a) Income chargeable to Irish income tax (whether by deduction or otherwise).

(b) Income that would have been chargeable to Irish income tax had it arisen in the State to a person resident and ordinarily resident in the State. Any deductions that would have been allowable had the income been chargeable to Irish tax may be deducted.

Income from property devolving on the personal representatives otherwise than as assets to pay the debts of the deceased is not counted.

A sum paid includes a transfer or appropriation of an asset by a personal representative. It also includes the set off or release of a debt.

A sum payable includes an asset which the personal representative is obliged to transfer, or has a right to appropriate, when the administration of the estate is complete. It also includes a debt which the personal representative is obliged to set off or a right of a personal representative to do so in his/her favour, at that time.

In this context, the amount of an asset means the value of the asset at the date of transfer or appropriation, or the completion of the administration.

If a person dies after having made a will (testate), his/her personal representative is known as an executor. If a person dies without having made a will (intestate), his/her personal representative is known as an administrator (Succession Act 1965 section 3(1)).

What types of interest can a beneficiary have in the residue of a deceased’s estate?

(2) A beneficiary has an absolute interest in the residue of a deceased person’s estate if the capital in that residue is payable, directly or indirectly, to him/her or to another in his/her right, for his/her benefit.

A beneficiary has a limited interest in the residue of a deceased person’s estate if the income (or part of the income) of that residue is payable, directly or indirectly, to him/her or to another in his/her right, for his/her benefit.

Real estate given by will as a gift from the residue of the estate is deemed to be part of the residue of the estate and not the subject of a specific disposition.

What if the deceased made several residuary dispositions from different parts of his/her estate?

(3) Where the deceased has made several residuary dispositions from different parts of his/her estate, personal representatives means the personal representatives acting in their capacity in relation to each such part.

A beneficiary of a deceased person’s estate may be a residuary beneficiary, in which case, he/she has an absolute interest, or a limited interest in the residue of the estate. A non-residuary beneficiary is entitled to a pecuniary settlement, or a specific disposition.

In Lynch v Burke and Allied Irish Banks plc, [1996] ILRM 114, the deceased had opened a joint bank account in the her name and that of her niece. All lodgments to the account were made by the aunt. Both were present and both signed the bank documentation when the account was opened. The words “payable to [deceased] only or survivor” were written on the account deposit book. By will, the aunt left all of her property to P who claimed that the moneys in the joint deposit account were part of the aunt’s estate. The Supreme Court found in favour of the niece and regarded the instructions issued to the bank as binding. The court did not accept the argument on behalf of the aunt’s estate that there was a resulting trust that displaced this contract.

The issue arises as to whether, following this decision, Revenue can overturn a pre-death transfer of assets in the case of an estate with insufficient assets to meet tax liabilities.

It appears that Revenue would have a number of defences in cases where conveyances other than for good consideration were made to defeat Revenue claims, notwithstanding the Supreme Court decision. If the transferor is still alive, the Bankruptcy Act would enable such voluntary transfers to be overturned, if the transfer had been made in the previous five years. The Conveyancing Act 1634 could also be used to set aside such transfers (Revenue Precedent IT97-2011, 20 November 1997).

Section 800 Limited interest in residue

When do the limited interest in residue rules apply?

(1) These rules apply to a beneficiary who has a limited interest in the residue of the estate during the time from the deceased’s death until the administration of the estate is completed (the administration period).

What is the tax treatment of a sum paid during the administration period?

(2) Such a sum paid to a beneficiary during the administration period in respect of a limited interest (i.e., an interim or final payment from the personal representatives) is treated as income of his/hers for the tax year in which the payment was made.

If the limited interest has ceased, the payment is treated as made in the last tax year in which the interest subsisted.

Is the situation reviewed when the administration is complete?

(3) When the administration of the estate is complete, interim payments made are totalled and the total is treated as having accrued to the beneficiary on a day-to-day basis during the administration period. The payments are then treated as income of him/her in the tax year in which they accrued.

The original tax charge on him/her, based on the interim payments, must therefore be adjusted to reflect the total final payments made to him/her, including any payments made on the completion of the administration.

How is a payment to a beneficiary treated?

(4) In the case of an Irish estate (section 799(1)), the payment to the beneficiary is treated as a payment that was made net, i.e., after deduction of standard rate income tax.

In the case of a foreign estate (section 799(1)), the payment is treated as income, chargeable under Schedule D Case III, from a foreign security.

If an estate has both Irish and foreign income, can a disproportionate amount of Irish tax be paid?

(5) A beneficiary who has been disproportionately charged to Irish income tax (where the estate has both Irish and foreign source income) may have the income so charged to tax reduced in the same proportion as the Irish estate income bears to the whole aggregate income.

When income is reduced under (5), is it treated as paid net?

(6) Where income charged to Irish income tax has accordingly been reduced, the reduced amount is treated as income paid net, i.e., after deduction of standard rate income tax.

Section 801 Absolute interest in residue

When do the absolute interest in residue rules apply?

(1) These rules apply to a beneficiary who has an absolute interest in the residue of the estate during theadministration period (section 800(1)).

How is my “residuary income” of a beneficiary calculated?

(2) His/her residuary income is calculated as his/her proportionate share of the residuary income of the estate(section 802) for each tax year (or part of a tax year) in which he/she held the interest, falling within the administration period.

How is a sum paid in respect of an absolute interest in the residue treated?

(3) A sum paid to a beneficiary during the administration period in respect of an absolute interest (i.e., an interim or final payment from the personal representatives) is treated as income of him/her for the tax year in which the payment was made.

The sum is taxed to the extent to which he/she, if he/she had a right to receive his/her residuary income for that year and the sum was available to satisfy those rights as they accrued, would have been treated as having received that income.

Is the payment taxed “net”?

(4) In the case of an Irish estate (section 799(1)), the payment to you is treated as a payment that has been made net, i.e., after deduction of standard rate income tax.

Is the situation reviewed when the administration of the estate is complete?

(5) When the administration of the estate is complete, interim payments made to a beneficiary are totalled, and the total is treated as having accrued to him/her on a day-to-day basis during the administration period. The payments are then treated as income of him/her in the tax year in which they accrued.

The original tax charge, based on the interim payments, must therefore be adjusted to reflect the total final payments made, including any payments made on the completion of the administration.

See Stewart’s Executors v IRC, (1952) 33 TC 184.

How is a payment to a beneficiary in the case of a foreign estate taxed?

(6) In the case of a foreign estate (section 799(1)), the payment to you is treated as income, chargeable under Schedule D Case III, from a foreign security.

Can too much Irish income tax be paid where the estate has Irish and foreign income?

(7) Where a beneficiary has been disproportionately charged to Irish income tax (where the estate has both Irish and foreign source income), he/she may have the income so charged to tax reduced in the same proportion as the Irish estate income bears to the whole aggregate income.

Where income charged is reduced under (7), is it treated as paid net?

(8) Yes, it is treated as income paid net (after deduction of standard rate income tax).

How do the rules apply where the beneficiary is a company?

(9) Where a beneficiary is a company rather than an individual, the residuary income to which the company is entitled is initially apportioned to the tax years falling within the administration period, and it is then apportioned to the company accounting periods (or parts thereof) falling within those tax years.

Section 802 Supplementary provisions as to absolute interest in residue

What is meant by the residuary income of an estate?

(1) The residuary income of an estate for a tax year is the aggregate income of the estate for that year, less:

(a) any interest or annual payment charged on the residue (excluding such interest or payments that are allowable in calculating the aggregate income of the estate),

(b) expenses (that would be properly chargeable to income) incurred in managing the assets of the estate and paid in that year by the personal representatives,

(c) any part of the aggregate income for that year to which a beneficiary has become entitled in possession under a specific disposition during the administration period (or to which the beneficiary will become entitled under a contingent interest when the administration is completed).

In what circumstances is a benefit received in respect of an absolute interest?

(2) A benefit received by a beneficiary in respect of an absolute interest in an Irish estate means a gross sum which, net of standard rate income tax, equates to the total of all sums paidup to and including the administration completion date. In the case of a foreign estate, it means the total sum paid to you during that period.

Where the benefits ultimately received by a residuary beneficiary, in respect of an absolute interest at the administration completion date, do not amount to the aggregate residuary income to which the beneficiary was entitled for the tax years, wholly or partly, within the administration period, his/her residuary income for those years is proportionately readjusted for those years.

Example

The personal representatives of X’s estate had the following residuary income, which was being held for your benefit as the sole residuary legatee:

2009 2010 Total
Gross 5,000 10,000 15,000
Less standard rate income tax 1,000 2,000  3,000
Net 4,000 8,000  12,000

On 5 April 2010, the administration completion date, €3,000 remained in the residuary account (equivalent to €2,400, grossed up at the 20% standard rate of income tax).

The revised residuary income is:

2009 2010 Total
Gross 1,000 2,000 3,000
Less “standard rate income tax” 200 400 600
Net 800 1,600 2,400

How is the “aggregate residuary income” calculated?

(3) In calculating (see (2)) the aggregate residuary income for the tax years, wholly or partly, within the administration period, residuary income received a beneficiary so entitled during the administration period, is aggregated with residuary income received by any beneficiary so entitled at the completion of the administration.

The residuary income of the other beneficiary is also proportionately readjusted for the tax years falling wholly or partly within the administration period.

Example

Taking the facts of the previous example, assume that the residuary income of X’s estate was being held for you and your sibling (in other words, two residuary legatees). The calculation remains unaffected: you and your sibling are treated as a single entity for the purposes of the calculation.

The executor is liable to tax at the standard rate on the gross income of the estate, but can make distributions only out of the net income, i.e., gross income less management expenses. Forms R185 issued by executors should reflect this, i.e., executors should not issue certificates for the gross income received by them (Revenue Precedent IT90-2008, 27 March 1990).

Section 803 Special provisions as to certain interests

What happens if a beneficiary of an estate residue him/herself dies during the administration period?

(1) If a beneficiary with an absolute interest in the residue of an estate dies during the administration period, his/her interest in that residue forms part of his/her own estate. The personal representatives are entitled to the residuary income to which he/she would have been entitled in the first deceased’s estate.

What happens if different persons have absolute interests in the residue in succession during the administration period?

(2) Where an estate takes a long time to administer, a beneficiary may die, and another beneficiary may succeed to his interest, and another beneficiary may succeed to that beneficiary’s interest.

The sums paid from the residue to the first beneficiary are treated as payments on account of his/her residuary income entitlement (net of standard rate income tax in the case of an Irish estate) for all tax years falling wholly or partly within the administration period.

Similarly, the sums paid from the residue to the next beneficiary are treated as payments on account of his/herresiduary income entitlement (net of standard rate income tax in the case of an Irish estate) for all tax years falling wholly or partly within the administration period, and so on.

How is a payment from the residue treated when made to a person with a discretionary interest?

(3) A payment made from the residue of an estate during the administration period to a person with a discretionary interest in that residue (for example, a payment made at the discretion of the personal representatives) is treated as income of him/her (net of standard rate income tax in the case of an Irish estate) for the tax year in which it was paid.

A recipient who has been disproportionately charged to Irish income tax (where the estate has both Irish and foreign source income) may have the income so charged to tax reduced in the same proportion as the Irish estate income bears to the whole aggregate income.

Where income charged to Irish income tax has accordingly been reduced, the reduced amount is treated as income paid net, i.e., after deduction of standard rate income tax.

Section 804 Adjustments and information

Is an adjustment made if the actual amount paid differs from the deemed payment?

(1) If on the completion of the administration of an estate, the amount ultimately paid to a beneficiary for a tax year is found to be greater than the amount previously deemed to have been paid, an assessment or additional assessment may be made to collect the tax underpaid.

Similarly, if the amount ultimately paid is found to be less than the amount previously deemed to have been paid, any tax overpaid must, on a claim being made, be repaid to him/her.

What if the amount ultimately paid is less than the deemed amount?

(2) If the amount ultimately paid is found to be less than the amount previously deemed to have been paid, an existing assessment may be decreased and any tax overpaid must be repaid.

If relief has been overclaimed, an assessment under Schedule D Case IV may be made to collect the excess.

What are the relevant time limits for making an assessment?

(3) The time limit for making an assessment or an additional assessment, adjusting an existing assessment, or claiming relief for tax overpaid in respect of a tax year is normally six years after the end of the tax year in which the tax year for that return was made (section 955(2)).

However, in the case of an assessment on the personal representatives of a deceased person, the time limit may be three years after the end of the tax year in which the administration of the estate was completed (if that date is later than the normal six year time limit).

An assessment relating to fraudulent or negligent conduct on the part of the deceased can only extend back to a year of assessment ending within 10 years of the deceased’s death: section 924. See also Harrison v Willis Bros, (1965) 43 TC 61; Larter v James, [1976] STC 220; Johnson v IRC, [1978] STC 196; Honig and another v Sarsfield, [1986] STC 246.

What information rights do Revenue have?

(4) Revenue may write to a current or former personal representative or beneficiary asking him/her to provide, within 28 days, any information they need concerning a deceased person’s estate.

Section 805 Surcharge on certain income of trustees

What are the relevant definitions for surcharges on certain trustee income?

(1) Personal representatives (section 799(1)) of a deceased person are regarded as trustees of the deceased’s property, pending the passing of the property to the deceased’s beneficiaries, on the completion of the administration of the estate.

The 20% surcharge (see (3)) on undistributed trust income does not apply to income accumulated during the administration period by personal representatives acting in their capacity as trustees of a deceased person’s estate.

However, if the personal representatives pay such accumulated income into a trust created under the terms of a will, that payment is treated in the hands of the trustees of that trust as received net of standard rate income tax. If the trustees do not distribute the income within the 18 month period allowed, they are liable to pay the 20% surcharge on the grossed up amount of the income they have received.

To what income does the 20% surcharge apply?

(2) The 20% surcharge (see (3)) applies to undistributed trust income, i.e., income arising to the trustees which:

(a) is accumulated within the trust, or only payable at the trustees’ discretion,

(b) before being distributed is not treated as the income of any person other than the trustees,

(c) is not exempt income arising to a charitable trust or pension fund,

(d) exceeds the trustees’ legitimate administration expenses for the tax year in question, and

(e) is not distributed to the beneficiaries either during the tax year in which it arises, or within 18 months after the end of the tax year.

Note

(a) This surcharge applies to accumulated income of a discretionary trust: IRC v Berrill and another, [1981] STC 784.

(b) Undistributed income is the total income payments (other than of interest) to persons as income: MacIver v Rae, (1935) 14 ATC 571; Smith v Melville, (1936) 15 ATC 613; Curtis-Wilson v IRC, (1950) 31 TC 422.

(d) Legitimate trust expenses do not include:

(i) Life assurance premiums: Carver v Duncan, Bosanquet v Allen, [1985] STC 356.

(ii) Expenses properly chargeable to income: IRC v Hamilton of Dalzell (Lord), (1926) 10 TC 406; Murray v IRC, (1926) 11 TC 133; MacFarlane v IRC, (1929) 14 TC 532; Aikin v MacDonald’s Trustees (1894) 3 TC 306.

(iii) Expenses paid on behalf of a beneficiary: Sutton v IRC, (1929) 14 TC 662; Waley Cohen v IRC, (1945) 26 TC 471; Lord Tollemache v IRC, (1926) 11 TC 277; Donaldson’s Executors v IRC, (1927) 13 TC 461; Lady Miller v IRC, (1930) 15 TC 25; Shanks v IRC, (1928) 14 TC 249.

Capital gains tax

Discretionary trust tax (DTT) has been allowed concessionally in the past as an expense which is properly chargeable to income for the purpose of calculating a surcharge on undistributed income. Tax Briefing 33.

When does the surcharge arise?

(3) Where trust income is not distributed during the tax year or within 18 months of the end of that tax year, a 20% surcharge applies to the grossed up amount of the income received by the trustees.

Example

Income accumulated during year 5,000
Expenses:
Audit fees 1,000
Income tax liability of trustees 5,000 x 20% 1,000 2,000
Distributable income 3,000
Surcharge: 3,000 divided by 80% (100% – 20%)
3,750 at 20% 750

The surcharge is applied for the tax year in which the 18 month period ends, and for self-assessment purposes, it is treated as income of that year. The surcharge is not applied by the inspector; it must be applied by the trustees when completing the self-assessment return for the tax year in which the 18 month period ends.

Example

Continuing with the previous example:

Tax year in which income arises: 2009

End of period of 18 months after end of tax year: 30 June 2011

Tax year for which surcharge is to be levied: tax year 2011

Source: 32.2.1 (updated)

Can the recipient of trust income claim a credit for the surcharge paid?

(4) A recipient of trust income that has been subject to the 20% surcharge may not claim a tax credit for any part of the surcharge.

What rules apply to the making of returns by trustees?

(5) Where trustees fail to file a return of income or information, they will incur a penalty. The penalties pertaining to the various types of return of income or information requests are listed in Schedule 29 columns 1 and 2. In requiring a return of income or information under any of the provisions listed in Schedule 29 columns 1 and 2, Revenue may also request details of how trust income has been applied, and details of any discretion exercised by the trustees and of the person in whose favour that discretion was exercised.

Section 806 Charge to income tax on transfer of assets abroad

What definitions apply in relation to transfers of assets abroad?

(1) An asset includes property or rights of any kind.

A benefit includes a payment of any kind.

A company means any body corporate or unincorporated association.

A transfer of rights includes the creation of those rights.

Example

You are an Irish resident who forms an offshore non-resident company and subscribes for shares in that company.

Your creation of the rights is deemed to be a transfer of rights.

In relation to a transfer, an associated operation means any operation effected by any person in relation to transferred assets (or assets representing those assets or the income from those assets). It is immaterial whether the associated transaction was carried out before, after or at the same time as the transfer (since 1 February 2007).

The associated operation may be effected by any person (not necessarily the person transferring the asset or income, or the transferee or recipient of the asset or income).

The legislation does not tax an individual not connected with the transfer of assets abroad even if he/she has power to enjoy the income: Vestey v IRC (Nos 1 and 2), [1980] STC 10 (overruling Bambridge v IRC, (1955) 36 TC 313;Congreve v IRC, (1948) 30 TC 163; Philippi v IRC, (1971) 47 TC 75.

The legislation does not apply to a transfer of assets by a company not controlled by the taxpayer: IRC v Pratt, [1982] STC 756.

See also Akroyd v IRC, (1942) 24 TC 515; Beatty’s (Admiral Lord) Executors v IRC, (1940) 23 TC 574; Cottingham’s Executors v IRC, (1938) 22 TC 344; Howard de Walden (Lord) v IRC, (1941) 25 TC 121; Ramsden v IRC, (1957) 37 TC 619; Corbett’s Executrices v IRC, (1943) 25 TC 305; Sassoon v IRC, (1943) 25 TC 154; and Lord Chetwode v IRC, [1977] STC 64.

What other rules of interpretation apply?

(2) A body corporate incorporated outside the State is treated as non-resident whether or not it is non-resident.

A reference to an individual includes a reference to her/his husband or wife.

Assets representing other assets (or accumulated income) include company shares or obligations into which those assets have been transferred.

From 1 January 2007, income which “becomes payable to” a person who is non-Irish-resident or non-Irish-domiciled includes income arising from a transfer, associated operations, or a transfer combined with associated operations.

Similarly, income which a person has “power to enjoy” includes income arising from a transfer, associated operations, or a transfer combined with associated operations.

In other words, to be taxable, a “transfer” is not necessarily required; “associated operations” alone can bring a transaction within the legislation.

Note

Wife does not include a widow: Vestey’s (Lord) Executors, and Vestey v IRC, (1949) 31 TC 1.

Can Irish tax be avoided by transferring assets to a non-resident company?

(3) This section is to prevent an individual who is resident (section 819) or ordinarily resident (section 820) in Ireland from avoiding Irish tax by transferring assets to a non-resident (for example, an offshore) company. The section applies if, as a result of the transfer, or associated operations, income subsequently becomes payable to a non-resident or non-domiciled person.

Example

The non-resident to whom the income subsequently becomes payable need not necessarily be the non-resident to whom the assets where transferred.

You are an Irish resident who transfers assets to X Ltd, a non-resident offshore company. If, as a result of the transfer, income becomes payable to Y, a non-resident, the section applies.

In their simplest form, foreign avoidance schemes involve only a single overseas company, trust or partnership, but more sophisticated schemes frequently involve a company or series of inter-connected companies. They may sometimes be designed to siphon off trading profits of Irish companies. Schemes may be centred in jurisdictions such as the Bahamas, Bermuda, the Cayman Islands, the Channel Islands or the Isle of Man.

Schemes of this kind may be deliberately organised in such a way that their existence will not readily be apparent or to make it appear that the amount involved is not significant. It is unlikely that their existence will be voluntarily disclosed and when any enquiry is made which might lead to the avoidance being brought to light, the reply may be evasive or misleading. Where, however, there is any reason to suspect that this form of avoidance is being practised, section 808provides Revenue with wide power to require the production of detailed information (Inspector Manual 33.1.1).

What happens if a resident can enjoy the income of a non-resident person?

(4) Where an individual resident or ordinarily resident in the State has power to enjoy (immediately or in the future) income of a non-resident or non-domiciled person, as a result of such a transfer (with or without associated operations), the income is deemed to be her/his income.

She/he is charged to tax on the non-resident’s income if, had she/he received it in the State, she/he would have been taxed on the income.

Example

You are an Irish resident individual who invests €2,000,000 in a Cayman Islands company.

The investment produces income of €200,000 per annum.

You have power to enjoy the income as you can control how the income is applied (see (6)(e)).

You are therefore taxed on the income arising to the non-resident (the Cayman Islands company).

An Irish resident cannot claim not to be liable to tax on the income on the basis that such income is generally exempt in the hands of a non-resident, or that the income is foreign source income in the hands of the non-resident. She/he is taxed on the entire income, and the question of restricting her/his liability to income remitted to the State (section 71) does not arise.

What are the consequences of an Irish resident receiving a capital sum?

(5) Where an Irish resident individual receives a capital sum in connection with a transfer (or an associated operation) before or after such transfer, any income which as a result of the transfer (with or without associated operations) has become income of a non-resident or non-domiciled person, is deemed to be her/his income as the person receiving the capital sum.

In this context, a capital sum means a sum paid by a loan (or repayment of a loan), and any sum (other than an income or revenue type payment) paid at less than full consideration. It also includes:

(a) any sum which a third party receives or is entitled to receive at her/his direction,

(b) a sum, or the right to receive a sum, assigned by her/him to the third party.

An Irish resident receiving a capital sum is taxed on the income of the non-resident or non-domiciled person, even where it is not received, irrespective of who has made the transfer. It is not necessary that the capital sum be paid by the non-resident or non-domiciled person; all that is required is that the capital sum payment be connected with the transfer.

Do these rules only apply to tax avoidance by a resident?

(5A) The statement in (3) does not imply that (4) and (5) apply only if a person who was resident or ordinarily resident at the time of the transfer. Nor does it imply that the transfer was made to avoid income tax.

When does a person have the power to enjoy income of another person?

(6) An individual is considered to have power to enjoy income of a non-resident or non-domiciled person if:

(a) the income is dealt with by others as though at some point in time it will enure for her/his benefit,

(b) growth in the income (or receipt of the income) increases the value of assets owned by her/him,

(c) she/he receives, or is are entitled to receive, any benefit provided from the income (or successive associated operations on the income or the underlying transferred assets),

(d) she/he has power to obtain the beneficial enjoyment of the income (or may, through the exercise of another person’s power, become entitled to the beneficial enjoyment of the income), or

(e) she/he can control how the income is applied.

Note

(a) Other people treat the income as if the income will at some point in time accrue to the benefit of the resident individual.

(b) Growth in the income received by a non-resident company would normally increase the value of shares in the company. If the shares are held by an Irish resident individual, then growth in the income increases the value of his assets.

An individual has power to enjoy the income of a non-resident company if:

(i) She/he power to appoint and remove directors: Lee v IRC, (1941) 24 TC 207.

(ii) After transferring assets to the company in return for shares and non-interest bearing debentures, she/he can direct that the company’s income be used to buy the debentures: Latilla v IRC, (1943) 25 TC 107.

(iii) She/he has power to increase the value of the company’s debt to her/him: Ramsden v IRC, (1957) 37 TC 619.

(iv) She/he has power to control the application of the income: IRC v Shroder, [1983] STC 480. In that case, an individual with power to appoint trustees did not have power to enjoy the income.

A taxpayer was held to have power to enjoy income from shares transferred to a Liechtenstein trust fund, as (though excluded from benefiting from the trust) he was a potential beneficiary in that he had power to enjoy income of another (inter-locking) trust, and he had power to transfer capital and income to that other trust: IRC v Botnar, [1999] STC 711.

An individual does not have power to enjoy income if his/her control over the income may only be exercised jointly as trustee with another: Vestey’s (Lord) Executors, and Vestey v IRC, (1949) 31 TC 1 and Fynn v IRC, (1957) 37 TC 629.

Foreign employment contracts: see IRC v Brackett, [1986] STC 521.

What is “power to enjoy” determined?

(7) In determining whether an Irish resident individual has power to enjoy income of a non-resident or non-domiciled person, the substantial result and effect of the transfer (together with any associated operations) must be considered.

All benefits accruing to her/him as a result of the transfer, together with any associated operations, are to be taken into account, whether or not she/he is strictly legally entitled to those benefits under foreign law.

Foreign law: This is aimed at foreign settlements under the terms of which the trustees retain power to deal with the income, and the beneficiaries technically have no rights.

In IRC v McGuckian, [1997] STC 908, although the sum payable to a non-resident was technically capital, it was to be regarded as income because it had been artificially converted to a capital payment.

Is there an exception for bona fide transfers?

(8) An Irish resident individual who satisfies Revenue (in writing) that a transfer was made for bona fide commercial reasons, and not for tax avoidance purposes, is not charged to tax under (4)-(5).

From 1 February 2007, this “bona fide” test is subject to section 807B.

Bona fide commercial reasons were established in Clark v IRC, [1978] STC 614; IRC v Kleinwort Benson Ltd, (1969) 45 TC 369 and in IRC v Willoughby, [1997] STC 995; but not in Carvill v IRC, [1996] STC 126.

What appeal processes are available?

(9) A Revenue decision as to whether a transaction was undertaken for bona fide commercial reasons may be appealed to the Appeal Commissioners. They must hear and determine the appeal in the same manner as an income tax appeal. There is a right, where necessary, to have the case reheard by a Circuit Court Judge. There is also a right to have a case stated for the opinion of the High Court on a point of law.

How is the bona fide test applied?

(10) The “old” anti-avoidance test is set out in (8). It disapplied the transfer of assets abroad legislation where a transaction was undertaken for bona fide commercial reasons. Since 1 February 2007, the “new” stricter anti-avoidance test has applied. Under this test, it must be shown that it would be unreasonable to conclude that any of the transactions was “more than incidentally designed” to avoid tax.

In this regard, the intentions and purposes of a person who designs, puts into effect, or advises in relation to the transactions, are to be taken into account in determining whether a transaction has a tax avoidance purpose.

A transfer and its associated operations (a relevant transfer) are only regarded as a commercial transaction if it is carried out in the course of a trade or business (or with a view to setting up such a trade or business) and for the purposes of that trade or business.

The making or managing of investments is not regarded as a trade or business unless the maker/manager and the investor are independent persons dealing at arm’s length.

A “critical” associated operation, which would be ignored under the new “unreasonable” test, must be taken into account under this new test if its absence causes that test to be failed.

How is the bona fide test applied to European Economic Area (EEA) transactions?

(11) Where the non-resident person is resident in an EEA country subsections (4) and (5) do not apply if the individual (who transferred the assets) shows in writing or otherwise that it would not be reasonable to conclude that the transaction was an avoidance transaction and that genuine economic activities are carried on in the EEA country by the non-resident person..

Section 807 Deductions and reliefs in relation to income chargeable to income tax under section 806

How is power to enjoy income of a non-resident person taxed?

(1) Income of a non-resident or non-domiciled person, which is enjoyed by an Irish resident following a transfer of assets abroad (section 806), is taxed under Schedule D Case IV.

Are deductions or reliefs available?

(2) An individual is entitled to the same deductions, personal allowances and reliefs to which he/she would be entitled had he/she actually received the income.

In computing the income of the non-resident company, no deduction is given for company expenses: Lord Chetwode v IRC, [1974] STC 474.

Can a second charge arise when the income is received?

(3) Where an individual has been charged to tax on income of a non-resident or non-domiciled person, a second charge does not arise if the income is received later.

This prevents a double charge on the same income.

What other computation rules apply?

(4) This rule applies where an Irish resident receives, or is entitled to receive, any benefit provided from the income (or successive associated operations on the income or the underlying transferred assets) of a non-resident or non-domiciled person.

He/she is charged under Schedule D Case IV on the value of the benefit in the tax year in which it is received. He/she is not taxed on a benefit which derives from income already taxed for that tax year or a previous tax year.

Section 807A Liability of non-transferors

What regulations apply in relation to non-transferor liability?

(1) These rules apply where as a result of the transfer of assets or associated operations:

(a) income becomes payable to a non-resident or non-domiciled individual, and

(b) the individual is resident or ordinarily resident in the State and is not caught by section 806, i.e., a non-transferor, and receives a benefit provided from assets that are available as a result of the transfer.

Example

You invest €2,000,000 in a Cayman Islands company, and the investment produces income of €200,000 per annum.

Assume that you are not caught by section 806(6), and therefore you do not have power to enjoy the income.

Assume also that your son receives a benefit from a 100% subsidiary of the Cayman Islands company (or a trust controlled by that company).

Your son, the recipient of the benefit, is caught (see (2)).

Under section 806(4), if a transfer or associated operations results in an Irish resident having power to enjoyincome of a non-resident or non-domiciled person, the income is deemed to be his/her income.

This provision counteracts the House of Lords decision in Vestey v IRC, [1980] STC 10, where it was held that section 806 taxes the transferor of the asset.

What is the tax treatment of the benefit?

(2) The value of the benefit mentioned in (1), if not already subject to tax in his/her hands (as the non-transferor,) is:

(a) if within the meaning of relevant income (see (3)) for tax years up to and including the tax year in which the benefit is received, treated as the income of him/her in the year of receipt,

(b) if it cannot be so treated, treated as income of him/her for the next tax year in which there is relevant income to absorb it.

The rules in (a) and (b) also apply for subsequent tax years.

What is the “relevant income” of a non-transferor?

(3) A non-transferor’s relevant income for a tax year is income arising in that tax year to a non-resident non-domiciled person, which, as a result of a transfer or associated operations (see (1)), may be used directly or indirectly:

(a) to provide a benefit to him/her, or

(b) to enable a benefit to be provided to him/her.

Under which Case is income charged in this section?

(4) Income arising under this section is charged under Schedule D Case IV.

. . .

What is the relevance of the “year of charge”?

(6) The year of charge means the tax year after the tax year in which a benefit is charged as a capital payment from a non-resident trust (section 579A, 579F(2)) in the hands of a non-transferor for a tax year.

The amount so charged is treated as his/her income for the tax year before the year of charge if there is no relevant income to match it with for tax years up to and including the tax year of receipt.

Example

In a given tax year, a non-resident trust makes a capital payment of €20,000 to you, the sole resident beneficiary. You are assessed to €5,000 capital gains tax (€20,000 x 25%).

Two years earlier, in the year of charge, the trust had relevant income of €28,000.

Your benefit already received (€20,000) can be matched with this income.

Your assessment under section 806 is nil (€20,000 income less gain assessed €20,000). The relevant income available to match future benefits is €8,000 (€28,000 – €20,000).

Is there an exception for bona fide transfers?

(7) Where Revenue are satisfied (in writing) that a transfer was made for bona fide commercial reasons, and not for tax avoidance purposes, there is no charge to tax.

A Revenue decision as to whether a transaction was undertaken for bona fide commercial reasons may be appealed to the Appeal Commissioners. They must hear and determine the appeal in the same manner as an income tax appeal. There is a right, where necessary, to have the case reheard by a Circuit Court Judge. There is also a right to have a case stated for the opinion of the High Court on a point of law.

From when do these rules apply?

(8) These rules apply to relevant income arising on or after 11 February 1999, regardless of when the transfer of assets (or associated operations) took place.

Section 807B Certain transitional arrangements in relation to transfer of assets abroad

What determines which of the two anti-avoidance tests should be used?

(1) Since 1 February 2007 (the relevant date), there have been two anti-avoidance tests in section 806: the “old” test in (8), and the “new” stricter test in (10). This section determines which test is to apply to relevant transactions, i.e., transfers and associated operations, in particular transactions where some of the transfers or operations take place before, and some after, 1 February 2007.

What dates apply in relation to the old and new bona fide tests?

(2) If all of the transactions are pre-1 February 2007 (old transactions), the old (bona fide commercial reasons) test applies.

If all of the transactions are post-1 February 2007 (new transactions), the new (unreasonable to conclude that transactions were tax avoidance) test applies.

if some of the transactions are old, and some are new, the rule in (3) applies.

What happens where the tests are failed?

(3) If old transactions cause the old test to be failed, or new transactions cause the new test to be failed, then the anti-avoidance test is failed. The transfer of assets rules apply.

If new transactions cause the new test to be failed:

(i) for the purposes of the general transfer of assets abroad rules (section 806), pre-1 February 2007 income is not taken into account, and

(ii) for the purposes of assessing a non-transferor (section 807A):

(I) If he/she is deemed to receive a benefit in 2007 or later years, tax years before 2007 are to be taken into account in determining relevant income, i.e., income which, as a result of the transfer, can be used, directly or indirectly, to provide a benefit to him/her.

(II) If he/she receives a benefit in 2007, the part of the benefit that he/she was able to enjoy, on a time-apportionment basis before 1 February 2007, is ignored.

Section 807C Supplementary provisions in relation to section 806 – apportionment in certain cases

What definitions apply to supplementary provisions relating to tax on the transfer of assets abroad?

(1) An exempt year of assessment means a tax year for which there is no earlier year in which an individual was caught by the transfer of assets abroad rules (section 806).

An appropriate exemption means an individual is not caught by the transfer of assets abroad rules because he/she passes the “old” bona fide commercial reasons test (section 806(8)) or the “new” (unreasonable to assume the transaction was designed to avoid tax) purpose (section 806(10)).

A relevant transaction includes a transfer or an associated operation.

When do the supplementary provisions apply?

(2) This section applies:

(a) where an individual is caught by the post-1 February 2007 test,

(b) where there are one or more tax years for which he/she also has relevant transactions but had, or would have had, an appropriate exemption,

(c) where he/she has income partly attributable to exempt transactions and partly to chargeable operations.

What are the consequences of this section being applied?

(3) Where the conditions in (2) are met, Revenue may appportion the liability so that only non-exempt associated operations are caught.

What matters determine the amount of income that can be attributed to chargeable operations?

(4) The following may be taken into account in determining how much income can be reasonably attributed to chargeable operations:

(a) the character, description or amount of the income,

(b) the power to enjoy the income,

(c) the character, description or amount of income an individual has power to enjoy.

Section 808 Power to obtain information

What is the definition of a “settlement”?

(1) A settlement means any disposition, trust covenant, agreement or transfer of property. A settlor provides the property comprised in a settlement.

What information can Revenue demand in relation to transfers of assets abroad?

(2)-(3) Revenue may write requiring a person to provide within 28 days any information in relation to a transfer of asset abroad, regarding:

(a) Transactions for which he/she acted as nominee on behalf of another person.

(b) Transactions which Revenue believe ought to be investigated to ascertain whether an Irish resident has any tax liability as a result of a transfer of assets abroad. The person receiving the Revenue notice remains obliged to provide the information, even if he/she considers no tax liability arises.

(c) Whether he/she is taking part, or may have taken part, in transactions specified in the Revenue notice.

The extent of the information sought and the cost of compliance does not affect the validity of the notice: Stokes Kennedy Crowley and Co v Revenue Commissioners, (1986) 3 ITR 356.

What rules apply to a solicitor who advises in relation to a transaction?

(4)-(5) The giving of professional advice by a solicitor in relation to a transaction is not to mean that he/she has taken part in the transaction. The Revenue power to obtain information may not be used to breach a solicitor’s confidentiality with a client.

A solicitor may not be compelled to provide any information to Revenue, without the client’s permission, other than to state the client’s name and address and:

(a) The names and addresses of the transferor, the transferee, and any person connected in the associated operation, in relation to the transfer of an asset by an Irish resident or ordinarily resident individual to an offshore company (a non-resident company incorporated outside the State) which, if resident in the State, would be a close company.

(b) The name and address of such an offshore company (the formation or management of which you are connected).

(c) The name and address of a settlor and any non-resident recipient of income from a settlement (the creation or execution of which you are connected).

What information can be obtained in relation to ordinary banking transactions?

(6) The Revenue power to obtain information may not be used to breach a bank’s confidentiality with its customers in relation to ordinary banking transactions unless the banker has acted or is acting in connection with:

(a) the formation or management of an offshore company (4)(b), or

(b) the creation or execution of a non-resident settlement (4)(c).

The transactions in relation to which information was sought were not regarded as ordinary banking transactions in:Mankowitz v Special Commissioners, (1971) 46 TC 707; Royal Bank of Canada v IRC, (1971) 47 TC 565; and Clinch v IRC, (1973) 49 TC 52.

This power does not apply to a bank that merely acts as a conduit for a transaction: Royal Trust Co Ltd and others v Revenue Commissioners, [1982] ILRM 459.

Section 809 Saver

Can Government and semi-State bodies issue securities whose income is exempt in the hands of a non-resident?

Yes (see section 43).

This exemption does not extend to income (of a non-resident or non-domiciled person) enjoyed by an Irish resident following a transfer of assets abroad.

Section 810 Application of Income Tax Acts

Do the normal income tax rules apply to the transfer of assets abroad?

The income tax rules for chargeable persons, assessments, appeals and collection of tax apply to tax on income (of a non-resident or non-domiciled person) enjoyed by an Irish resident following a transfer of assets abroad.

Section 811 Transactions to avoid liability to tax

In McGrath and Others v MacDermott, 3 ITR 683, [1988] ILRM 647, the Irish Supreme Court allowed the taxpayers to use artificial paper losses on the disposal of shares in an offshore company to effectively eliminate “real” capital gains (of over £2m). In dealing with similar cases (notably WT Ramsay Ltd v IRC, [1981] STC 174 and Furniss v Dawson, 55 TC 324, [1984] STC 153), the UK courts developed a doctrine of “substance over form” known as “the Ramsay Principle”. If the transaction had legal form purely for tax avoidance purposes but no commercial substance (i.e., was a “fiscal nullity”), the court would ignore the form and give effect to the substance of the transaction. They would not allow the artificial avoidance scheme to have effect. In this regard, the courts were performing a quasi-legislative role.

In the McGrath case, the Supreme Court refused to follow the UK approach in these decisions, and decided that it was the function of the legislature (and not the courts) to deal with artificial transactions contrived purely to avoid tax.

This general anti-avoidance legislation (section 811), originally introduced by the legislature as Finance Act 1989 section 86, was the result. Modelled partly on the Canadian Income Tax Act 1988 section 245, it provides that Revenue may disregard the effect of transactions contrived purely to avoid tax (i.e., if they are of the opinion that a tax advantage has arisen from the transaction).

In what circumstances does this general anti-avoidance legislation apply?

(1)-(2) The general anti-avoidance legislation contained in this section applies to income tax, corporation tax, capital gains tax, value added tax, capital acquisitions tax, residential property tax, stamp duties and USC (tax payable under the Acts). It also applies to any interest or penalties under the legislation governing those taxes.

A transaction means:

(a) any transaction, scheme, plan, course of action, or proposal,

(b) any agreement, arrangement, understanding, promise or undertaking, whether expressed or implied or legally enforceable or not,

and any combination of events described in (a) or (b) entered into by you, acting in concert with other persons or not. The transaction may be arranged wholly or partly outside the State, and may be part of a larger transaction, or entered into in conjunction with other transactions.

A transaction is a tax avoidance transaction if, having regard to the results of the transaction, the method used to obtain those results and any alternative methods available to achieve the same results, Revenue form the opinion that it gives rise to a tax advantage and was undertaken primarily for that purpose.

A tax advantage is the net tax gain (reduction, avoidance or deferral of tax, or repayment or increase in repayment of tax) obtained by you by engaging in a transaction. It also includes a potential or prospective net tax gain obtainable at some future date.

A tax avoidance transaction can include a transaction even if another transaction was not undertaken to achieve the results achieved by the tax avoidance transaction (see note below).

The tax consequences of a tax avoidance transaction are the adjustments that Revenue need to make to withdraw or deny the tax advantage gained from the tax avoidance transaction.

An appeal is deemed to have been finally determined when:

(i) the appellant and the Revenue official agree that the opinion is to stand or to be amended in some manner,

(ii) the terms of a non-verbal agreement have been confirmed in writing by the taxpayer to the Revenue official or vice versa, and 21 days have elapsed since notice was given without the written confirmation begin repudiated by the other party,

(iii) the taxpayer notifies the Appeal Commissioners that he/she does not wish to proceed with the appeal.

Note

Tax advantage: a “potential” amount might include an artificial loss for use at some future date. The meaning of “tax advantage” was discussed in IRC v Universities Superannuation Scheme, [1997] STC 1. See also IRC v Laird Group plc, [2001] STC 689.

Transaction: this is to prevent arguments that the transaction would not have been entered into but for the tax avoidance scheme, and accordingly there is no tax loss to Revenue. For example, where a company pays shareholders through a capital distribution on a liquidation, under section 817 the distribution may be taxed as Schedule F income of the shareholders (and not as a capital payout). The company cannot argue that it would not have made the distribution but for the existence of the avoidance scheme (and accordingly no tax would have arisen).

Tax consequences (amount of the tax advantage): Bird and others v IRC, [1985] STC 584.

Are there exceptions for genuine business transactions?

(3) Genuine business transactions and legitimate use of existing tax reliefs are not regarded as tax avoidance transactions (see note below).

In forming their opinion as to whether a transaction is a tax avoidance transaction, Revenue must look at the substance (not just the form) of the transaction and any related transactions, together with the result of the transaction(s). The Appeal Commissioners and the courts must do the same.

Note

The cases which led to the introduction of this legislation show the kinds of transactions it is aimed at

The taxpayer successfully showed bona fide commercial reasons under the UK legislation in IRC v Brebner, (1967) 43 TC 705; IRC v Goodwin, [1976] STC 28; IRC v Kleinwort Benson Ltd, (1968) 45 TC 369; Clark v IRC, [1978] STC 614; and Marwood Homes Ltd v IRC SpC 106, [1996] SWTI 2111.

Bona fide commercial reasons were not allowed in Williams and others v IRC, [1980] STC 535, MacNiven vWestmoreland Investments Ltd, [2001] STC 237. See Irish Tax Review, May 2001.

What powers do Revenue have under this general anti-avoidance rule?

(4) Revenue may at any time form an opinion that a transaction is a tax avoidance transaction. They may calculate the tax advantage deriving from the transaction, determine the tax consequences were their opinion to prevail (i.e., not be contested or become final on appeal), and calculate any double tax relief due.

What adjustments can Revenue make where they find a tax avoidance transaction?

(5) Where a Revenue opinion on a tax avoidance transaction has become final and conclusive (i.e., is uncontested, or upheld on appeal, or by the courts), Revenue must make any adjustments necessary to undo the effects of the transaction.

In particular, Revenue may:

(a) allow or disallow a deduction,

(b) allocate income, deductions, reliefs, allowances, losses, or exemptions to any person,

(c) recharacterise the nature of any payment for tax purposes.

In making any adjustments, Revenue must also give any double tax relief that may be due to any party involved in the transaction.

Once Revenue have determined the tax consequences of a tax avoidance transaction, and stated in a notice of opinion the adjustments needed to dismantle the effect of the scheme, except to the extent that the notice of opinion is amended on appeal (see (7)) by the Appeal Commissioners or courts, you have no further right of appeal.

A Revenue notice of opinion is final and conclusive if no appeal is made within the 30 day time limit. A Revenue notice is also final and conclusive when all valid appeals made on the same issue have been finally decided (by the Appeal Commissioners or on further appeal, the courts) in favour of Revenue.

Recharacterisation of payments: for example, from revenue to capital. See Airspace Investments Ltd v Moore, [1994] ITR 194. Contrast Ensign Tankers (Leasing) Ltd v Stokes, [1992] STC 226.

Do the normal four year time limits apply to tax avoidance transactions?

(5A) No time limit applies in relation to the issue and amendment of an assessment in a situation where a Revenue opinion that a transaction is tax avoidance transaction has become final and conclusive.

What information must Revenue supply where they have found tax avoidance?

(6) Once they have formed the opinion that a transaction is a tax avoidance transaction, Revenue must send a written notice of opinion to each person whom they believe has obtained a tax advantage from the transaction stating:

(a) the alleged tax avoidance transaction,

(b) the tax advantage or partial advantage allegedly obtained by the recipient of the notice,

(c) the tax consequences for that person,

(d) any double tax relief that Revenue propose to give to that person.

The general rules regarding delivery and notice of forms (section 869) apply to the notice of opinion.

Can the notice of opinion be appealed?

(7) A recipient of a notice of opinion may, within 30 days, appeal to the Appeal Commissioners, but only on the following grounds:

(a) The transaction is not a tax avoidance transaction.

(b) The tax advantage specified in the notice is incorrect.

(c) The tax consequences specified in the notice would not be just and reasonable to withdraw or deny the tax advantage specified in the notice.

(d) The double tax relief specified in the notice is incorrect.

What appeal procedures apply?

(8) The Appeal Commissioners must hear and determine such an appeal in the same manner as an appeal against an income tax assessment. An appellant has a right, where necessary, to have the case reheard by a Circuit Court Judge. There is also a right to have a case stated for the opinion of the High Court on a point of law.

At the hearing of the appeal, or on a subsequent rehearing by the courts, the only grounds of appeal that may be considered are those listed in (7).

On request, two or more opinions concerning the same matter (alleged tax avoidance scheme) may be heard (or reheard) together.

An attempt to have proceedings under the equivalent UK law declared null and void failed in: Balen v IRC, [1978] STC 420; Howard v Borneman (No 1), (1972) 51 ATC 251; Howard v Borneman (No 2), [1975] STC 327.

See also IRC v Cleary, (1967) 44 TC 399; IRC v Brown, (1971) 47 TC 217; Addy v IRC, [1975] STC 601; Greenberg v IRC, IRC v Tunnicliffe, (1971) 47 TC 240; R v IRC, ex parte Preston, [1985] STC 282.

What powers do the Appeal Commissioners or judge have?

(9) On a hearing or rehearing of an appeal, the Appeal Commissioners or judge must look at the substance (not just the form) of the transaction and any related transactions, together with the result of the transaction(s). They must determine the appeal as follows:

(a) If they agree with the Revenue opinion, i.e., if they consider that the transaction (or part of it) is a tax avoidance transaction, then the notice of opinion is to stand (in so far as it relates to that part).

If they partly agree with the Revenue opinion, i.e., if they consider that the transaction (or part of it) after necessary amendments, is a tax avoidance transaction then the notice of opinion is to stand (in so far as it relates to that part) as so amended.

If they disagree with the Revenue opinion, i.e., if they consider that the transaction is not a tax avoidance transaction, the Revenue notice of opinion is void.

(b) If they consider that the tax advantage specified in the notice is incorrect, then the notice is to be amended as necessary, or it is to stand.

(c) If they consider that the tax consequences specified in the notice would not be just and reasonable to withdraw or deny the tax advantage specified in the notice, then the notice is to be amended as necessary, or it is to stand.

(d) If they consider that the double tax relief specified in the notice is incorrect, then the notice is to be amended as necessary, or it is to stand.

Can Revenue amend a notice of opinion?

(10) Revenue may, at any time before an appeal has been finally determined, amend a notice of opinion by writing to each person affected by the notice and informing them of the amendment. The notice of amendment is to be regarded in all respects as equivalent in effect to the original notice of opinion.

How do the official secrecy rules apply?

(11) The official secrecy rules that apply to Revenue do not apply in so far as Revenue are required to notify appellants whose appeals on a similar matter are, at the request of those appellants, to be heard jointly (see (8)).

Can Revenue delegate functions under this section?

(12) Yes – Revenue may delegate any of their functions under this section to an authorised officer.

From what date do these anti-avoidance rules apply?

(13) These general anti-avoidance rules apply to transactions undertaken or arranged on or after 25 January 1989.

The rules also apply to transactions undertaken or arranged before 25 January 1989 in so far as the transaction creates a net tax gain (reduction, avoidance or deferral of tax, or repayment or increase in repayment of tax) after 25 January 1989.

When does this section cease to have effect?

(14) The section will not apply to transactions commenced after 23 October 2014.

Section 811A Transactions to avoid liability to tax: surcharge, interest and protective notification

Can a surcharge be avoided when Revenue challenge a transaction?

(1) This section supplements the general anti-avoidance legislation in section 811. It provides that if a protective notification is made within 90 days of beginning a transaction, there is protection from the possibility of interest and surcharge in the event that Revenue successfully challenge the transaction.

Tax refunds received as a result of tax avoidance count as tax payable.

A Revenue opinion that a transaction is tax avoidance becomes final:

(a) if no appeal is made (section 811(7)), 31 days after the notice of the opinion,

(b) if an appeal is made, the date on which all appeals are dismissed.

What are the consequences of making a full protective notification?

(1A)-(1B) If a full protective notification is made, the time period in which Revenue may form an opinion that a transaction is a tax avoidance transaction is limited to two years from the date of the notification.

What interest or penalties apply where a tax avoidance transaction is found?

(2) If tax is payable following Revenue’s determination that a transaction is a tax avoidance transaction, then:

(a) there is a surcharge equal to 20% of the tax, and that surcharge is collectible as if it were tax,

(b) the tax is due and payable on, and therefore interest accrues from, the date specified in the notice of opinion (the date when tax would have been payable had there been no avoidance).

What special condition applies to disclosures before 1 July 2015?

(2A) A qualifying avoidance disclosure is one which Revenue are satisfied is a full and complete disclosure of a tax avoidance transaction which is accompanied by a declaration that it is full and complete and is accompanied by a payment of tax and interest due. Where such a disclosure is received on or before 30 June 2015 no surcharge will apply and the interest payable will be reduced by 20%.

Can interest or a surcharge be avoided in any circumstances?

(3) No interest or surcharge is payable on a transaction if Revenue receive a protective notification, specifying the full details of the transaction, on or before the relevant date.

The protective notification is treated as being made solely to prevent the imposition of surcharge and interest. It is without prejudice to whether the transaction is, or is not, a tax avoidance transaction.

The relevant date is:

(i) as regards transactions undertaken on or after 19 February 2008, 90 days after the date on which the transaction commenced (or 19 May 2008 if it is later than the said 90 days),

(ii) as regards transactions undertaken wholly before 19 February 2008, with the tax advantage arising from one or more transactions carried out on or after that date, 90 days after the date on which the first transaction commenced,

(iii) as regards transactions undertaken wholly before 19 February 2008, with a refund first becoming repayable on or after that date, 90 days after the refund date.

The protective notice does not apply to interest payable in respect of days after the Revenue opinion becomes final.

What details must be included in a Revenue determination of tax consequences?

(4) Revenue’s determination of the tax consequences (of a transaction being treated as a tax avoidance transaction) must specify a date on which the tax would have been due and payable had there been no avoidance, without regard to:

(a) when a Revenue opinion was formed in relation to the transaction being a tax avoidance transaction,

(b) the date on which notice of such opinion was given,

(c) the date on which the opinion became final and conclusive,

The Revenue’s specification of a date may be appealed.

When is the surcharge payable?

(5) The surcharge is payable on the date the Revenue opinion (that a transaction is a tax avoidance transaction) becomes final and conclusive. Unpaid surcharge is subject to interest as if it were tax.

What details must the protective notification include?

(6) The protective notification must be delivered in the prescribed form to the Revenue office specified on the form.

It must contain full details of the transaction, full reference to relevant tax legislation, and details of how the tax legislation is considered to apply to the transaction.

An “expression of doubt” (on a tax return) does not constitute a protective notification.

A Revenue contention that a protective notification was not made in full or on time may be appealed.

Can Revenue delegate their powers in relation to general anti-avoidance legislation?

(6A) Yes. Revenue may delegate to Revenue officers.

From what date does the protective notification legislation apply?

(7) This protective notification legislation applies to transactions wholly or partly undertaken on or after 19 February 2008. It applies to transactions before that date if they reduce tax liability, or give rise to a repayment of tax, after that date.

When does this section cease to have effect?

(14) The section will not apply to transactions commenced after 23 October 2014.

Section 811B Tax treatment of loans from employee benefit schemes

To what does this anti-avoidance provision apply?

(1) The section applies to loans to an employee from a benefit scheme (a trust or settlement) that was funded by theemployer.

(2)(a) the normal connected persons rules apply; (b) a loan of an asset is deemed to be a loan of the value of the asset; (c) the section does not apply to loans or provision of assets to which the benefit in kind rules apply.

How are such loans taxed?

(3) Loans, payment, benefits or assets received by an employee or former employee or a connected person received from a benefit scheme that was funded by the employer or former employer will be taxed under Case IV of Schedule D.

Are loans to future employees caught?

(4) Where a loan, benefit or asset is provided to an individual or a connected person from a benefit scheme and that individual subsequently becomes an employee of an employer who funded the scheme the value of the loan, benefit or asset will be taxed in the year in which the employment commences. If the benefit is already taxable as income in a tax treaty country Irish tax will not be levied.

When does this provision come into force?

(5) This section applies to loans, benefits or assets received from a benefit scheme on or after 13 February 2013

Is tax repaid if the loan is repaid?

(6) Where all the tax due has been paid and the loan is subsequently repaid, the asset returned or the benefit ceases, in whole or in part, the proportionate part of the tax will be repaid. Application for repayment must be made in writing within 4 years from the end of the year in which the benefit ceases. No repayment will be made where the repayment is made out of another similar benefit or a replacement loan.

What happens if a loan exists on 13 February 2013

(7) If an employee or former employee has a loan or asset under a benefit scheme on 13 February then he or she will be charged to tax on an amount equivalent to the “specified rate” if no interest paid or the difference between the specified rate and the actual amount of interest paid if that is less than the specified rate. The amount deemed to be taxable will be the amount which would be taxable if the provisions relating to Benefit in Kind applied.

(8) The section does not apply to Revenue approved schemes such as Approved Profit Sharing Schemes, Employee Share Ownership Trusts or Occupational Pension Schemes.

Section 811C Transactions to avoid liability to tax

What definitions apply to this section and section 811D?

(1) The Acts means all of the taxes Acts includig the provisions relating to USC.

Tax advantage means a reduction, avoidance, deferral, refund or increase in an amount refundable arising by virtue of a tax avoidance transaction as defined by subsection 2.

transaction is very broadly defined to encompass any actions undertaken by persons or combinations of persons, whether undertaken in the State or outside it.

What is a “tax avoidance transaction”?

(2)(a) A tax avoidance transaction is one which, having regard to its form or substance or the substance of other, directly or indirectly, related transactions and the final outcome of the transaction or related transactions, and having regard to the results and means of achieving those results of the transactions it is reasonable to conclude that there arose a tax advantage which was the main purpose of the transaction.

(b) A transaction is not a tax avoidance transaction if it was undertaken with a view to realising a profit in the ordinary course of business and was not entered into primarily to obtain a tax advantage. Neither is the ordinary use, other than misuse, of a relieving provision of the tax Acts a tax avoidance transaction.

What is the consequence of a tax avoidance transaction?

(3) The person will be denied the tax advantage.

How can Revenue deal with a tax avoidance transaction?

(4) Where a return, declaration or statement purports to obtain a tax advantage a Revenue officer may at any time deny or withdraw the advantage. To do this the officer may make or amend an assessment, allow or disallow all or part of any credit, deduction or other amount in a computation of tax or recharacterise any payment or other amount. However relief will be given from any double taxation that might arise.

Can Revenue raise other assessments?

(5) In addition to making an assessment under this section a Revenue office may make an “alternative assessment” under other provisions of the Acts. The existence of such an alternative assessment is not grounds for appeal against an assessment under this section or vice-versa. However only one assessment may become final and conclusive.

Is there any time limit to Revenue enquiries?

(6) Except where a protective notice is made under section 811(4)(a)(i) there is no time limit for Revenue enquiries, assessments or collection or recovery of tax due.

How are Revenue’s secrecy obligations applied?

(7) Where a tax advantage is denied to 2 or more parsons Revenues’s obligation of secrecy is relaxed to the extent necessary to carry out its function as authorised by this section.

When does this section take effect?

(8) The section applies to transactions that commence after 23 October 2014.

Section 811D Transactions to avoid liability to tax: surcharge, interest and protective notifications

What definitions apply to this section?

(1) Disclosable transaction is defined in section 817D. But, in relation to a taxpayer, it does not include a transaction that was disclosable by a promoter provided the taxpayer who obtains a tax advantage provides Revenue with full details of the scheme and provides sufficient information for Revenue to pursue the promotor for penalties in the Courts.

Protective notification is a notification provided in such form as Revenue require and in accordance with their guidelines that contains full details of the transaction, including statutory references and an opinion as to their application, together with all relevant documentation. The notification must state why section 811C is considered not to apply. It must be provided by the relevant date, i.e. within 90 days of the commencement of the transaction.

A qualifying avoidance disclosure is one that is in writing and which satisfies a Revenue officer that it provides complete information and is accompanied by a declaration that it is complete and is accompanied by payment of any tax and interest due.

What other rules apply to a “protective notification”?

(2)(a) If it is not possible to provide documentation required within 90 days because parts of the transaction have not occurred the requirement of subsection 1 will be deemed satisfied if such documentation is provided within 30 days of their execution.

(b) An expression of doubt under other provisions of the Tax Acts is not equivalent to a protective notification.

What surcharge arises on avoidance transactions?

(3)(a) Where a person submits a return which gives rise to a tax advantage or purports to obtain a tax advantage a surcharge of 30% will apply. The provisions that apply to the collection of penalties may be used to collect the surcharge.

(b) The surcharge will not be imposed where penalties for deliberate or negligent filing of an incorrect return apply.

What are the benefits of a protective notification?

(4)(a) Where a protective notification is provide the normal 4 year time limit for Revenue enquiries will have effect and the surcharge will not be imposed. Any tax due as a result of the denial of a tax advantage be be in time if paid within one month of the date of the assessment or amended assessment.

(b) If a Revenue officer carries out enquiries outside the 4 year limit because he/she determines that a protective notification is not valid because it did not fulfil all of the requirements the taxpayer may appeal to the Appeal Commissioners. The same right of appeal is available if the Revenue officer makes or amends assessment outside the time limit.

Can the surcharge be reduced?

(5)(a) If a person makes a qualifying disclosure in respect of a transaction that is not a disclosable transaction—

(i) if no Revenue enquiry has commenced and it is made within 2 years of the end of the period in which the transaction occurred then no surcharge is imposed;

(ii) if a tax advantage has not been denied under section 811C or any specific anti-avoidance provision the surcharge is 3%;

(iii) if the tax advantage is denied and there is no appeal against the denial the surcharge is 5%;

(iv) if a person has made an appeal against the denial of a tax advantage and the appeal has not yet been heard the surcharge is 10%.

(b) If a person makes a qualifying disclosure in respect of a disclosable transaction—

(i) if no Revenue enquiry has commenced and it is made within 2 years of the end of the period in which the transaction occurred then the surcharge is 3%;

(ii) if a tax advantage has not been denied under section 811C or any specific anti-avoidance provision the surcharge is 6%;

(iii) if the tax advantage is denied and there is no appeal against the denial the surcharge is 10%;

(iv) if a person has made an appeal against the denial of a tax advantage and the appeal has not yet been heard the surcharge is 20%.

In any other cases the surcharge is 30%.

For what purpose is a protective notification deemed to be made?

(6) A protective notification is deemed to be made solely to prevent a surcharge or interest arising and wholly without prejudice as to whether or not the transaction was a tax avoidance transaction. In other words Revenue cannot draw any inference from the making of a protective notification.

When does this section take effect?

(7) The section applies to transactions that commence after 23 October 2014.

Section 812 Taxation of income deemed to arise from transfers of right to receive interest from securities

What are the consequences of transferring the right to receive interest on securities but retaining ownership?

(1)-(2) Where an owner of securities (stocks and shares of any kind) sells or transfers the right to receive the interest(including dividends and annuities) on those securities while continuing to own the securities:

(a) The interest is deemed for the tax year or accounting period of the transfer to be income of the owner (or, where appropriate, the beneficial owner) of the securities.

In the case of public revenue dividends (Schedule C) and foreign dividends (Schedule D), the sale proceeds (and not the interest) are taxed at source on the paying agent in the State.

(c) Where the sale proceeds of public revenue dividends or foreign dividends have not been taxed at source (under Schedule C or D as appropriate), he/she is charged to tax on the interest under Schedule D Case IV.

He.she is entitled to a credit for any tax paid by deduction at source on the interest.

(d) He/she may be charged to tax under Schedule D Case III (instead of Schedule D Case IV) on the basis of the interest remitted to the State in that tax year (or later tax years for which he/she still owns the securities) if the interest would, in his/her hands, have been taxed on the remittance basis.

(e) The fact that the owner of the securities may have sold or transferred the right to receive that interest on those securities, is not to prevent tax being deducted from that interest.

Note

Proceeds from the sale of a right to receive income would be regarded as “capital” receipts, and would not, in the absence of this section, be within the scope of income tax: Paget v IRC, (1938) 21 TC 677.

(c) Government or semi-State securities owned by non-residents.

How do the rules apply to companies?

(3) The following do not apply to a company chargeable to corporation tax:

(a) the tax credit (pre-6 April 1999: section 136) for tax paid by deduction at source on public revenue dividends and foreign dividends (2)(c), and

(b) the remittance basis (2)(d).

What information may Revenue require regarding securities?

(4) The Revenue Commissioners may require an owner of securities to provide within 28 days any information they need regarding the securities (during the time period specified in the letter) to discover whether tax has been paid:

(a) on the interest from those securities,

(b) on the sale proceeds from the right to receive the interest on those securities (under Schedule C or D).

When does this section not apply?

(5) The section does not apply-

(a) if the interest would not have been chargeable to tax in the State had the owner or beneficiary received it between the date of transfer of the right to receive and the date it was paid.

(b) if the owner or beneciciary is carrying on a trade or business and the proceeds of the sale or transfer are taxable under Case I or II of Sch D.

Section 813 Taxation of transactions associated with loans or credit

What type of transactions are taxed under this section?

(1) This section applies to loan arrangements (lending money or giving credit) from a lender (or creditor) to a borrower (or debtor).

Are connected persons relevant?

(2) The section applies not only to direct loan arrangements between a lender and the borrower, but also to loan transactions involving persons connected either with the lender or the borrower.

When can an annual payment which is not interest be deemed to be interest?

(3) If the borrower agrees to pay an annual payment (other than interest) which is taxed as untaxed income under Schedule D Case III, that annual payment is to be treated as a payment of annual interest.

Example

You want to lend X €10,000.

Instead of giving X a loan of €10,000, repayable over five years in 20 equal quarterly instalments, you give X €10,000 and X undertakes to make annual payments to you equivalent to what would have been the interest on the loan.

The payments from X to you are regarded as interest payments.

What other transactions are caught?

(4) If, in connection with a loan arrangement an owner of income-producing securities agrees to transfer the securities to a transferee (or a connected person) who agrees to retransfer the securities to the owner (or a connected person) at a later date, the income earned by the securities before the loan is repaid (i.e., while they were temporarily in the hands of the transferee) is taxed on the owner under Schedule D Case IV.

Example

You obtain a loan of €20,000 from X Ltd, a bank.

You give X Ltd. €20,000 in securities to hold while the loan is outstanding. X Ltd. collects the interest on the securities while the loan remains outstanding, and in return, you pay little or no interest on the loan. It is agreed that the securities will be returned to you when the loan is repaid.

You are taxed on the interest earned by the securities while they are in the hands of the bank.

The same rules apply to the owner of income-producing securities who has an option to reacquire the securities when the loan is repaid, and has exercised it.

How is income foregone taxed?

(5) If, in connection with a loan arrangement, an owner of income-producing property agrees, while retaining ownership of the property, to forgo the income from the property, the income forgone is taxed on him/her under Schedule D Case IV.

Example

Your company lends €5,000 to an employee, X, to buy shares in the company. X buys the shares.

It is a condition of the loan that until it is fully repaid, the dividends on the shares are assigned to trustees nominated by your company.

The dividends are taxed as income of X.

What if the loan conditions restrict income while the loan is outstanding?

(6) If it is a condition of the loan that the “income producing” property (bought with the money lent) does not produce income while the loan is outstanding, the purchaser is treated as having surrendered the right to the income for that period.

Example

Your company lends €5,000 to an employee, X, to buy shares in the company. X buys the shares.

It is a condition of the loan that until it is fully repaid, no dividends are paid on the shares.

X does not pay tax on the dividends, as there are no dividends.

How much of my income from a property is liable to tax?

(7) Where income forgone is taxed on you as the owner of the income producing property (see (5)), the gross amount of that income (before any deduction of tax) is the amount to be taxed.

Section 814 Taxation of income deemed to arise from transactions in certificates of deposit and assignable deposits

What definitions apply to certificates of deposit and assignable deposits?

(1) A certificate of deposit is a document relating to money in any currency instructing the bank on which it is drawn to pay the bearer (or a person specified by him/her) on a specified date the capital amount shown on the certificate, with or without interest.

An assignable deposit is a deposit of money in any currency which may be assigned by the depositor with or without interest to another person.

How is a disposal of a right to receive the capital or interest taxed?

(2)-(3) Where a right (acquired after 3 April 1974) to receive the capital or interest attaching to a certificate of deposit or an assignable deposit is disposed of, the gain, if not taxed on the recipient as a trading receipt, is to be taxed as miscellaneous income under Schedule D Case IV.

Example

On 1 January 2009, you place €50,000 with X Ltd, a bank. Instead of placing the money in a deposit account, X Ltd. gives you a certificate of deposit, entitling the bearer of the certificate to payment of interest on 31 December 2009.

Assume that the interest payment due on 31 December is €2,000. You can sell the certificate on 29 December 2009 for €52,000, the price reflecting the buyer’s entitlement to collect the interest payment.

The interest element contained in the sale price is a capital receipt, and in the absence of legislation, it is not liable to income tax.

This section ensures that you are taxed on the €2,000 “gain” under Schedule D Case IV.

What if the right was acquired before the introduction of CGT?

(4) Where the right was acquired on or before 3 April 1974 and disposed of after that date, the gain is time-apportioned so that only the part falling after 3 April 1974 is taxed.

Can a loss on disposal of a certificate of deposit be used?

(5)A loss on disposal of a certificate of deposit may be set off or carried forward against the taxable interest from the certificate.

Where a gain is included as a trading receipt, is it taxed as trading income?

(6) The inclusion of a gain on the sale of a certificate of deposit as part of a life assurance company’s income, calculated on the I – E basis (see section 707), is not to mean that the gain is taxed as a trading receipt in the hands of the life company (see (3)). In other words, the gain remains chargeable under Schedule D Case IV.

Section 815 Taxation of income deemed to arise on certain sales of securities

What is the definition of “securities” and who is regarded as the owner of securities?

(1) This section applies to securities: Irish government stocks (gains on the disposal of which are exempt undersection 607 from capital gains tax) and other government and corporate bonds (but not company shares).

The owner of a security is the person who would be entitled to the redemption proceeds if the security were redeemed at that time.

This section counters “bond washing” as practised by persons trading in government gilts. A person could avoid paying tax on the interest accrued on a government security by selling the security immediately prior to the payment date. The capital payment received for the security would include the accrued interest. As the entire payment was exempt from capital gains tax (section 607), by selling at a particular time, the security holder could convert accrued income into an exempt capital gain.

What rules apply on disposal of a security where interest becomes payable to another person?

(2) Where the owner of a security disposes of it in such circumstances that the interest due becomes payable to another person, then:

(a) the interest is deemed to have accrued on a day-to-day basis since he/she acquired the security, and

(b) he/she is charged to tax under Schedule D Case IV on the interest calculated to have accrued up to the disposal contract date, or the payment date, whichever is later.

The deemed interest on which he/she is charged to tax may be reduced, to the extent that he/she has already been charged to tax on that interest as income.

If he/she collusively arranges to buy back the security or acquire an option to do so, he/she is charged on the interest accruing up to the next payment date.

If, having bought back the security, he/she later disposes of it, there is a minimum charge. He/she charged on not less than the interest accruing up to the next payment date.

Example

On 1 January 2009, you buy €50,000 worth of government securities. Interest on government securities is paid at intervals of six months.

Assume that the interest payment due on 30 June 2009 is €2,000. You can sell the certificate on 29 June 2009, for €52,000; the price reflecting the buyer’s entitlement to collect the interest payment.

The interest element contained in the sale price is a part of the overall capital receipt, and is therefore exempt from capital gains tax (section 607). In the absence of legislation, it is not liable to income tax.

This section ensures that you are taxed on 180/181sts of the gain (€1,989) under Schedule D Case IV.

Assume that you sell the security to X for €52,000 on 29 June 2007 and buy it back on 1 July 2009 for €50,000. The interest accrued from 1 July 2005 to 31 December 2005 (the next payment date) is deemed to accrue to you, even if you dispose of it on 2 July 2009.

(2)(b) cannot operate to reduce the Case IV chargeable figure to a figure less than nil so as to create a loss (Revenue Precedent CTF 355, 10 July 1992).

In what cases do the “bond washing” rules not apply?

(3) These “bond washing” rules do not apply if any of the following conditions are met:

(a) The security has been continuously held by the same owner for the two year period ending on the disposal contract date, or payment date, whichever is later.

In this context, a continuous period of ownership by a deceased person and his/her personal representatives is regarded as ownership by the same person.

(b) The security is disposed of in the course of business by a security dealer whose trading profits are taxed under Schedule D Case I.

(c) The owner is an undertaking for collective investment (section 738), and the gains or losses accruing are chargeable gains or allowable losses as appropriate, i.e., are not trading profits.

(d) In the case of a married couple jointly assessed to tax, a disposal from one spouse to the other. In this context, a continuous period of ownership by either spouse is regarded as ownership by the same person.

(e) The interest on the security is treated as a distribution (section 133).

Undertakings for collective investment are taxed at the standard rate of income tax on an annual deemed disposal and reacquisition of their assets. This system taxes the overall growth in value of the undertaking’s assets, including government securities. The bond washing provisions do not need to apply to such undertakings, as their gains are taxed annually.

What if similar (but not the same) securities are reacquired?

(4) These rules could theoretically be avoided by selling, not the repurchased securities, but similar securities that had been held for some time (achieving an equivalent result). This subsection prevents the rules being circumvented in this manner. In such a case, the sale of the similar securities is treated as a sale of the repurchased securities.

What rules apply to identify the securities sold?

(5) Where similar securities were bought at different times, the sale is treated as coming from the latest purchase.

This is referred to as the Last In First Out (LIFO) rule.

What information may Revenue require?

(6) The Revenue Commissioners may write to someone who issues a security, as an agent, or as an owner of a security, requiring, within a specified period, any information they need to ascertain whether a person owes tax as a result of bond washing gilts.

Section 816 Taxation of shares issued in place of cash dividends

What is the difference between a company and a quoted company?

(1) A company means any body corporate.

A quoted company is a company whose shares are listed on a stock exchange or dealt in on the Irish stock exchange’s developing companies market, its exploration securities market, or a similar market of any other stock exchange.

How is a shareholder who opts to take more shares in lieu of a cash dividend taxed?

(2) A shareholder who exercises an option to receive additional shares in a company instead of a cash dividend, is taxed as if he/she had received the cash dividend.

Where the company paying the deemed dividend is non-resident, the deemed cash dividend is taxed as income from a foreign possession under Schedule D Case III.

Where the company paying the deemed dividend is a quoted company resident in the State, the deemed cash dividend is taxed as a normal dividend under Schedule F.

Where the company paying the deemed dividend is an unquoted company resident in the State, the deemed cash dividend is taxed as miscellaneous income under Schedule D Case IV.

Do other rules apply in relation to distributions?

(3) The payment must show the attaching tax credit (pre 6 April 1999: section 136) as it would in the case of a dividend.

What if an option is not directly exercised?

(4) This section also applies to an indirect exercise of an option within (2), however expressed, to acquire the additional shares.

In this regard, the abandonment of an option or the failure to exercise an option is treated as an indirect exercise of the option.

Section 817 Schemes to avoid liability to tax under Schedule F

Can income tax be avoided by liquidating a company and extracting the accumulated profits?

(1) This section applies to a disposal (transfer of ownership) or part disposal of shares. In this context, sharesincludes loan stock, debentures, and rights, or options to shares, loan stock or debentures.

Where the business of a close company (the transferor) is taken over by a successor close company (the transferee), and shares in the transferee are given in exchange, in the same proportion as the holdings in the transferor an original shareholder is treated as having disposed of his/her shares in return for the new company shares.

A shareholder’s interest in the specified business carried on by a transferor company is not regarded as significantly reduced after a disposal of shares if he/she remains entitled to the same percentage of the transferor company’s:

(a) ordinary share capital,

(b) profits (section 414) available for distribution to its equity holders (section 413), or

(c) assets available for its equity holders on a notional winding up (section 415).

In deciding whether an interest is significantly reduced, the interest is deemed:

(i) to include the interests of connected persons (for example, family members),

(ii) not to have been reduced if, in a holding company, the shareholder’s interest in the subsidiary’s business is not significantly reduced,

(iii) not to have been reduced if the gain realised is attributable to payments or value transfers to the company from another company controlled by the shareholder and his/her connected persons,

(iv) not to have been reduced in the case of a contrived disposal to an artificial trust structure, i.e., if it would be treated as reduced:

(I) by treating the shareholder as beneficially entitled to shares held under discretionary trust,

(II) the trustees acquired those shares on disposal by him/her, and

(III) the trustees acquired their shares with financial assistance from companies controlled by him/her and his/her connected persons.

Where the share disposal proceeds are paid in the form of other assets (i.e., other than cash), market value (the price those assets might reasonably obtain if sold in the open market) is used to put a cash value on the disposal proceeds.

The holding of cash by a company is deemed to be the carrying on of a business, irrespective of how that cash was acquired by the company.

Example

1. X Ltd, owned by you and Q (50 shares each), is liquidated, and both you and Q receive €1m for your shares, paying 25% CGT. Y Ltd, owned by your spouse and Q’s spouse (50 shares each), continues the trade formally carried on by X Ltd. The disposals by you and Q are caught for income tax, as people connected with you are continuing the trade.

2. W Ltd, a holding company owned by you and Q (50 shares each), is liquidated. Its subsidary, X Ltd, is now directly owned by you both. Disposing of your shares in W Ltd. is caught for income tax, as you have not reduced your holding in the subsidary, X Ltd, which is continuing the trade.

3. X Ltd, owned by you and Q (50 shares each) is liquidated. You both receive €1m for your shares, paying 25% CGT. You transfer your €750,000 balance to your spouse, and Q transfers his €750,000 balance to his spouse. The spouses are trustees of a discretionary trust holding the shares in Y Ltd. – which carries on the trade.

To what type of arrangements does this section apply?

(2) This section applies to tax avoidance schemes, involving a close company, designed to convert accumulated shareholders’ income (that is available for distribution and would be taxed under Schedule F) into a capital receipt.

To types of share transactions do these regulations apply?

(3) This section applies to a disposal of shares in a close company that has carried out a tax avoidance scheme by a shareholder whose interest in the specified business carried on by that company or its successor has not beensignificantly reduced.

What happens if a disposal of shares is caught?

(4) The proceeds of such a disposal of shares (or, where new consideration was paid for the shares, the excess of the proceeds over the new consideration) are treated as a distribution by the close company at the time of the disposal.

Example

X Ltd, which has accumulated cash reserves of €1m, issues bonus redeemable preference shares to its shareholders, who then sell the shares to a colluding financial institution at a prearranged price. The bonus shares are then redeemed by X Ltd. at that price.

The capital gains tax on the gain realised by the shareholders is less than the income tax that might have been paid on a distribution of the reserves.

The redemption proceeds are treated as a distribution to the financial institution, with no attaching tax credit.

X Ltd. has accumulated cash reserves of €500,000 and no debts. The company’s profitable business is transferred to Y Ltd, leaving €490,000 cash in X Ltd. The shareholders of X Ltd. take pro-rata shareholdings in Y Ltd.

X Ltd. is then liquidated, and the €490,000 cash is allocated as a capital receipt among the company’s shareholders.

The €490,000 is treated as a distribution from X Ltd. to its shareholders.

Note

Y Ltd. could also be a “holding company” of X Ltd, or a 100% subsidiary of X Ltd.

What amount is to be treated as a distribution?

(5) The amount to be treated as a distribution (and taxed as Schedule F income of yours as a shareholder) may not exceed the capital receipt on the disposal of the shares, i.e., the amount which as a result of an avoidance scheme to convert accumulated undistributed income into such a receipt, would not otherwise be chargeable to tax in your hands.

A capital receipt after the time of disposal is treated as a distribution (made by the company to you at the time of the disposal) to the extent that, the aggregate capital receipts up to that time do not exceed the total capital receipt on the disposal of the shares.

Interest and penalties on tax due in respect of a distribution within (4) apply from the date on which you received the capital receipt.

Is there a “bona fide” exception?

(7) Yes. These rules do not apply where the disposal of shares is made for bona fide commercial purposes and not as part of a tax avoidance scheme.

This legislation counteracts various schemes to avoid income tax on a company distribution by a close company transferring the company’s business to another close company, placing the transferor company in voluntary liquidation and taking any surplus available to shareholders as a capital receipt. The capital receipt would be exempt from income tax under Schedule F, although the gain in the value of the shares would be liable to capital gains tax.

The section taxes the capital receipt as Schedule F income.

Section 817A Restriction of relief for payments of interest

When can relief for interest be denied?

(1) Relief for interest paid, including relief for interest treated as a charge (section 243) is not to be given to you in relation to a transaction if:

(a) a scheme has been effected, or arrangements have been made, and

(b) the main benefit that might accrue from the transaction is a reduction in income tax liability as a result of such relief.

How does the rule apply to a group member surrendering excess charges?

(2) A member company of a 75% group may surrender its “current” (i.e., not carried forward) excess charges for set off against profits of a claimant company in the same group (see section 420(6)).

In a group situation, the question of whether a benefit accrues from a transaction is to be determined by reference to the surrendering company and the claimant company taken together.

Section 817B Treatment of interest in certain circumstances

What is meant by the “chargeable period” and the “basis period”?

(1) A chargeable period means an income tax basis period, or a corporation tax accounting period, as appropriate.

The basis period for an income tax year is the period the profits or gains of which are used to compute an income tax liability. The commencement (section 66) and cessation rules (section 67) allow basis periods to overlap.

Where two basis periods overlap, the overlap belongs to the first basis period. If two basis periods coincide, or if one basis period is wholly included inside the other, the periods overlap.

If there is a gap between two basis periods, unless the second year is the year in which the trade permanently ceases, the interval belongs to the second basis period.

How is interest taken into account if received earlier than due?

(2) Interest received by a lender in a chargeable period earlier than the chargeable period in which the interest would otherwise accrue, is to be taken into account as income in the earlier period (and not in the later period).

Section 817C Restriction on deductibility of certain interest

What definitions apply in relation to restrictions on the deductibility of certain interest?

(1) A chargeable period means an income tax basis period, or a corporation tax accounting period, as appropriate.

The basis period for an income tax year is the period the profits or gains of which are used to compute the income tax liability. The commencement (section 66) and cessation rules (section 67) allow basis periods to overlap.

The relevant date of a chargeable period is the date on which that period ends.

A relevant liability means a liability owed by one person to another.

How are schemes involving the mismatch of interest paid and interest received counteracted?

(2) This is an anti-avoidance section which counteracts a scheme involving the mismatch of interest paid and interest received. It applies where:

(a) interest that would normally be chargeable to tax under Schedule D in the hands of the recipient is payable from one person to a connected person,

(b) that interest would be tax-deductible to the payer,

(c) the interest is not treated as trading income of the recipient (and therefore escapes tax).

Are there exceptions to these rules?

(2A) This subsection was introduced to eliminate certain unforeseen consequences of section 817C. It disappliessection 817C where the recipient of the interest is a non-resident company that is not controlled by Irish residents.

What are the consequences of section 817C being applied?

(3) Where this section applies, the interest deduction is denied to the person paying the interest to the extent that it exceeds the interest brought into charge as income of the receiver of the interest. In other words, if there is a mismatch between the interest deduction and the interest charge, the benefit gained by the mismatch is denied.

Example

The section counters the following type of transaction:

Your company writes a cheque for €2m interest payable, to Company X (a connected company) on 31 December 2008.

Your company gets a tax deduction of €2m in its accounting period ended 31 December 2008 (at 16%).

Company X receives the €2m on 3 January 2009.

Company X pays tax on the €2m in its accounting period ended 31 December 2009 (at 12.5%).

Your company is now denied the deduction because there is a mismatch between the interest payable by it and the interest receivable by X.

Can a deduction which is denied ever be used?

(4) An interest deduction denied by (3) is allowed in the following chargeable period.

Example

Continuing with the previous example, your company is allowed the deduction in 2009 if there is no mismatch between the interest payable by it and the interest receivable by X.

Are these rules avoided where there is an intermediate third party?

(5) The anti-avoidance rule in (3) applies even where the interest is payable from the first person to a non-connected person who then forwards it to a second person.

Example

Continuing with the example to (3), your company (first person) pays the interest to Company Y (unconnected with you) and Company Y pays the interest to Company X (second person). The anti-avoidance rule applies.

Section 817D Interpretation and general (Chapter 3)

What definitions apply to mandatory disclosure of tax transactions?

(1) This section requires a promoter or marketer of a disclosable transaction (one which results in a tax advantage) to provide specified information regarding the scheme to Revenue within a specified period.

A promoter, in this regard, means a person who in the course of carrying on a relevant business (i.e. providing tax or financial services):

(a) is responsible for designing a disclosable transaction,

(b) makes a marketing contact in relation to a disclosable transaction,

(c) makes the disclosable transaction available for implementation by others, or

(d) is responsible for the organisation or management of disclosable transactions.

What is specified information?

(2)(a) Specified information is such information as may be necessary to enable a Revenue officer to understand a disclosable transaction, including reference to these disclosure provisions, a summary of the transaction, full reference to relevant statutory provisions and full details of the disclosable transaction and the opinion of the person making the disclosure as to how the statutory provisions apply to the transaction.

(b)(i) where the disclosure is made by a promoter, the name, address, tax reference number and telephone number of the promoter must be supplied;

(ii) where the promoter is offshore the name, address, tax reference number and telephone number of the person required to make the disclosure and the name, address and telephone number of the promoter;

(iii) in any other case (where there is no promoter) the name, address, tax reference number and telephone number of the person making the disclosure.

Section 817DA References to ‘specified description’ — classes of transaction for purposes of that expression

What is a disclosable transaction?

(1) A disclosable transaction is one that falls within a specified description as set out in the following subsections.

What are “specified descriptions”?

Confidentiality.

(2) Confidentiality is a specified description where a promoter would wish to keep details of a transaction confidential from Revenue so that it or similar transactions might be repeated, Revenue might be prevented from using information about the transaction to enquire into a return or to prevent Revenue from using information about the transaction to deny any form of relief.

It also applies where a promoter wishes to keep details of a transaction confidential from any other promoter in order to maintain competitive advantage.

Premium fees.

(3) A transaction falls within a specified description if the promoter or a connected person could expect a premium fee for it. A premium fee is one which is attributable to a tax advantage derived from the transaction or which is contingent on obtaining a tax advantage.

Standardised schemes.

(4) These are schemes that use standardised documentation and involve standardised steps and are made available to more than one person.

Losses for individuals.

(5) This applies to schemes for individuals where as a result of the transactions the individuals can expect to have losses that reduce their liability to income tax or capital gains tax.

Losses for companies.

(6) This applies to schemes that enable a company with unrelieved losses to transfer them to another company to reduce its corporation tax or that enable a company to reduce its own corporation tax liability.

For this purpose unrelieved losses are losses that would not arise but for the transaction or scheme.

Employment schemes.

(7) This applies to transactions that result in a reduction or deferral of employment taxes for either an employer or an employee.

Income converted to capital.

(8) This applies to transactions which convert income to capital so that what would have been an income tax liability becomes a capital gains tax liability.

Income converted to a gift.

(9) This applies to transactions that result in income being treated as a gift so that income tax is lower or nil and the person is deemed to take a gift for CAT purposes.

Discretionary trusts.

(10) This applies when a party to a transaction is a trustee of a discretionary trust.

Section 817E Duties of promoter

What are the duties of a promoter as regards disclosable transactions?

A promoter must, 5 days of the specified date, provide Revenue with specified information in relation to the transaction and must within 5 days of the receipt of a transaction number from Revenue provide it to persons to whom the transaction was made available or, if earlier, within 5 days of making the transaction available.

Section 817F Duty of person where promoter is outside the State

Who is subject to mandatory disclosure if the promoter is outside the State?

If the promoter is outside the Republic of Ireland (ROI), any person who enters into any transaction forming part of a disclosable transaction must, within the specified period, provide Revenue with specified information relating to the transaction.

Section 817G Duty of person where there is no promoter

Who is subject to mandatory disclosure if there is no promoter?

If there is no promoter, any person who enters into any transaction forming part of a disclosable transaction must, within the specified period, provide Revenue with specified information relating to the transaction.

Section 817H Duty of person where legal professional privilege claimed

When is a party to a transaction subject to mandatory disclosure?

(1) If the promoter of a transaction does not provide the specified information, any person who enters into any transaction forming part of a disclosable transaction must, within the specified period, provide Revenue with specified information relating to the transaction.

How does professional privilege affect mandatory disclosure?

(2) A promoter who claims professional privilege as the basis for not providing specified information to Revenue must, within the specified period, provide Revenue with specified information in relation to the transaction.

Must a promoter who claims professional privilege in relation to mandatory disclosure inform Revenue?

(3) Yes.

Section 817I Pre-disclosure enquiry

Can Revenue issue a pre-disclosure enquiry notice?

(1) Revenue can issue a pre-disclosure enquiry notice to a person who they believe

(a) is a promoter,

(b) has entered into a transaction that may form part of a disclosable transaction.

The notice will require the recipient to State:

(i) whether he/she believes a transaction is a disclosable transaction, and

(ii) the reason, if any, as to why the transaction is not disclosable.

What information must a pre-disclosure enquiry notice contain?

(2) A pre-disclosure enquiry notice must specify the transaction to which it relates.

What information must a person provide if he believes a transaction is not disclosable?

(3) The statement of reasons mentioned in (1)(ii) must demonstrate why the person believes the transaction is not disclosable. The reasons must provide sufficient information to enable Revenue to confirm whether or not a transaction falls within a specified description.

Is a legal opinion sufficient grounds for stating that a transaction is not disclosable?

(4) No.

What is the time limit for complying with a pre-disclosure enquiry?

(5) A person who has been issued with a pre-disclosure enquiry notice must comply within the time limit specified in the notice – generally within 21 days from the date of the notice, or a longer period allowed by Revenue.

Section 817J Legal professional service

Is a promoter obliged to disclose information which is subject to legal privilege?

A promoter is not required to disclose information if a claim to legal privilege could be sustained in respect of such information.

Section 817K Supplemental information

Can Revenue require a person to provide supplementary information?

(1) If Revenue have reasonable grounds for believing that you have not provided all the specified information, they may, by written notice, require that you provide the information (as specified in the notice) they believe is missing.

Section 817L Duty of marketer to disclose

Can Revenue require a marketer of a tax avoidance scheme to provide information?

(1) Revenue can issue a notice to a marketer requiring that person to provide them with the name, address and PPS number for each person who has information in relation to the transaction.

What information must be contained in a notice to a marketer?

(2) A notice to a marketer must specify the transaction to which it relates.

What is the time limit for complying with a notice to a marketer?

(3) Where a marketer has been issued with a notice, he/she must comply within the time limit specified in the notice – generally within 21 working days from the date of the notice, or a longer period allowed by Revenue.

What information must a marketer who does not have the transaction number provide?

(4) Where a marketer of a scheme that might reasonably be considered a disclosable transaction has not be provided with the transaction number by the promoter the marketer must, within 30 days of first marketing the scheme, provide Revenue with the name and address of the promoter, details of the transaction and all material used in marketing it.

The provision of this information is without prejudice to whether or not the transaction is a disclosable transaction.

Section 817M Duty of promoter to provide client list

In what circumstances must a promoter provide Revenue with a client list?

(1)(a) A promoter must, as regards each disclosable transaction, within 30 days of first making it available or of therelevant date, provide Revenue with a client list stating the name, address and PPS number for each person to whom he/she has made the transaction available for implementation, and

(b) within 5 days of the end of every quarter thereafter.

Must the names of clients who have not availed of a scheme be disclosed?

(2) Client details need not be disclosed to Revenue if the promoter is satisfied that the transaction has not been undertaken by the client.

When is the quarterly client list not required?

(3) The quarterly update is not required if the promoter has not made the disclosable transaction available during the quarter or has already provided a list but has no new clients since the previous list.

Must all client names be included in every list?

(4) No. Where a name has already been provided it need not be included in subsequent quarterly lists.

Section 817N Supplemental matters

Is information provided by a promoter to Revenue “without prejudice”?

(1) If a promoter provides Revenue with specified information together with the client list in respect of a disclosable transaction, the provision of such information is without prejudice as to whether it is a tax avoidance transaction under section 811C.

Is information provided by a non-promoter “without prejudice”?

(2) If a non-promoter provides Revenue with specified information together with the client list in respect of a disclosable transaction, the provision of such information is without prejudice as to whether it is a tax avoidance transaction under section 811C.

Does the provision of information to Revenue count as a protective notification for tax purposes?

(3) Where a person provides Revenue with specified information in respect of a disclosable transaction, the provision of such information is not regarded as equivalent to a protective notification (section 811A or 811D]NIL).

Does a mandatory disclosure prevent Revenue from treating a transaction as a tax avoidance transaction?

(4) The rules relating to mandatory disclosure of tax avoidance transactions do not prevent Revenue from enquiring into such transactions.

Section 817O Penalties

What penalties apply for non compliance with the mandatory disclosure rules?

(1) A penalty of €4,000 applies (together with a penalty of €100 for each day the failure continues after a penalty has been imposed) where a person fails to:

(a) as a promoter claiming professional privilege, provide Revenue with specified information, (section 817H(2)),

(b) as a promoter, provide Revenue with specified information, (section 817H(3)),

(c) duties of a person who obtains a tax advantage ( 817HA not found)

(d) provide information in response to a pre-disclosure enquiry, (section 817I),

(e) provide supplemental information in relation to a mandatory disclosure notice (section 817K(1)),

(f) provide documents etc. relating to a disclosable transaction (section 817K(2)),

(g) as a marketer, provide Revenue with information requested (section 817L),

(h) as a promoter, provide Revenue with a client list (section 817M).

A penalty of €500 applies for the initial period (together with a penalty of €500 for each day the failure continues after a penalty has been imposed) where a person fails to:

(a) provide Revenue with specified information (section 817E),

(b) as a party to a transaction (where the promoter is outside Ireland), provide Revenue with specified information (section 817F),

(c) as a party to a transaction (if there is no promoter), provide Revenue with specified information (section 817G),

(d) as a party to a transaction (where the promoter fails to provide the specified information to Revenue), provide Revenue with such information (section 817A(1)).

A penalty of €5,000 applies to a failure to comply with anobligation under section 817HA(3).

What is meant by the “initial period” and the “relevant day”?

(2) The relevant day is the first day after the specified period (i.e. the time within which specified information must be provided to Revenue – section 817Q).

The intiial period is the period beginning on the relevant day and ending on the day on which Revenue apply to court for a penalty to be imposed (see (3)).

Must Revenue apply to the court to determine if a person has failed to comply with the mandatory disclosure rules?

(3) Yes – if Revenue wish to have a penalty imposed on a person, they must apply to the relevant court (District Court, Circuit Court, High Court) to determine whether the person has not complied with the relevant legislation.

Must Revenue provide the person with a copy of the court application?

(4) Yes.

Who determines whether a person is in breach of the penalty provisions?

(5) The relevant court (see (3)) must determine whether the person is liable to a penalty, and the amount of such penalty.

What factors must the court take into account when determining the penalty amounts?

(6) In determining the amount of penalty to be applied, the court must have regard to:

(a) in the case of a promoter, the fees receivable by him/her,

(b) in any other case, the tax advantage to be gained from the transaction.

Do the provisions relating to recovery of penalties apply to penalties within (1)?

(7) Yes.

Section 817P Appeal Commissioners

Can Revenue apply to the Appeal Commissioners for a determination on matters relating to mandatory disclosure of tax avoidance transactions?

(1) Revenue may, by written notice, apply to the Appeal Commissioners to make a determination as follows:

(a) requiring information or documents in support of a statement of reasons (section 817I),

(b) requiring information that Revenue believe is missing from the specified information (section 817K(1)),

(c) requiring additional information and documents relating to a disclosable transaction (section 817K(2)),

(d) that a transaction is to be treated as a disclosable transaction, or

(e) that a transaction is a disclosable transaction.

What action must the Appeal Commissioners take on hearing an application?

(2) In relation to (1)(a), after considering the matter, the Appeal Commissioners must order that the information or documents should (or should not) be made available.

In relation to (1)(b), after considering the matter, they must order that the information or documents should (or should not) be made available.

In relation to (1)(c), after considering the matter, they must order that the information or documents should (or should not) be made available.

In relation to (1)(d), after considering whether Revenue have taken all reasonable steps to establish whether a transaction is disclosable, and have reasonable grounds for believing it to be disclosable, they must order that the transaction is (or is not) to be treated as a disclosable transaction.

In relation to (1)(e), they must order that the transaction is (or is not) a disclosable transaction.

What are “reasonable steps” and “reasonable grounds” in deciding whether a transaction is a disclosable transaction?

(3) Reasonable steps may include the making of a pre-disclosure enquiry or Revenue making an application requiring information or documents in support of a statement of reasons (see (1)(a)).

Reasonable grounds may include:

(i) the fact that a transaction falls within a specified description (section 817D(2)),

(ii) an attempt by the promoter to avoid or delay providing information,

(iii) failure of the promoter to comply with a pre-disclosure enquiry, or a determination of the Appeal Commissioners regarding information or documents in support of a statement of reasons (see (1)(a)).

How is the application for a determination by the Appeal Commissioners to be heard?

(4) The Appeal Commissioners should hear the application as if it were an appeal against an assessment to income tax.

When must information be provided on foot of an Appeal Commissioners determination?

(5) When the Appeal Commissioners make a determination that documentation or specified information in relation to a disclosable transaction should be provided to Revenue that must be done within 5 days of the determination..

Section 817Q Regulations (Chapter 3)

Can Revenue make regulations in relation to mandatory disclosure of tax avoidance transactions?

(1) Revenue may make regulations which:

(h) specify the circumstances in which a person will not be treated as a promoter in relation to a disclosable transaction,

(i) specify the procedure to be adopted in giving effect to the mandatory disclosure of tax avoidance transactions, and

(j) specifying transactions that are not disclosable.

Can the regulations specify the class of transactions to which they will apply?

(2) Yes.

Must the regulations be laid before Dáil Éireann?

(3) Yes – the regulations must be laid before, and passed by, Dáil Éireann.

Section 817R Nomination of Revenue Officers

Can the Revenue Commissioners delegate their powers?

Yes – Revenue may delegate their powers in relation to mandatory disclosure of tax avoidance transactions to Revenue officers.

Section 818 Interpretation (Part 34)

What interpretation rules apply in relation to the residence of individuals?

For the rules regarding charging and assessing of non-residents, see sections 10321043.

The rules contained in this Part for determining residence apply to income tax, corporation tax, capital gains tax, and capital acquisitions tax.

An individual is regarded as present in the State if he/she is personally physically present in the State.

Residence determination

An authorised officer may make such a determination (previously, the officer had to be authorised in writing).

Section 819 Residence

How is residence in the State determined?

(1) An individual is resident in the State for a tax year if who is present in the State:

(a) in the current tax year for an aggregate of 183 days or more, at different times or at one time, or

(b) in the current and preceding tax year for an aggregate of 280 days or more.

These two straightforward tests are used to determine whether you are resident in the State for tax purposes.

The effect of this test is that residence is established where there is an average presence of 140 days in the State on an ongoing basis. Similarly, it is possible to be present in the State for up to 139 days each year and remain non-resident (Revenue Residence Manual, 3.1).

See also section 71, which allows an individual not domiciled in the State to be chargeable in respect of foreign source income only in so far as that income is remitted to the State.

Can any periods be ignored?

(2) A period of not more than 30 days, in aggregate, spent in the State in a tax year tax year can be ignored when performing a 280 day test for the tax year and the preceding tax year.

Example

The physical presence of various individuals in the State for two tax years is as follows:

Number of days
Individual 2009 2010 Total
A 190 20 210
B 190 80 270
C 180 190 370
D 120 110 230

A is resident for 2009 as she was present for 190 days, i.e., more than 183 days in that year. She is not resident for tax year 2010 as she was present for 20 days, i.e., less than 183 days. As her presence in 2010 was 20 days, i.e., less than 30 days, no 280 day test is necessary.

B is resident for 2009 as he was present for 190 days, i.e., more than 183 days. He is not resident for tax year 2010 using the 183 day test as his presence was 80 days which is less than 183 days. However, as he was present in 2010 for more than 30 days, a 280 day test is performed. Since he was resident for only 270 days in 2009 and 2010, he is not resident in 2010.

C is not resident for 2009 as he was present for less than 183 days. He is resident for tax year 2010 using the 183 day test as his presence was 190 days which is more than 183 days.

D is not resident for 2009 as she was present for less than 120 days, i.e., less than 183 days. She is not resident for the tax year 2010 using the 183 day test as her presence was 110 days which is less 183 days. She is not present for 2010 using the 280 day test as her presence over 2009 and 2010 was 230 days which is less than 280 days.

Is it possible to elect to be resident?

(3) A non-resident may elect to be treated as resident for a tax year if he/she satisfies an authorised Revenue official that he/she intends to be resident in the State in the following tax year.

How is presence in the State for a day determined?

(4) For 2009 and later tax years, an individual is treated as present in the State for a day if he/she is present for any part of the day. For previous years, an individual was treated as present in the State for a day if present at the end of that day.

For 2008 and previous years, an individual was treated as present for the day of arrival in the State, but not for the day of departure (unless arrival and departure were on the same day).

Judge 13.502

Residence and domicile, Deirdre Keegan, Institute of Taxation Seminar, June 1995

New residence rules Finance Act 1994, Deloitte & Touche, Irish Tax Review, May 1994

New residence rules, Deirdre Keegan, Irish Tax Review, November 1994

Revenue Residence Manual

Section 820 Ordinary residence

Who is ordinarily resident in the State?

(1) An individual is considered to be ordinarily resident in the State for a tax year if he/she was resident for the three immediately preceding tax years.

When does ordinary residence cease?

(2) An individual ceases to be ordinarily resident if he/she has been non-resident for the three immediately preceding tax years.

Example

You were resident in the State for 2006, 2007 and 2008. You left on 31 December 2008.

You are regarded as ordinarily resident for 2009, as you were resident for the three immediately preceding tax years (2006, 2007, 2008).

You only cease to be regarded as ordinarily resident in 2012, when you will have been non-resident for the three immediately preceding tax years (2009, 2010, 2011).

Ordinary residence is a term used to describe a person’s habitual pattern of life; it indicates residence with some degree of continuity in a particular country.

Ordinary residence is an important concept for capital gains tax purposes. Persons who are domiciled and ordinarily resident in the State are chargeable to capital gains tax on their worldwide disposals of assets (section 29).

Section 821 Application of sections 17 and 18(1) and Chapter 1 of Part 3

How does ordinary residence affect tax liability?

(1) A non resident but ordinarily resident individual is treated as resident resident in the State, but not as regards:

(a) a trade or profession carried on wholly outside the State,

(b) an office or employment, the duties of which are performed outside the State,

(c) other (foreign) income which does not exceed €3,810 in the tax year.

Example

For 2006, 2007 and 2008, you worked as a doctor in Saudi Arabia. Although you were non-resident for these years, you are regarded as ordinarily resident for them. You are not liable to Irish tax on your employment (or professional) income as a doctor. You are liable to income tax on any investment income earned abroad (for example, deposit interest on your savings) in excess of €3,810.

The €3,810 limit applies to other foreign income: Tax Briefing 25.

An ordinarily resident individual may have Irish fiscal domicile, i.e., may be a resident of Ireland for the purposes of a double tax treaty. This is subject to tie breaker rules provided there is a “fiscal domicile” article in the relevant tax treaty.

What determines if an employment is “foreign”?

(2) If some incidental duties are performed in the State, this does not prevent the employment from being regarded as foreign (Revenue Precedent RT364/94, 8 February 1995).

Section 822 Split year residence

What is the purpose of split year treatment (SYT)?

(1) These split year treatment (SYT) rules apply to a non-resident who comes to live and work as an employee in the State, or an Irish resident who emigrates from the State, during the course of a tax year (the relevant year).

In the absence of legislation, a resident (section 819) in the State in the transition year, would be taxed on his/her worldwide income for that year.

Note

SYT applies only to income from an employment. It does not apply to income from an office, for example, a directorship.

How can an arriving person avail of SYT?

(2) If a new arrival can satisfy an authorised officer that he/she will be resident in the State for the next tax year, he/she is treated as resident in the State from your arrival date. In other words, he/she is not taxed on foreign income earned in the part of the tax year before he/she arrived in the State.

Example

You arrived in Ireland on 6 June 2009 (i.e., in the tax year 2009) to work for three years in a Japanese company’s Irish subsidiary. You satisfy the inspector that you will be resident in the State for the tax year 2010.

For the tax year 2009, you are taxed on your Irish earnings from 6 June 2009. Your foreign earnings up to that date are ignored.

An individual who satisfies an authorised officer that he/she will not be resident in the State for the next tax year, is treated as resident in the State up to the departure date. In other words, he/she is not taxed on foreign income earned in the part of the tax year after departure from the State.

Example

You leave Ireland on 1 June 2008 and return 1 October 2009 (16 months). You do not qualify for split-year treatment in either year as you are resident in the State both tax years.

If you left Ireland on 10 December 2008 and return on 10 December 2009, you may apply for split-year treatment in 2009 (provided you do not elect to be resident for the tax year 2008).

You are an Irish resident who, on 6 November 2008 (i.e., in the tax year 2008), departed the State to work in Canada for three years in an Irish company’s Canadian subsidiary. You satisfy the inspector that you will not be resident in the State for the calendar tax year 2008.

For the tax year 2008, you are taxed on your Irish earnings to 6 November 2008. Your foreign earnings after that date are ignored.

See also: Inspector Manual 34.0.1.

(3) As all tax charging provisions are expressed in terms of a complete tax year, this deems the “Irish resident” part of a transitional tax year to be an entire tax year for the purposes of taxing such income.

Note

Return visits to Ireland for holidays do not affect the application of split year treatment, assuming that all other conditions are met (Revenue Precedent RT 301/94, 24 October 1994).

In a particular case, an individual came to Ireland on 1 July 1994 to take up employment with an Irish subsidiary of a German company. He worked here for one week and then spent the following three weeks in Germany, finally returning to Ireland in October 1994. It was decided that his date of arrival for split year purposes was 1 July, as he arrived in the State to take up employment with the intention and in such circumstances as to become permanently resident (Revenue Precedent RT205/94, 20 September 1994).

Non-resident partners

Non-residents are chargeable to Irish tax on income and profits from Irish sources. They are also chargeable on income from foreign sources in respect of a trade, profession, office or employment exercised in the State.

The income attributable to partnership net profits is assessed in the same ratio as the individual’s holding in the partnership. Each partner’s share of the profits or losses of the partnership is treated for tax purposes as if it were the profits or losses of a separate trade carried on by that person. In determining the net profits of the partnership, any expenses incurred for the purposes of the partnership may be allowed as a deduction against the gross profits. Citizens of Ireland are entitled to a proportion of personal tax credits in accordance with section 822 (Revenue Precedent, 10 October 1996).

Section 823 Deduction for income earned outside the State

This relief is generally known as the “foreign earnings deduction” (FED).

When does relief for income earned outside the State apply?

(1) Where an employee works outside the State for 90 days or more in a tax year (see (3)), or a continuous 12 monthrelevant period, part of which is comprised in a tax year, he/she is entitled to relief to the extent that the days abroad are spent in periods of at least 11 consecutive whole days at a time (qualifying days).

Example

10 days working in the UK are not qualifying days.

20 days spent abroad where 10 of these days are in the UK, are not qualifying days as it does not involve 11 continuous days outside Ireland and the UK.

20 days spent abroad where days 10, 11, and 12 are in the UK are not qualifying days. Even though 17 days were spent abroad, there is no continuous 11 day period.

Source: Revenue Residence Manual, 9.3 (updated)

Each such period of qualifying days must be substantially devoted to the performance of the employment duties.

The relief allows you to deduct the “foreign” proportion of your income (the specified amount) i.e., (D x E)/365

where:

D is the number of qualifying days for the particular employment in the tax year concerned, and

E is the amount earned from all offices, employments (including a foreign employment chargeable under Schedule D Case III) and pensions, after deducting pension contributions (section 774(7) and 787) but excluding:

(a) expense payments (section 118),

(b) car benefit in kind (section 121(2)(b)(ii)),

(c) preferential loan interest taxed as benefit in kind (section 122),

(d) termination payments (section 123),

(e) a restrictive covenant payment (section 127(2)),

(f) a gain arising on the exercise of an employee share option (section 128).

Example

1. You spend two separate 40 day periods working in France. You also spend one 35 day period working in Germany and a period of 60 days working in the UK. All these were within one tax year. The deduction is calculated as:

Employment earnings x (40+ 40+ 35)/365

The 60 days spent working in the UK are ignored in calculating the qualifying days, but the income from the UK employment is included in the employment earnings.

2. You spend two separate 40 day periods working in France. You also spend one 35 day period working in Germany and a period of 60 days working in the UK.

One of the French periods and the German period were within one tax year. The second French period was in the next tax year. The UK period fell partly into each tax year. All of the periods fell within a continuous period of 12 months.

The deduction for year 1 is calculated as follows:

Employment earnings x (40 + 35)/365

The deduction for year 2 is calculated as follows:

Employment earnings x (40/365)

Source: Inspector Manual 34.0.9

A fortnight that comprises one week’s work and one week’s holiday would not qualify.

“Qualifying days” are generally those days (i.e., midnight to midnight) where the individual is absent from the State for the purpose of performing the duties of the office or employment and which are part of a continuous period of absence of at least 11 days. (Tax Briefing 31, April 1998, Tax Briefing 40, June 2000).

What are the conditions for foreign earnings deduction (FED)?

(2) The following conditions apply to foreign earnings deduction:

(a) The relief only applies to private sector employments (including employments exercised by companies), i.e., non-public sector employments.

(b) This relief does not apply to:

(i) foreign source income taxed on the remittance basis (section 71(3)),

(ii) income from an employment exercised in the UK or Northern Ireland, or

(iii) income relieved under the split year residence rules (section 822).

The relief does not therefore apply to a public servant, semi-State employee or army worker.

Note

The income received by an individual employed by Eurocustoms (Phare Programme) qualifies, provided all other conditions are satisfied: (Revenue Precedent RT/331/96, 23 September 1996).

Interaction of split year treatment and foreign earnings deduction

An individual is entitled to split year treatment and a deduction for foreign earnings for the same year in respect of different employments: Inspector Manual 34.0.1

Do special rules apply to a seafarer?

(2A) The exclusion at (2)(b)(ii) would prevent a seafarer from obtaining the foreign earnings relief if his/her ship visited a UK port during an 11 day period of qualifying days.

Therefore, to ensure the relief is not denied in such a case, the exclusion is not to apply if his/her ship visits a UK port while en route to a foreign (non-Irish and non-UK) port.

What relief is available on “foreign” income?

(3) A resident who, on making a claim for a tax year, satisfies an authorised officer that:

(a) his/her employment duties are carried out wholly or partly abroad, and

(b) he/she has spent at least 90 qualifying days of a tax year (67 days as regards the short tax year 2001), or of a relevant period abroad,

is entitled, when calculating his/her income, to deduct the lower of:

(a) the “foreign” portion (i.e., the specified amount) of his/her employment income,

(b) the income from the office or employment(s) in question,

subject to a maximum of €31,750 for 2002 and later tax years.

Where a deduction in respect of foreign earnings is due in respect of income from an office or employment exercised in a treaty partner State, the foreign earnings will normally have been taxed in that State. Double taxation relief will be due in respect of tax paid on that income in the treaty partner State.

Income chargeable under section 128 (employee share options) should be included as an emolument for the purposes of calculating the foreign earnings deduction.

Example

1. You are a director of a design company that installs Irish pubs throughout the world.

In the tax year 2003, your salary from the company was €60,000, and you had no other income.

You spent 110 days of the tax year outside the State, of which 70 were qualifying days.

Your income for tax purposes is therefore:
Gross salary 60,000
FED relief €60,000 x (70/365) 11,506
48,464

2. Assume your salary was €90,000 instead of €60,000, and that you had 140 qualifying days:

Your income for tax purposes is therefore:
Gross salary 90,000
FED relief €90,000 x (140/365) = €34,520 restricted to 31,750
58,250

Can expenses be included as earnings for this calculation?

(4) This is an anti-avoidance provision. Employee expenses that are incurred wholly, exclusively and necessarily in the performance of an employment, which are reimbursed, must not be included as earnings when calculating the relief.

Example

Take the facts of Example 1 to (3). Assume your legitimate, reimbursed, expenses for the year were €10,000. The relief may not be calculated on the following basis:

Gross salary 70,000
Relief (70/365) x €70,000 (€60,000 €10,000 expenses) 13,424
56,576

Section 823A Deduction for income earned in certain foreign states

What is the new foreign earnings deduction?

(1) The new foreign earnings deduction gives tax relief to the holder of a relevant office or employment, i.e., an employment part of the duties of which are performed in Brazil, China, India, Russia or South Africa (a relevant state) and, for 2013, Egypt, Algeria, Senegal, Tanzania, Kenya, Nigeria, Ghana and the Democratic Republic of the Congo, and for 2015, Japan, Singapore,South Korea, Saudi Arabia, UAE, Qatar, Bahrain, Indonesia, Vietnam, Thailand,Chile, Oman, Kuwait, Mexico and Malaysia. The relief is given as a deduction from the employee’s total income. The deduction (the specified amount) is calculated as (D X E) / F where

D is the number of qualifying days spent in a relevant state, provided each day is one of four consecutive days spent in the state,

E is the individual’s employment income, including share options, and after deducting relief for pension contributions, but excluding:

(a) expenses treated as benefit in kind,

(b) a benefit in kind consisting of the use of a car,

(c ) a perquisite,

(d) a termination payment,

(e) income arising under a restrictive covenant.

F is the number of days in the tax year that individual has held the relevant office or employment.

What conditions must be met to qualify?

(2)The claimant must:

(a) be a director of a company chargeable to Irish corporation tax (or which would be so chargeable if it were resident in the State) which carries on a trade or profession,

(b) be employed in a non-public sector job.

In addition, the income from the employment must not be chargeable to tax on the remittance basis, or be income which qualifies for employee R & D tax credits or residence-related reliefs.

How many days must be spent outside Ireland to qualify?

(3) At least 40 qualifying days in a year, are required to claim a deduction for the specified amount, but such deduction cannot exceed €35,000.

Can expenses qualify for foreign earnings deduction?

(4) No.

Can double taxation relief be claimed on the proportion of the income taxed in the foreign state?

(5) Yes, but the specified amount is reduced by the amount of such income – effectively removing any double relief.

For what years does the relief apply?

(6) The relief runs to 2017 inclusive.

Section 824 Appeals

Can a Revenue decision in relation to residence be appealed?

(1) A decision of the Revenue Commissioners as to residence may be appealed to the Appeal Commissioners in writing within two months of the date of receipt of notice of the decision.

What may be appealed: election to be treated as resident, split year treatment (section 822), foreign earnings deduction (section 823) (Revenue Residence Manual, 11.2).

How is such an appeal conducted?

(2) The Appeal Commissioners must hear and determine such an appeal in the same manner as appeal against an income tax assessment. There is a right, where necessary, to have the case reheard by a Circuit Court Judge. There is also a right to have a case stated for the opinion of the High Court on a point of law.

Section 825 Residence treatment of donors of gifts to the State

Amendments

Section 825 spent as of 4th February 2010.

Section 825A Reduction in income tax for certain income earned outside the State

To whom does tax relief on income earned outside the State apply?

(1) This relief applies to a qualifying individual, i.e., an individual who is employed in a tax treaty country for a continuous period of not less than 13 weeks, and who has paid that country’s income tax on the employment income in question.

The relief applies only to private sector employments (including employments exercised by companies), i.e., non-public sector employments. It includes directorships.

By far the largest category to benefit are cross-border workers who commute daily to work in Northern Ireland. A person who works in the UK or elsewhere also benefits. The relief applies not only to cross-border workers but also to trans-border workers.

Where does the relief not apply?

(2) The relief does not apply to:

(a) foreign source income taxed on the remittance basis (section 71(3)),

(b) income that is relieved under the split year residence rules (section 822),

(c) income paid to a director who can control more than 15% of the ordinary share capital of a private company (i.e., a proprietary director), or his/her spouse, by the company he/she owns or controls.

The relief does not therefore apply to a public servant, semi-State employee, army or navy worker.

What is the limit on my tax liability for a tax year?

(3) When computing the income tax liability of a qualifying individual for a tax year, the liability may not exceed the specified amount, i.e., the tax payable on his/her Irish income, excluding the part of the income arising from the foreign employment. The limitation on tax payable, is calculated by the formula

A  x  B
C

where-

A is the tax payable before any credit for foreign tax on total income from all sources for that year (excluding tax retained on charges under section 16(2)),

B is total income for that year excluding any income, profits or gains from a qualifying employment, and

C is total income for that year.

Example

You live in Dundalk but you are employed by a Belfast-based company. On most days, you work in the Belfast office but also travel throughout Northern Ireland, Britain, and Ireland on behalf of the company.

In 2011, your salary from the company was €50,000, and you paid €8,000 tax through the UK PAYE system. Your Irish source income consisted of €4,000 net rent receivable from a Dublin apartment you let.

Your Irish tax liability may not therefore exceed the specified amount, which is calculated as:

UK source income 50,000
Irish source income 4,000
Total income 54,000
Tax
36,400 at 20% 7,280
17,600 at 41% 7,216
54,000 14,496
Less tax credits:
Basic personal tax credit (section 461) 1,650
Employee tax credit (section 472) 1,650 3,300
Irish tax liability before double tax relief (DTR) 11,196
Credit for UK tax paid (Stg £8,000 at say €1.10 = £1stg) 8,800
Net liability to Irish tax 2,396

Tax is limited to the specified amount: A x B/C =

i.e., €11,196 x (€4,000/€54,000) = €829

Note

The income from the foreign employment remains assessable and that the legal obligation to return such income on the annual return of income remains. Income from a foreign employment is assessable under Schedule D Case III and, accordingly, the provisions of self assessment, including the payment of sufficient preliminary tax to avoid interest charges, apply.

Where one of a married couple has income from a qualifying employment and the other who has income assessable in the State under PAYE, they may decide to allocate the full double rate bands and tax credits against the income of the spouse with Irish income. In this case the amount of tax deducted under the PAYE system on the Irish income may fall substantially short of the (combined) ultimate liability (the specified amount), even taking account of the new relief. In such cases, a substantial tax liability may arise.

How are incidental duties performed in the State treated?

(4) In deciding whether an employment qualifies (i.e., is exercised abroad), incidental duties performed in the State are treated as performed abroad.

For example, paperwork performed at home in the evening will not disqualify the employment.

Can other reliefs be claimed in addition to this?

(5) If this relief is obtainedfor a tax year, relief under section 472B (seafarer allowance) or section 823 (deduction for income earned outside the State) may not also be claimed.

Can a qualifying individual claim credit under a DTA as well?

(6) If this relief is obtained for a tax year, relief under Part 35 (credit for tax paid in a country with which Ireland has a tax treaty) cannot also be claimed.

When is an individual regarded as present in the State?

(7) Up to 2009, if he/she is present in the State at the end of a day.

For 2010 and later years, if he/she is present in the State at any time in a day.

Are expenses included as earnings in calculating the relief?

(8) This is an anti-avoidance provision. Employee expenses incurred wholly, exclusively and necessarily in the performance of your employment must not be included as earnings when calculating the relief.

Taxation of cross-border workers, Michael O’Neill, Irish Tax Review, September 1996

Section 825B Repayment of tax where earnings not remitted

Are there any special reliefs for foreign expatriates working in Ireland?

(1) Yes – this section allows someone who, although resident in Ireland, is not domiciled here (a relevant employee), to claim tax relief on relevant emoluments from a relevant employer.

Relevant emoluments are earnings from an employment, and a relevant employer is a company incorporated in a non-EEA country with which Ireland has a tax treaty.

Does this relief apply to EEA nationals?

(1A) Yes. For 2010 and later tax years, this relief extends to EU/EEA nationals.

Is there a time limit on the repayment of tax in respect of unremitted earnings?

(1B) Yes. This relief does not apply for 2012 or later tax years.

Is there transitional relief in respect of unremitted earnings?

(1C) Yes. The section continues to apply

(a) for 2012 and 2013, as respects employees who were entitled to relief for the first time in 2009,

(b) for 2012, 2013 and 2014, as respects employees who were entitled to relief for the first time in 2010,

(c) for 2012, 2013, 2014 and 2015, as respects employees who were entitled to relief for the first time in 2011.

Can an employee also claim other residence-related reliefs ?

(1D) No. An individual cannot claim relief in relation to unremitted earnings and also claim relief for:

(a) foreign earnings deduction (section 823A).

(b) special assignee relief program (section 825C).

(c) employee R & D tax credit (section 472D).

How does the foreign expatriate relief work?

(2) An individual who exercises his/her duties in Ireland for at least one year, while continuing to be paid from abroad, can opt at the end of the tax year to compute his/her tax based on the greater of:

(a) the emoluments remitted into Ireland, and

(b) €100,000 plus half of the emoluments in excess of €100,000.

He/she can then claim a refund of any tax overpaid.

Example

You are an expatriate, seconded to work in Ireland for 2009, 2010, 2011 an 2012. You are domiciled in the Netherlands.

In 2009, your gross salary is €500,000, of which €75,000 is paid as salary in Ireland, the balance is paid by the Dutch parent company of your Irish employer.

In 2009, you remit €85,000 to Ireland.

You can claim to calculate your tax liability for 2009 on the greater of

(a) your remittances – €85,000,

(b) €100,000 + half of €400,000, i.e. €300,000.

Your employer operates PAYE on €500,000.

You can claim a refund of tax, on the basis that your total earnings for tax purposes should only be €300,000.

If, in 2010, you remit the €200,000 on which you obtained a refund of tax, you are once again caught for tax from the date the tax was originally deducted (see (5)).

Are foreign expatriates caught by anti-avoidance legislation?

(3) Yes. The legislation designed to prevent people getting around the remittance basis also applies.

What if PAYE tax is suffered on the earning paid to a foreign expatriate?

(4) The PAYE deducted counts as relevant emoluments remitted into Ireland for the tax year in question.

What happens if tax relieved earnings are remitted?

(5) Tax is due from the date the tax was originally deducted.

The assessment may be made not more than four years after the end of the tax year in which the remittance was made.

What happens if an expatriate fails to stay the full three years in Ireland?

(6) He/she must, without being requested by Revenue, repay to Revenue any repayment of tax you received under (2).

Can Revenue refuse a repayment claim?

(7) Yes, if the officer is not satisfied with the information provided.

Section 825C Special assignee relief programme

What is the Special Assignee Relief Programme (SARP)?

(1) The SARP is a relief givenon a proportion of their income to employees assigned to work in Ireland for a relevant employer or an Irish associated company of the employer.

A relevant employer is a company incorporated and resident in a tax treaty country.

The employee’s relevant income means his income from the employment, but excluding

(a) expenses treated as benefit in kind,

(b) a benefit in kind consisting of the use of a car,

(c) a perquisite,

(d) a termination payment,

(e) income arising under a restrictive covenant,

(f) a bonus, commission or similar payment, whether contractual or otherwise,

(g) a gain on a share option,

(h) any share based remuneration.

What is a “relevant employee” for the purposes of the SARP?

(2) To qualify a relevant employee for the purposes of the Special Employee Relief Programme, must meet the following conditions:

(i) For the entire 12 months prior to his/her arrival in the State he/she must have been employed full-time by an employer located in a country which has a tax treaty with Ireland (a relevant employer), and the duties of that employment must have been exercised outside Ireland.

(ii) He/she must arrive in Ireland in 2012, 2013 or 2014 in order to perform the duties of that employment in Ireland or to take up employment with his/her employer’s Irish associate.

(iii) He/she must perform the duties of the employment in the State for a minimum period of 12 consecutive months from the date of arrival.

(iv) He/she must not have been resident in Ireland for the 5 tax years immediately preceding the year in which he/she arrives in Ireland.

In determining whether his/her employment duties are performed in Ireland, incidental duties performed outside Ireland are treated as having been performed in Ireland.

What is a “relevant employee” for the years 2015,2016 and 2017?

(2A) For those years a relevant employee is an individual who-

(a) For the entire 6 months prior to his/her arrival in the State he/she was employed full-time by an employer located in a country which has a tax treaty with Ireland (a relevant employer), and the duties of that employment were exercised outside Ireland,

(b) He/she must arrive in Ireland in order to perform the duties of that employment in Ireland or to take up employment with his/her employer’s Irish associate,

(c) performs those duties in the State for a minimum period of 12 consecutive months,

(d) He/she must not have been resident in Ireland for the 5 tax years immediately preceding the year in which he/she arrives in Ireland,

(e) whose employer certifies within 30 days of his/her arrival that the foregoing conditions are met.

What is the “specified amount”?

(2B)(a) The SARP allows a relevant employee (see (2)) a deduction for the specified amount, i.e., (A – B) x 30% where

A is the relevant income of the relevant employee, after pension reliefs and double taxation relief, and

B is €75,000.

For the years 2012, 2013 and 2014 “A” cannot exceed €500,000.

Where an employee arrives and/or leaves in Ireland during a tax year “B” is proportionately reduced.

What relief s given?

(3) A relevant employee who

(i) is resident in Ireland and not resident elsewhere,

(ii) performs the duties of the employment in Ireland and

(iii) has relevant income of not less than €75,000,

can claim for each of the 5 tax years commencing with the first year for which relief is due, a deduction from his/her income liable to income tax of the specified amount (see (2B)).

For the 2015, 2016 and 2017 the words “and not resident elsewhere” in (i) above are deleted.

What is the first year that SARP relief can be claimed?

(4)(a) For the years 2012, 2013 and 2014 an individual can claim relief for the tax year of arrival in Ireland, provided you are resident in Ireland and not resident elsewhere for tax purposes for that year.

If he/she is not resident in Ireland for the year of arrival, he/she can claim for the following tax year, provided he/she is resident in Ireland and not resident elsewhere for that tax year.

If he/she is resident in Ireland and also resident elsewhere for the first year, he/she can claim for the following tax year, provided he/she is resident in Ireland and not resident elsewhere for that tax year.

An employees arriving in 2014 who is not resident in the State in that year can claim relief in 2015 if resident even if also tax resident elsewhere for that year.

(b) An employee who arrives in 2015, 2016 or 2017 is entitled to relief in the year of arrival if resident in that year and if not so resident to relief in the following year.

Can SARP relief be claimed for home visits and school fees?

(6) Yes. For each of the five years in which SARP relief is due, an employer can pay:

(a) the reasonable costs of one return trip for the individual, his/her spouse or civil partner and his/her child, to his/her home country, and

(b) the cost of school fees (primary or post-primary), not exceeding €5,000 per annum for each child.

Such payments (which would otherwise be chargeable as benefits in kind) are exempt from tax.

Can relief also be claimed under another section?

(7) No. The income from the employment must not be chargeable to tax on the remittance basis, or be income which qualifies for employee R & D tax credits or residence-related reliefs.

Is a claimant subject to self-assessment?

(8) Yes. Where SARP relief is claimed, a self-assessment tax return must be filed on or before the due date.

Must an employer deduct tax from the specified amount?

(9) Yes, but PAYE need not be deducted on the specified amount if Revenue officer confirms in writing, following an application, that no such deduction need be made.

Must an employer provide Revenue with details of employees who qualify for SARP?

(10) Yes. An employer who certifies that an employee meets the SARP conditions must file a return to Revenue, stating for each such employee:

(a) The employee’s name, PPS number, nationality, country of previous employement, job title and the amount of income which was not taxed as a result of SARP,

(b) the increase in the numbers employed, or retained, as a result of SARP.

Can reimbursed expenses qualify as income for the purposes of SARP relief?

(12) No.

Section 826 Agreements for relief from double taxation

Double taxation has been defined as “the imposition of comparable taxes in two or more states on the same taxpayer in respect of the same subject matter and for Identical purposes” (OECD, Model Double Taxation Convention on Income and Capital (1977), p. 7 para 3).

There are three basic methods of relieving double taxation on income:

(a) the tax paid in the foreign country may be deducted (as if it were a business expense) when calculating the income that is liable to Irish tax,

(b) the tax paid in the foreign country may be credited against the Irish tax payable on the same income, or

(c) the income arising in the foreign country may be exempt from Irish tax

How are double tax agreements entered into?

(1) The Irish government is empowered to agree double tax treaties, and enter into information exchange agreements with other States in respect of income tax, corporation tax on income and chargeable gains, capital gains tax, and taxes of a similar character.

The text of the treaty or information exchange agreement is incorporated into Irish law by a government order (statutory instrument) which contains the detail of the relevant regulations.

A tax treaty becomes law from the date that a reference to that order is inserted into Schedule 24A Part 1. A treaty may also make provision for mutual enforcement of tax debts, interest and penalties.

Example

You are an Irish resident who receives interest amounting to €100 from overseas, which has been taxed in the country at 20%.

Under the deduction method, the practice would be:
Interest from overseas territory 100
Deduct tax suffered in overseas country 20
80
33.60
Under the credit method, the practice would be:
Interest from overseas territory 100
Irish tax liability €100 at 41% 41
Credit tax suffered in overseas country 20
Irish tax liability 21
Under the exemption method, the practice would be:
Interest from overseas territory 100
Irish tax liability Nil

What provisions apply in the various treaties?

Although several countries (for example, Belgium, Switzerland) generally avoid double taxation by giving an exemption from tax on foreign source income rather than by way of tax credit, most developed countries use both the tax credit system and the exemption mechanism to varying degrees.

One of the main criticisms of the exemption method is that it gives the greatest advantage to taxpayers who have income from low tax countries. In effect, the taxpayer pays at the lower of the tax rates in the two countries.

Under the credit method, the taxpayer generally pays at the higher of the rates in the two countries. Nevertheless, the credit method is preferable to obtaining a mere deduction for the tax paid.

Double tax treaties

A double tax treaty is an agreement between two sovereign states whose fiscal systems interact because of movements of goods, capital, services and labour between those states. In the absence of a tax treaty, double taxation of business profits and investment income is inevitable.

A tax treaty generally has three main parts:

(a) the scope of the treaty: this will define the persons and entities in both countries who can expect to benefit from the treaty’s provisions;

(b) the taxes covered;

(c) the territories to which the treaty extends (for example, in relation to a treaty with France, this paragraph will specify whether French overseas territories such as Martinique are included).

Purpose of tax treatIes

The primary purpose of a tax treaty is commercial: it creates a climate of reasonable certainty regarding the taxation of business transactions, which it is hoped will encourage intemational trade.

The OECD model treaty

Most international tax treaties are based on the model treaty devised by the Organisation for Economic Cooperation and Development (the OECD model).

No individual bilateral treaty exacty follows the OECD model; instead, the model treaty is used as a starting point in the negotiations between two sovereign states.

A multilateral treaty has also been advocated within the European Union under article 220 of the Treaty of Rome but this has only been realised in the form of mutual assistance directives, whereby member states agree to exchange information that may be useful in the combating of tax evasion. (European Communities (Mutual Assistance in the Field of Direct Taxation) Regulations 1978 (SI 334/1978)). More recenUy, the European Union has introduced a common tax system for mergers, divisions and transfers of corporate assets (90/434/EEC), and a limitation on withholding tax on distributions in the case of parent companies with subsidiaries in another member state (90/435/EEC).

Irish tax treaties generally follow the OECD model treaty’s classification of income: business profits, dividends, interest, royalties, rents, salaries and wages, and pensions.

The various articles in the OECD model treaty allocate taxing rights between the country of source (or location) and the country or residence. The theory is that the greater degree of “economic allegiance” which can be attributed to income or capital arising in a jurisdiction, the more should its rights to tax take precedence over the rights of country of residence. This is reflected in the concepts of “immovable property” and “permanent establishment” which are mentioned in many of the articles.

Depending on the classification of the income or capital, taxation in the state of source of income (or location of capital) may be unlimited, limited, or denied. In the third instance, no double taxation arises. In the first two cases, double taxation arises unless the country of residence grants an exemption.

Unlimited taxation

Unlimited taxation in the state of source of income is given in the following cases:

(a) income from immovable property (articles 6, 13(1), and 22(1)),

(b) business profits of a permanent establishment (articles 7, 13(1), 14, 22(1)),

(c) income from the activities of artistes and sportsmen exercised in that State (articles 16, 17),

(d) income from an employment (articles 15, 19).

Limited taxation

Limited taxation is imposed in the state of source on the following categories of income:

(a) dividends of a company resident in the State (article 10),

(b) interest arising in the state of source, but not to exceed 10% (article 11).

The state of residence is then entitled to charge tax subject to giving credit relief for the tax paid in the source State.

No taxation

No taxation may be imposed in the state of source, and therefore, full taxation in the state of residence applies in the

case of:

(a) business profits not attributable to a permanent establishment or fixed base (articles 7(1), 14),

(b) capital gains on shares and securities (articles 13(4), 22),

(c) royalties, private sector pensions, and student grants (artictes 12, 18, 20),

(d) profits of shipping businesses and air transport businesses (articles 8, 13(3), 22).

Further reading: Judge 12.104 Feeney 14.104, 106-107

Irish treaties

Business profits

Ireland follows the OECD model in that business profits of a person who is not resident in Ireland are taxable in Ireland only to the extent that the profits arise from the activities of a permanent establishment (article 5) of the business in Ireland.

Section 825A Reduction in income tax for certain income earned outside the State

Permanent establishment

The place of business must have a certain degree of permanency. Mere business relations with enterprises or other customers in the contracting state do not give the requisite degree of permanency. Similarly, a place of business which is of a purely temporary nature cannot constitute a PE, e.g., a once-off stall at a trade exhibition. A place of business which is not of a purely temporary nature can be a PE even if it exists in practice only for a very short period of time because of the special nature of the activity (e.g., a building site), or as a consequence of special circumstances (e.g., death of the taxpayer, investment failure), it was prematurely liquidated. Operations must be carried out on a regular basis. For example, a space in a market place could be a PE provided it is occupied regularly over a period. (Inspector Manual 35.1.11).

A permanent establishment includes: a branch, a place of management, an office, a factory, a workshop, a mine, quarry, oil or gas well.

It can also include a dependent agent who has power to conclude contracts on behalf of the principal, but does not include facilities for, or the maintenance of, a stock of goods used purely for the purposes of storage, display or delivery, or a place of business used solely to buy goods or conduct market research or other preparatory activity.

A bookmaker’s patch or stand at a racecourse is a “permanent establishment” i.e., a place of business from which he/she carries on business in the State.

In a particular case involving a UK resident providing “Iabour only” services to an Irish building company, the Revenue view is that the “permanent establishment” is the building site at which the service is provided. The Revenue argument is:

(a) The test to be applied is: Where do the operations take place from which the profits in substance derive?

(b) The place at which the contract is made is not the deciding factor.

The Appeal Commissioners have disagreed with this view and consider on the evidence that the taxpayer is trading with the State rather than in the State. Revenue have expressed dissatisfaction with this decision (Revenue Precedent). As a general rule, foreign tax only applies to an Irish firm trading within a treaty country, i.e., if it has a permanent establishment in that country.

Interest

Irish treaties generally allow interest to be taxed only in the recipients country, free of all withholding taxes in the source country.

Royalties

Irish treaties generally allow royalties to be taxed only in the recipient’s country, free of all withholding taxes in the source country.

Dividends

The treatment of dividends is complicated by the fact that the two treaty states may operate fundamentally different company tax systems. Under the Irish system, any charge to Irish income tax on dividends paid to a non-resident shareholder is regarded as having been satisfied by the part of the corporation tax paid by the company on the profits from which the dividend was paid (section 63). This tax is imputed to a resident shareholder by way of a tax credit.

Transfer pricing

If the levels of taxation differ significantly between the two states, a multi-national group may be tempted to maximise the profits of the enterprise in the state with the lower tax rate. This can be achieved by artificially inflating or reducing prices or costs of goods or services transferred between the enterprises, including the costs of funding the enterprises. Ireland includes article 9 of the OECD model in all of its tax treaties. This article deals with associated enterprises, for example, a subsidiary in one state with a parent in another, it counteracts transfer pricing arrangements by allowing the “lax-deprived’ state to adjust the profits of the company in its jurisdiction in order to capture any profits artificially transferred to the other (lower tax) state. This is done by interposing ‘arm’s length prices’ on the goods or services traded. In effect this means that the treaty offers no protection to transfer pricing arrangements.

Once ratified by Dáil Éireann, a treaty has the force of law. In international law, after the treaty has been ratified by both governments, both are bound by its terms under the Vienna Convention on the Law of Treaties.

Thus, if a contracting state’s domestic law is changed after ratification of the treaty so as to conflict with one or more terms of the treaty, then the terms of the treaty still prevail. The United States Constitution (article VI), however, treats federal law and treaties as equal: whichever is later in time overrules the other. Legislation passed by the US government in recent years has sought to reverse the international tax treaty obligations entered into by previous US administrations.

Ireland currently has the following double taxation tax treaties:

Albania

The treaty, which was signed on 16 October 2009 is not yet in force.

Under the terms of the treaty, Albania applies withholding tax at:

(a) 10% to dividends, with a reduced rate of 5% on dividends paid to a company holding 25% of the paying company’s capital,

(b) up to 7% to interest, and

(c) up to 7% to royalties.

Australia

The treaty, which was signed on 31 May 1983 and ratified on 21 December 1983, is contained in Double Taxation Relief (Taxes on Income and Capital) (Australia) Order 1993, SI 406/1983. It is effective for income tax and capital gains tax from 6 April 1984, and for corporation tax, from 1 January 1984.

Under the terms of the treaty, Australia applies withholding tax at:

(a) 15% to dividends,

(b) 10% to interest, and

(c) 10% to royalties.

Austria

The original treaty, which was signed on 24 May 1966 and ratified on 5 January 1968, is contained in Double Taxation Relief (Taxes on Income) (Austria) Order 1967, SI 250/1967. It is effective for income tax from 6 April 1964.

The protocol to the treaty, which was signed on 19 June 1987 and ratified on 9 December 1988, is contained in Double Taxation Relief (Taxes on Income and Capital Gains) (Austria) Order 1988, SI 29/1988.

The protocol is effective for income tax from 6 April 1976, for capital gains tax from 6 April 1974, and corporation tax, from 1 January 1974.

Under the terms of the treaty, Austria applies withholding tax at:

(a) 10% to dividends, with a reduced rate of 0% on dividends paid to an EU company holding 25% of the payer’s capital,

(b) 0% to interest, and

(c) 0% to royalties, with a higher rate of 10% where the recipient owns more than 50% of the payer company.

Bahrain

The treaty, which was signed on 29 October 2009, is not yet in force.

Under the terms of the treaty, Bahrain applies withholding tax at:

(a) 0% to dividends,

(b) 0% to “debt-claims”, and

(c) 0% to royalties.

Belarus

The treaty, which was signed in November 2009, is contained in the Double Taxation Relief (Taxes on Income and Capital) (Republic of Belarus) Order 2010, S.I. 25/2010. It is effective for income tax, corporation tax and capital gains tax from 1 January 2010.

Under the terms of the treaty, Belarus applies withholding tax at:

(a) 10% to dividends, with a reduced rate of 5% on dividends paid to a company holding 25% of the paying company’s capital,

(b) not more than 5% to interest, and

(c) not more than 5% to royalties.

Belgium

The treaty, which was signed on 24 June 1970 and ratified on 31 December 1973, is contained in Double Taxation Relief (Taxes on Income) (Kingdom of Belgium) Order 1973, SI 66/1973. It is effective for income tax from 6 April 1973 and corporation profits tax from 1 April 1973.

Under the terms of the treaty, Belgium applies withholding tax at:

(a) 15% to dividends, with a reduced rate of 0% on dividends paid to an EU company holding 25% of the paying company’s capital,

(b) 15% to interest, and

(c) 0% to royalties.

Bulgaria

The treaty was signed on 5 October 2000. It is contained in the Double Taxation Relief (Taxes on Income and Capital Gains) (The Republic of Bulgaria) Order 2000 (S.I. No. 372 of 2000).

Under the terms of the treaty, Bulgaria will apply withholding tax at:

(a) 10% to dividends, with a reduced rate of 5% on dividends paid to a company holding (directly) 25% of the paying company’s capital,

(b) 5% to interest, with a reduced rate of 0% on certain government loans, and

(c) 10% to royalties.

Canada

The treaty is contained in the Double Taxation Relief (Taxes on Income and Capital Gains) (Government of Canada) Order 2004 (S.I. No. 773 of 2004).

Under the terms of the treaty, Canada applies withholding tax at:

(a) 15% to dividends,

(b) 10% to interest *, and

(c) domestic rate (15%), with a reduced rate of 0% on royalties in respect copyrights (other than for films of television).

* From Ireland, the domestic standard rate applies.

Chile

The treaty which was signed on 2 June 2005 is contained in the Double Taxation Relief (Taxes on Income and Capital Gains) (Republic of Chile) Order 2005 (S.I. No. 815/2005).

Under the terms of the treaty, Chile applies withholding tax at 5% or 15% to dividends, interest and royalties, depending on the particular circumstances of the payment.

China

The treaty, which was signed on 19 April 2000 and ratified on 29 November 2000, is contained in Double Taxation Relief (Taxes on Income and Capital Gains) (The People’s Republic of China) Order 2000, SI 373/2000. It is effective for income tax and capital gains tax from 6 April 2000, and for corporation tax from 1 January 2000.

Under the terms of the treaty, China applies withholding tax at:

(a) 10% to dividends, with a reduced rate of 5% on dividends paid to a company holding (directly) 25% of the paying company’s voting power,

(b) 10% to interest, with a reduced rate of 0% on certain government loans, and

(c) 10% to royalties in respect of copyrights, patents and intangibles; and at 6% of the gross amount of the royalties for use of industrial, commercial, or scientific experience.

Croatia

The treaty, which was signed on 21 June 2002 and ratified on 3 December 2002, is contained in the Double Taxation Relief (Taxes on Income and Capital Gains) (Republic of Croatia) Order 2002 (S.I. 574/2002).

Under the terms of the treaty, Croatia applies withholding tax at:

(a) 10% to dividends, with a reduced rate of 5% on dividends paid to a company holding 10% of the payer’s voting power,

(b) 0% to interest, and

(c) 0% to royalties.

Cyprus

The treaty, which was signed on 24 September 1968 and ratified on 4 December 1970, is contained in Double Taxation Relief (Taxes on Income) (Cyprus) Order 1970, SI 79/1970. It is effective for income tax from 6 April 1962 and for corporation profits tax from 1 April 1962.

Under the terms of the treaty, Cyprus applies withholding tax at:

(a) 0% to dividends,

(b) 0% to interest, and

(c) 0% to royalties, with a higher rate of 5% for royalties relating to films (non- television).

Czech Republic

The treaty, which was signed on 14 November 1995 and ratified on 21 April 1996, is contained in Double Taxation Relief (Taxes on Income) (Czech Republic) Order 1995, SI 321/1995. It is effective for income tax and capital gains tax from 6 April 1997, and for corporation tax from 1 January 1997.

Under the terms of the treaty, the Czech Republic applies withholding tax at:

(a) 15% to dividends, with a reduced rate of 5% on dividends paid to a company holding (directly) 25% of the payer’s voting power,

(b) 0% to interest, and

(c) 10% to royalties.

Denmark

The treaty, which was signed on 26 March 1993 and ratified on 8 October 1993, is contained in Double Taxation Relief (Taxes on Income) (Kingdom of Denmark) Order 1993, SI 286/1993. It is effective for income tax and capital gains tax from 6 April 1994 and for corporation tax from 1 January 1994.

Under the terms of the treaty, Denmark applies withholding tax at:

(a) 15% to dividends, with a reduced rate of 0% on dividends paid to a company holding (directly) 25% of the paying company’s capital,

(b) 0% to interest, and

(c) 0% to royalties.

Estonia

The treaty, which was signed on 16 December 1997 and ratified on 23 December 1998, is contained in Double Taxation Relief (Taxes on Income and Capital Gains) (Republic of Estonia) Order 1998, SI 496/1998. It is effective for income tax and capital gains tax from 06 April 1999, and for corporation tax from 01 January 1999.

Under the terms of the treaty, Estonia applies withholding tax at:

(a) 15% to dividends, with a reduced rate of 5% on dividends paid to a company holding (directly) 25% of the paying company’s voting power,

(b) 10% to interest, and

(c) 10% to royalties, with a reduced rate of 5% on royalties for use of industrial, scientific of commercial equipment.

Finland

The treaty, which was signed on 23 March 1992 and ratified on 26 November 1993, is contained in Double Taxation Relief (Taxes on Income and Capital Gains) (Republic of Finland) Order 1993, SI 289/1993. It is effective for income tax and capital gains tax from 6 April 1990, and for corporation tax from 1 January 1990.

Under the terms of the treaty, Finland applies withholding tax at:

(a) 15% to dividends, with a reduced rate of 0% on dividends paid to company holding 10% of the paying company’s voting power,

(b) 0% to interest, and

(c) 0% to royalties.

France

The treaty, which was signed on 21 March 1968 and ratified on 15 June 1971, is contained in Double Taxation Relief (Taxes on Income) (Republic of France) Order 1970, SI 162/1970. It is effective for income tax from 6 April 1966, and for corporation profits tax from 1 April 1966.

Under the terms of the treaty, France applies withholding tax at:

(a) 15% to dividends, with a reduced rate of 0% on dividends paid to an EU company holding 25% of the paying company’s capital; a reduced rate of 10% on dividends paid to a company holding (directly) 50% of the paying company’s capital,

(b) 0% to interest, and

(c) 0% to royalties (excluding films, where the domestic rate applies).

Georgia

The treaty, which was signed on 20 November 2008, is contained in the Double Taxation Relief (Taxes on Income) (Georgia) Order 2010, S.I. 18/2010. It is effective for income tax, corporation tax and capital gains tax from 1 January 2011.

Under the terms of the treaty, Georgia applies withholding tax at:

(a) 10% to dividends, with a reduced rate of 5% on dividends paid to a company holding 10% of the paying company’s capital,

(b) 0% to interest, and

(c) 0% to royalties.

Germany

The treaty, which was signed on 17 October 1962 and ratified on 2 April 1964, is contained in Double Taxation Relief (Taxes on Income and Capital and Gewerbesteuer (Trade Tax)) (Federal Republic of Germany) Order 1962, SI 212/1962. It is effective for income tax from 6 April 1959, and for corporation profits tax from 1 April 1959.

Under the terms of the treaty, Germany applies withholding tax at:

(a) 15% to dividends (subject to variation – see treaty), with a reduced rate of 0% on dividends paid to an EU company holding 25% of the paying company’s capital,

(b) 0% to interest, and

(c) 0% to royalties.

Greece

The treaty is contained in the Double Taxation Relief (Taxes on Income and Capital Gains) (Government of the Hellenic Republic) Order 2004 (S.I. No. 774 of 2004).

Hong Kong

The treaty, which was signed on 22 June 2010, is not yet in force.

Under the terms of the treaty, Hong Kong applies withholding tax at:

(a) 0% to dividends,

(b) up to 10% to interest, and

(c) up to 3% to royalties.

Hungary

The treaty, which was signed on 25 April 1995 and ratified on 5 December 1996, is contained in Double Taxation Relief (Taxes on Income) (Republic of Hungary) Order 1995, SI 301/1995. It is effective for income tax and capital gains tax from 6 April 1997, and for corporation tax from 1 January 1997.

Under the terms of the treaty, Hungary applies withholding tax at:

(a) 15% to dividends, with a reduced rate of 5% on dividends paid to a company holding (directly) 10% of the paying company’s capital,

(b) 0% to interest, and

(c) 0% to royalties.

Iceland

The treaty, which was signed on 17 December 2003, is contained in the Double Taxation Relief (Taxes on Income and on Capital) (Republic of Iceland) Order 2004 (S.I. 775/2004). It is effective for income tax, corporation tax and capital gains tax.

Under the terms of the treaty, Iceland applies withholding tax at:

(a) 15% to dividends, with a reduced rate of 5% on dividends paid to a company holding 25% of the paying company’s capital,

(b) 0% to interest, and

(c) 0% to royalties, with 10% applicable to cultural/technical royalties.

India

The treaty was signed on 5 November 2000. The treaty is contained in the Double Taxation Relief (Taxes on Income and Capital Gains) (Republic of India) Order 2001 (S.I. No. 521 of 2001).

Under the terms of the treaty, India will apply withholding tax at:

(a) 10% to dividends,

(b) 10% to interest, with a reduced rate of 0% on certain government loans, and

(c) 10% to royalties.

Israel

The treaty, which was signed on 20 November 1995 and ratified on 24 December 1995, is contained in Double Taxation Relief (Taxes on Income) (State of Israel) Order 1995, SI 323/1995. It is effective for income tax and capital gains tax from 6 April 1996, and for corporation tax from 1 January 1996.

Under the terms of the treaty, Israel applies withholding tax at:

(a) 10% to dividends,

(b) 10% to interest, with a reduced rate of 5% for certain credit sales and bank interest, and

(c) 10% to royalties.

Italy

The treaty, which was signed on 11 June 1971 and ratified on 14 February 1975, is contained in Double Taxation Relief (Taxes on Income) (Italy) Order 1993, SI 64/1973. It is effective for income tax from 6 April 1967, and for corporation profits tax from 1 April 1967.

Under the terms of the treaty, Italy applies withholding tax at:

(a) 15% to dividends, with a reduced rate of 0% on dividends paid to an EU company holding 25% of the paying company’s capital,

(b) 10% to interest, and

(c) 0% to royalties.

Japan

The treaty, which was signed on 18 January 1974 and ratified on 4 November 1974, is contained in Double Taxation Relief (Taxes on Income) (Japan) Order 1974, SI 259/1974. It is effective for income tax from 6 April 1974, and for corporation profits tax from 1 April 1974.

Under the terms of the treaty, Japan applies withholding tax at:

(a) 15% to dividends, with a reduced rate of 10% on dividends paid to a company holding (directly) 25% of the paying company’s voting power,

(b) 10% to interest, and

(c) 10% to royalties.

Article 12 of the Ireland/Japan Double Taxation Convention (SI 259/1974) takes precedence over section 130: Murphy v Asahi Synthetic Fibres (Ireland) Ltd, 3 ITR 246.

Korea (Republic of)

The treaty, which was signed on 18 July 1990 and ratified on 27 November 1991, is contained in Double Taxation Relief (Taxes on Income and Capital Gains) (Republic of Korea) Order 1991, SI 290/1991. It is effective for income tax and capital gains tax from 6 April 1992, and for corporation tax from 1 January 1992.

Under the terms of the treaty, Korea applies withholding tax at:

(a) 15% to dividends, with a reduced rate of 10% on dividends paid to a company holding 10% of the paying company’s voting power,

(b) 0% to interest, and

(c) 0% to royalties.

Latvia

The treaty, which was signed on 13 November 1997 and ratified on 28 January 1998, is contained in Double Taxation Relief (Taxes on Income and Capital Gains) (Republic of Latvia) Order 1997, SI 540/1997. It is effective for income tax and capital gains tax from 6 April 1999, and for corporation tax from 1 January 1999.

Under the terms of the treaty, Latvia applies withholding tax at:

(a) 15% to dividends, with a reduced rate of 5% on dividends paid to a corporate holding (directly) 25% of the paying company’s voting power,

(b) 10% to interest, with a reduced rate of 0% on certain government loans, and

(c) 10% to royalties relating to copyright and intangibles, with a reduced rate of 5% on royalties for use of industrial, scientific and commercial equipment.

Lithuania

The treaty, which was signed on 18 November 1997 and ratified on 9 February 1998, is contained in Double Taxation Relief (Taxes on Income and Capital Gains) (Republic of Lithuania) Order 1997, SI 503/1997. It is effective for income tax and capital gains tax from 6 April 1999, and for corporation tax from 1 January 1999.

Under the terms of the treaty, Lithuania applies withholding tax at:

(a) 15% to dividends, with a reduced rate of 5% on dividends paid to a company holding (directly) 25% of the paying company’s voting power,

(b) 10% to interest, with a reduced rate of 0% on certain government loans, and

(c) 10% to royalties relating to copyright and intangibles, with a reduced rate of 5% on royalties for use of industrial, scientific, or commercial equipment.

Luxembourg

The treaty, which was signed on 14 January 1972 and ratified on 25 February 1975, is contained in Double Taxation Relief (Taxes on Income and Capital) (Grand Duchy of Luxembourg) Order 1973, SI 65/1973. It is effective for income tax from 6 April 1968, and for corporation profits tax from 1 April 1968.

Under the terms of the treaty, Luxembourg applies withholding tax at:

(a) 15% to dividends, with a reduced rate of 0% on dividends paid to an EU company holding 25% of the paying company’s capital, and a reduced rate of 5% on dividends paid to a company holding (directly) 25% of the paying company’s voting power,

(b) 0% to interest, and

(c) 0% to royalties.

Macedonia

Treaty comes into force on 1 January 2010.

The treaty contained in the Double Taxation Relief (Taxes on Income) (Republic of Macedonia) Order 2008 (S.I. No. 463/2008).

Under the terms of the treaty, Macedonia applies withholding tax at 5% or 10% to dividends, depending on the particular circumstances.

Malta

The treaty comes into force from 1 January 2010.

The treaty is contained in the Double Taxation (Income and Capital Gains) (Malta) Order 2008 (S.I. No. 502/2008).

Under the terms of the treaty, Malta applies withholding tax at 5% or 10%, depending on the particular circumstances, to dividends, and at 5% to royalties.

Malaysia

The treaty, which was signed on 28 November 1998 and ratified on 11 September 1999, is contained in Double Taxation Relief (Taxes on Income) (Malaysia) Order 1998, SI 495/1998. It is effective for income tax and capital gains tax from 6 April 2000, and for corporation tax from 1 January 2000.

Under the terms of the treaty, Malaysia applies withholding tax at:

(a) 10% to dividends,

(b) 10% to interest, with a reduced rate of 0% for interest on certain government loans, and

(c) 8% to royalties.

Mexico

The treaty, which was signed on 22 October 1998 and ratified on 31 December 1998, is contained in Double Taxation Relief (Taxes on Income and Capital Gains) (The United Mexican States) Order 1998, SI 497/1998. It is effective for income tax and capital gains tax from 6 April 1999, and for corporation tax from 1 January 1999.

Under the terms of the treaty, Mexico applies withholding tax at:

(a) 10% to dividends, with a reduced rate of 5% on dividends paid to a company holding (directly) 10% of the paying company’s voting power,

(b) 10% to interest, with a reduced rate 5% for interest paid to banks, and a reduced rate of 0% for interest paid on certain government loans and pension funds,

(c) 10% to royalties.

Moldova

The treaty, which was signed on 28 May 2009, is contained in the Double Taxation Relief (Taxes on Income) (Republic of Moldova) Order 2010 (S.I. 19/2010). It is effective for income tax, corporation tax and capital gains tax from 1 January 2011.

Under the terms of the treaty, Moldova applies withholding tax at:

(a) 10% to dividends, with a reduced rate of 5% on dividends paid to a company holding 25% of the paying company’s capital,

(b) not more than 5% to interest, and

(c) not more than 5% to royalties.

Morocco

The treaty, which was signed on 22 June 2010, is not yet in force.

Under the terms of the treaty, Morocco applies withholding tax at:

(a) 10% to dividends, with a reduced rate of 6% on dividends paid to a company holding 25% of the paying company’s capital,

(b) not more than 10% to interest, and

(c) not more than 10% to royalties.

Netherlands

The treaty, which was signed on 11 February 1969 and ratified on 12 May 1970, is contained in Double Taxation Relief (Taxes on Income and Capital) (Kingdom of the Netherlands) Order 1970, SI 22/1970. It is effective for income tax from 6 April 1965, and for corporation profits tax from 1 April 1965.

Under the terms of the treaty, The Netherlands applies withholding tax at:

(a) 15% to dividends, with a reduced rate of 0% on dividends paid to an EU company holding 25% of the paying company’s capital, or to a company holding (directly) 25% of the paying company’s voting power,

(b) 0% to interest, and

(c) 0% to royalties.

New Zealand

The treaty, which was signed on 19 September 1986 and ratified on 26 September 1988, is contained in Double Taxation Relief (Taxes on Income and Capital Gains) (New Zealand) Order 1988, SI 30/1988. It is effective for income tax and capital gains tax from 6 April 1989, and for corporation tax from 1 January 1989.

Under the terms of the treaty, New Zealand applies withholding tax at:

(a) 15% to dividends,

(b) 10% to interest, and

(c) 10% to royalties.

Norway

A new treaty was signed on 22 November 2000. It is contained in the Double Taxation Relief (Taxes on Income and on Capital) (Kingdom of Norway) Order 2001 (S.I. No. 520 of 2001). Under the new treaty, Norway will apply withholding tax at:

(a) 15% to dividends, with a reduced rate of 5% on dividends paid to a company holding (directly) 10% of the paying company’s capital,

(b) 0% to interest, and

(c) 0% to royalties.

Pakistan

The treaty, which was signed on 13 April 1973 and ratified on 20 December 1974, is contained in Double Taxation Relief (Taxes on Income) (Pakistan) Order 1974, SI 260/1974. It is effective for income tax from 6 April 1968, and for corporation profits tax from 1 April 1968.

Under the terms of the treaty, Pakistan applies withholding tax at:

(a) at the Pakistani tax rate (currently a graduated scale to a top rate of 35%) which would have applied if he/she were a Pakistani resident liable to tax on total world income to dividends, but at a reduced rate of 10% where the recipient is a public company holding (directly) 50% of the voting power in the paying company,

(b) at the Pakistani tax rate on interest,

(c) 0% to royalties.

Poland

The treaty, which was signed on 13 November 1995 and ratified on 22 December 1995, is contained in Double Taxation Relief (Taxes on Income) (Republic of Poland) Order 1995, SI 322/1995. It is effective for income tax and capital gains tax from 6 April 1996, and for corporation tax from 1 January 1996.

Under the terms of the treaty, Poland applies withholding tax at:

(a) 15% to dividends, with a reduced rate of 0% on dividends paid to a company holding (directly) 25% of the paying company’s voting power,

(b) 10% on royalties, with a reduced rate of 0% for certain credit sales and bank interest,

(c) 10% to royalties.

Portugal

The treaty, which was signed on 1 June 1993 and ratified on 11 July 1994, is contained in Double Taxation Relief (Taxes on Income) (Portuguese Republic) Order 1994, SI 102/1994. It is effective for income tax and capital gains tax from 6 April 1995, and for corporation tax from 1 January 1995.

Under the terms of the treaty, Portugal applies withholding tax at:

(a) 15% to dividends, with a reduced rate of 0% for dividends paid to an EU company holding 25% of the paying company’s capital,

(b) 15% to interest, with a reduced rate of 0% for certain government loans, and

(c) 10% to royalties.

Romania

The treaty, which was signed on 21 October 2000 and ratified on 29 December 2000, is contained in Double Taxation Relief (Taxes on Income and Capital Gains) (Romania) Order 2000, SI 427/1999. It is effective for income tax and capital gains tax from 6 April 2001, and for corporation tax from 1 January 2001.

Under the terms of the treaty, Romania applies withholding tax at:

(a) 3% to dividends,

(b) 3% to interest, with a reduced rate of 0% for interest on certain credit (industrial, commercial or scientific) and certain government loans,

(c) 3% to royalties relating to patents and intangibles, and a reduced rate of 0% on royalties relating to copyright.

Russia

The treaty, which was signed on 29 April 1994 and ratified on 7 July 1995, is contained in Double Taxation Relief (Taxes on Income) (Russian Federation) Order 1995, SI 428/1994. It is effective for income tax and capital gains tax from 6 April 1996, and for corporation tax from 1 January 1996.

Under the terms of the treaty, Russia applies withholding tax at:

(a) 10% to dividends,

(b) 0% to interest, and

(c) 0% to royalties.

Serbia

The treaty, which was signed on 23 September 2009 and ratified on 26 January 2010, is contained in Double Taxation Relief (Taxes on Income) (Republic of Serbia) Order 2010, S.I. 20/2010. It is effective for income tax, corporation tax and capital gains tax from 1 January 2011.

Under the terms of the treaty, Serbia applies withholding tax at:

(a) 10% to dividends, with a reduced rate of 5% on dividends paid to a company holding 25% of the paying company’s capital,

(b) not more than 10% to interest, and

(c) 5% to cultural/artistic royalties, and 10% to technical (patent) royalties.

Slovak Republic

The treaty, which was signed on 8 June 1999 and ratified on 30 December 1999, is contained in Double Taxation Relief (Taxes on Income and Capital Gains) (The Slovak Republic) Order 1999, SI 426/1999. It is effective for income tax and capital gains tax from 6 April 2000, and for corporation tax from 1 January 2000.

Under the terms of the treaty, Slovakia applies withholding tax at:

(a) 10% to dividends, with a reduced rate of 0% on dividends paid to a company holding (directly) 25% of the paying company’s voting power,

(b) 0% to interest, and

(c) 10% to royalties relating to patents and intangibles, with a reduced rate of 0% for copyright.

Slovenia

The treaty, which was signed on 12 March 2002 and ratified on 3 December 2002, is contained in the Double Taxation Relief (Taxes on Income and Capital Gains) (Republic of Slovenia) Order 2002 (S.I. 513/2002).

Under the terms of the treaty, Slovenia applies withholding tax at:

(a) 15% to dividends, with a reduced rate of 5% on dividends paid to a company holding 25% of the paying company’s capital,

(b) not more than 5% to interest, and

(c) not more than 5% to royalties.

South Africa

The treaty, which was signed on 7 October 1997 and ratified on 5 December 1997, is contained in Double Taxation Relief (Taxes on Income and Capital Gains) (South Africa) Order 1997, SI 478/1997. It is effective for income tax and capital gains tax from 6 April 1998, and for corporation tax from 1 January 1998.

Under the terms of the treaty, South Africa applies withholding tax at:

(a) 0% to dividends,

(b) 0% to interest, and

(c) 0% to royalties.

Spain

The treaty, which was signed on 10 February 1994 and ratified on 21 November 1994, is contained in Double Taxation Relief (Taxes on Income and Capital Gains) (Kingdom of Spain) Order 1994, SI 308/1994. It is effective for income tax and capital gains tax from 6 April 1995, and for corporation tax from 1 January 1995.

Under the terms of the treaty, Spain applies withholding tax at:

(a) 15% to dividends, with a reduced rate of 0% on dividends paid to an EU company holding 25% of the paying company’s capital, or a non-EU company holding (directly or indirectly) 25% of the paying company’s voting power,

(b) 0% to interest, and

(c) 10% to royalties, with a reduced rate of 8% for films, tapes and lease payments, and a reduced rate of 5% for copyright.

Sweden

The treaty, which was signed on 8 October 1986 and ratified on 5 April 1988, is contained in Double Taxation Relief (Taxes on Income and Capital Gains) (Sweden) Order 1987, SI 348/1987. It is effective for income tax and capital gains tax from 6 April 1988, and for corporation tax from 1 January 1989.

The protocol to the treaty, which was signed on 1 July 1993 and ratified on 21 December 1993, is contained in Double Taxation Relief (Taxes on Income and Capital Gains) (Sweden) Order 1993, SI 398/1993. It is effective for income tax, capital gains tax and corporation tax from 20 January 1994.

Under the terms of the treaty, Sweden applies withholding tax at:

(a) 15% to dividends, with a reduced rate of 0% on dividends paid to an EU company holding 25% of the paying company’s capital, and a reduced rate of 5% on dividends paid to a company holding (directly or indirectly) 10% of the paying company’s voting power,

(b) 0% to interest, and

(c) 0% to royalties.

Switzerland

The treaty, which was signed on 8 November 1966 and ratified on 16 February 1968, is contained in Double Taxation Relief (Taxes on Income and Capital) (Swiss Confederation) Order 1967, SI 240/1967. It is effective for income tax from 6 April 1965, and for corporation profits tax from 1 April 1965.

The protocol to the treaty, which was signed on 24 October 1980 and ratified on 25 April 1984, is contained in Double Taxation Relief (Taxes on Income and Capital) (Swiss Confederation) Order 1984, SI 76/1984. It is effective for income tax from 6 April 1976, for capital gains tax from 6 April 1974 and for corporation tax from 1 January 1974.

Under the terms of the treaty, Switzerland applies withholding tax at:

(a) 15% to dividends, with a reduced rate of 10% on dividends paid to company holding (directly or indirectly) 25% of the paying company’s voting power,

(b) 0% to interest,

(c) 0% to royalties.

Turkey

The treaty was signed 24 October 2008, but is not yet in force.

United Arab Emirates

The treaty, which was signed on 1 July 2010, is not yet in force.

Under the terms of the treaty, the UAE applies withholding tax at:

(a) 0% to dividends,

(b) 0% to interest, and

(c) 0% to royalties.

United Kingdom

The treaty, which was signed on 2 June 1976 and ratified on 23 December 1976, is contained in Double Taxation Relief (Taxes on Income and Capital Gains) (United Kingdom) Order 1976, SI 319/1976. It is effective for income tax and for capital gains tax from 6 April 1976, and for corporation tax from 1 January 1974.

The protocol to the treaty, which was signed on 7 November 1994 and ratified on 21 September 1995, is contained inDouble Taxation Relief (Taxes on Income and Capital Gains) (United Kingdom) Order 1995, SI 209/1995. It is effective for income tax from 6 April 1994 and for corporation tax from 1 April 1994.

The second protocol to the treaty was signed on 4 November 1998 and ratified on 23 December 1998. This protocol is contained in Double Taxation Relief (Taxes on Income and Capital Gains) (United Kingdom of Great Britain and Northern Ireland) Order 1998, SI 494/1998. It is effective for income tax and capital gains tax from 6 April 1999, and for corporation tax from 1 January 1999.

Under the terms of the treaty, the United Kingdom applies withholding tax at:

(a) 15% to dividends, with a reduced rate of 0% on dividends paid to an EU company holding 25% of the paying company’s capital, and a reduced rate of 5% on dividends paid to a company holding (directly or indirectly) 10% of the paying company’s voting power,

(b) 0% to interest, and

(c) 0% to royalties.

An individual from the UK engaged in teaching and research in Ireland was refused exemption as there is no provision in the UK tax treaty to exempt him from Irish tax. The income from such teaching/research contracts is correctly chargeable to Irish tax under Schedule E, and PAYE should be operated.

USA

The treaty, which was signed on 28 July 1997 and ratified on 17 December 1997 is contained in Double Taxation Relief (Taxes on Income and Capital Gains)(United States of America) Order 1997, SI 477/1997. It is effective for income tax and capital gains tax from 6 April 1998, and for corporation tax from 1 January 1998.

The protocol is contained in the Double Taxation Relief (Taxes on Income and Capital Gains) (United States of America) Order 1999 (S.I. No. 425 of 1999).

Under the terms of the treaty, the United States of America applies withholding tax at:

(a) 15% to dividends, with a reduced rate of 5% on dividends paid to company holding (directly) 10% of the paying company’s voting power,

(b) 0% to interest (15% may apply in certain cases – see treaty), and

(c) 0% to royalties.

Vietnam

The treaty, which is effective from 1 January 2009, is contained in the Double Taxation (Income and Capital Gains) (Socialist Republic of Vietnam) Order 2008 (S.I. No. 453/2008).

Under the terms of the treaty, Vietnam applies withholding tax at 5% or 10% to dividends, and 5%, 10% or 15% to royalties, depending on the particular circumstances.

Zambia

The treaty, which was signed on 29 March 1971 and ratified on 31 July 1973 is contained in Double Taxation Relief (Taxes on Income) (Republic of Zambia) Order 1973, SI 130/1973. It is effective for income tax from 6 April 1967, and for corporation profits tax from 1 April 1967.

Under the terms of the treaty, Zambia applies withholding tax at:

(a) 0% to dividends,

(b) 0% to interest, and

(c) 0% to royalties.

Visiting teachers

Inspector Manual 35.1.3.

Embassy employees

Embassy employees who are not exempt from income tax under the Diplomatic Relations and Immunities Act 1967, and who are not relieved from double taxation because no treaty exists with the country, may be assessed to Irish tax on the net amount received after deduction of tax by the foreign country. This treatment was applied in the case of certain employees of the Turkish embassy (Revenue Precedent IR10407/693/85, 20 November 1985).

Can the government enter into other types of tax treaties?

(1A) The government has the power to enter into limited tax treaties which give double taxation relief to sea crew and airline pilots and cabin crew. From 2 April 2007, the formal procedure for giving effect to such arrangements is that the government makes an order (statutory instrument) and the order becomes law when a reference is made to that statutory instrument in Schedule 24A Part 2.

How are tax information exchange agreements given effect?

(1B) The government has the power to enter into tax information exchange agreements. From 2 April 2007, the formal procedure for giving effect to such arrangements is that the government makes an order (statutory instrument) and the order becomes law when a reference is made to that statutory instrument in Schedule 24A Part 3.

Does the Irish government’s commitment to mutual assistance in tax matters with other countries have the force of law?

(1C) The OECD and the Council of Europe have a joint Convention on Mutual Administrative Assistance in Tax Matters. Parties to the convention agree to mutually assist each other with regard to exchange of information, recovery of taxes and service of documents.

If the Irish government becomes a party to the Convention, and the order doing so is included in Schedule 24A, then the Convention has legal effect in Ireland as if it were an Act passed by the Oireachtas.

In practical terms, this means that the Irish Revenue can be asked to enforce tax debts to foreign governments.

Can the Government enter into arrangements with non-governmental authorities of other countries?

(1D) For the purpose of giving relief from double taxation and for the purpose of exchange of information the Government can enter into such arrangements and the order giving effect to them has the force of law.

How is a tax credit under a DTA calculated?

(2) Where an Irish double tax treaty allows a tax credit for tax paid in another State, the detailed rules in Schedule 24are used to calculate the amount of credit to be allowed.

Where US tax is shown in a Lloyd’s account, credit is given in the tax year for which the accounts form the basis period. If there are losses, the effective Irish tax rate is nil. In these circumstances, the US tax is allowed as a deduction (Revenue Precedent IT92-3078, 16 October 1992).

No credit is available in this country for UK composite rate tax which applied to interest payments on deposits from 6 April 1985 to 5 April 1991 (Revenue Precedent IT93-2008, 23 February 1993).

Can there be retrospective relief?

(3) A double tax treaty may provide retrospective relief. It may also specify the kind of income or gains to be relieved (or not relieved).

Who has power to agree a DTA?

(4) A double tax treaty made with the head of a foreign State is regarded as having been made with the government of that State.

Can the order which incorporates a DTA into Irish law be revoked?

(5) The order which incorporates a tax treaty’s terms into Irish law may be revoked by the government. The revoking order may contain any transitional measures deemed necessary.

Must such orders be approved by the Dáil?

(6) An order to incorporates a tax treaty’s terms into Irish law (or to revoke such an order) must be laid before and passed by Dáil Éireann.

Do the “mutual assistance” clauses in a DTA affect Revenue’s secrecy obligations?

(7) In so far as Revenue are obliged to disclose information under a tax treaty’s “mutual assistance” clause or any Protocol or Convention, the official secrecy obligations imposed on Revenue in relation to a person’s tax affairs do not apply.

Mutual assistance: Ireland includes article 26 of the OECD model in all of its tax treaties. This article, designed to supplement article 9 (transfer pricing) allows the States who are parties to the tax treaty to exchange information obtained in the normal course of the administration of tax law.

What if a company’s accounting period straddles the effective date of a treaty?

(8) Where a company’s accounting period straddles the effective date of a tax treaty (see below), double tax relief is apportioned in proportion to the number of months in the period ending before and after the effective date, so that relief is only given for the part of the accounting period covered by the treaty arrangements.

Example

Your company trades with countries in Eastern Europe. Its latest accounts are for the year ended 30 June 1997.

The company suffered €5,000 Hungarian tax during the year, for which a tax credit is due.

You are entitled to a tax credit of (6/12) x €5,000 = €2,500, as the treaty effective date was 1 January 1997.

Can Revenue make further regulations regarding double taxation?

(9) The Revenue Commissioners may make regulations regarding the administration of double tax treaties, to ensure:

(a) that treaty relief is not obtained if there is no entitlement to relief (for example, for a non-resident),

(b) that withholding tax, if not deducted, may be recovered from the person who should have made the deduction.

Treaty shopping: A double tax treaty is intended to be used by the residents of the two contracting states (articles 1 – 4 of the OECD model convention, see also Sch 24 para 3). It confers substantial benefits on the residents of both states, especially through the reduction or elimination of tax on interest, royalties and dividends.

“Treaty shopping” describes the situation where a person resident in a third state seeks to obtain the benefit of a tax treaty between two other countries.

In its simplest form, treaty shopping seeks to benefit from the existing relationship between two treaty partners.

Example

There is no double tax treaty between Ireland and Argentina.

However, the UK has a tax treaty with Argentina.

If income from Argentina is routed through a UK resident company, it is subject to the UK-Argentina double tax treaty, and may then be routed to Ireland under the UK-Ireland double tax treaty.

How are non-governmental authorities covered by the Act?

(10) For the purposes of an order under subsection (1D) references in the Act to a country shall be deemed to include references to a territory and to a non-governmental authority referred to in the order.

Section 826A Unilateral relief from double taxation

If a DTA doesn’t specifically provide for relief, can any relief be obtained?

Double tax relief only applies where the treaty in question allows such relief. For example, Ireland’s treaty with France provides relief from double taxation in relation to income tax and corporation tax but not capital gains tax.

Under this new rule, Ireland will give unilateral relief in respect of double taxation.

Example

On 1 May 2009, you sell a property in France and incur French CGT of €15,000.

The Irish CGT is €20,000. You may claim unilateral relief (tax credit) for the French CGT. Your net Irish liability is therefore €5,000.

Section 827 Application to corporation tax of arrangements made in relation to corporation profits tax under old law

Does a DTA agreed before the introduction of corporation tax have effect in relation to corporation tax?

References in double tax agreements made before 31 March 1976 (introduction of corporation tax (CT)) to profitschargeable to corporation profits tax, may be read as references to income chargeable to corporation tax.

Revenue may continue to disclose information without breaching official secrecy under a double tax treaty’s mutual assistance clause relating to corporation tax (where previously the disclosure would have related to corporation profits tax).

Revenue may continue to give tax credits relating to corporation tax (where previously the tax credits would have related to corporation profits tax).

Section 828 Capital gains tax: double taxation relief

Can a DTA cover capital gains tax?

(1) A double tax treaty may be agreed by the Irish government with the government of another country in respect of capital gains tax.

Where such a treaty allows a tax credit for tax paid in another State, the detailed rules in Schedule 24 are used to calculate the amount of credit to be allowed.

Can a DTA credit against Irish CGT be allowed against income tax or CT?

(2) Where a treaty allows a tax credit for tax paid in the other State against Irish capital gains tax, the tax credit is not allowed against income tax or corporation tax.

Does a mutual assistance clause affect general secrecy obligations?

(3) In so far as Revenue are obliged to disclose information under a tax treaty’s “mutual assistance” clause, the official secrecy obligations imposed on Revenue in relation to your tax affairs do not apply.

If foreign CGT is not allowed as a tax credit, can any relief be given?

(4) Foreign capital gains tax paid on the disposal of an asset, if not allowed as a tax credit, is to be allowed as a deduction when calculating (for the purposes of Irish capital gains tax), the chargeable gain on the disposal of the asset.

Section 829 Treatment for double taxation relief purposes of foreign tax incentive reliefs

When do “tax sparing” reliefs apply?

(1) Irish “tax sparing” relief applies where double tax relief is used to promote industrial, commercial, scientific, educational or other development in another country.

The phrase “tax sparing” is used to describe a tax incentive relief intended to promote inward investment from a capital exporting country to a developing country, for example, a tax “holiday” under which the profits of a new factory will be liable to no tax (or a low rate of tax) for a limited period.

What is the effect of a tax sparing clause?

(2) Where an Irish tax treaty contains a tax sparing clause, full credit is given against Irish tax for the tax that would have been payable but for the relief operated in the other country.

Example

Where a capital exporting country uses the exemption method for avoiding double taxation, the tax charged by that country does not diminish the value of the benefit. However, if the capital exporting country applies the credit method, a problem arises. The remedy is that the capital exporting country should give “matching” credit, not only for any tax remaining chargeable but also for the tax which the developing country would have imposed but for the operation of the relief in question.

Assume that the imaginary country Zenubia applies a 2% tax to the profits of new industrial businesses for a period of 10 years. The normal rate of Zenubian tax on other profits of industrial businesses is 30%.

Assume an Irish investor builds a factory which makes a profit of €50,000 in the first year of operation, and the net profit (€49,000 after 2% tax) is remitted to Ireland.

If Ireland applied an exemption system (see notes to introduction to Part 35) to the profits, the €49,000 would not be liable to Irish tax, having already suffered the 2% Zenubian tax.

However, because Ireland applies the credit system, the €50,000 is liable to Irish corporation tax at 25% (Case III), giving an Irish tax liability of €10,000, against which the €1,000 Zenubian tax paid may be set off, leaving a net liability of €9,000.

In effect, where credit is given for the actual tax paid and not for the further tax which would have been payable in the absence of the incentive relief [i.e., (25%-2%) x €50,000 = €11,500], the benefit which the developing country intended to confer on the taxpayer concerned would be nullified. The Zenubian government’s sacrifice of revenue could accrue to the ultimate advantage of the exchequer of Ireland, the capital exporting country.

How does tax sparing relief operate in practice?

In practice, in order to preserve developing country tax incentives, most developed countries provide for a “tax sparing” credit to operate in many of their double tax treaties with developing countries. Where tax sparing credit is given, the investor is deemed to have paid the tax forgone in the country of source, so that the investor’s country of residence allows a tax credit for the tax not charged by the developing country. The tax incentive given by the developing country is thus carried through to the developed country.

Ireland extends tax sparing to Cyprus, Pakistan and Zambia.

In practice, Ireland receives tax sparing from Austria, Belgium, Canada, Denmark, Finland, France, Germany, Italy, Japan, Luxembourg, the Netherlands, Norway, Sweden, and Switzerland.

What regulations can Revenue make in this regard?

(3) The Revenue Commissioners may make regulations regarding the administration of tax sparing relief:

(a) to apply any income tax provisions, including appeal provisions, and

(b) to ensure that dividends paid from tax-spared profits are not treated as income or profits for tax purposes.

Section 830 Relief to certain companies liable to foreign tax

What is meant by “external tax”?

(1)-(2) External tax means tax corresponding to Irish income tax or corporation tax payable in a country with which Ireland has no tax treaty. It does not include state or local taxes.

What tax credit is available on export sales-relieved profits in a foreign subsidiary?

(3) Where a company invests export sales-relieved profits, or Shannon exempt profits, in a 51% subsidiary in such a country, and subsequently pays external tax on a dividend or interest from that subsidiary, it may claim a tax credit for the lesser of:

(a) 50% of the corporation tax that would otherwise have been payable by the company on that income, and

(b) the external tax payable on that income.

What rules apply in calculating the tax credit allowed?

(4) External tax paid by the subsidiary on its profits may be taken into account in considering whether the external tax has been paid on the dividend or interest paid by the subsidiary to your company.

The detailed rules in Schedule 24 are used to calculate the precise tax credit to be allowed.

Is there a limit to the amount of relief allowed?

(5) This relief may not be used to reduce the aggregate corporation tax and external tax payable by a company on dividend or interest income from a subsidiary in a non-treaty country below the corporation tax that would have been payable on that income had it arisen in the State.

The corporation tax that would have been payable by the company (on the dividend or interest income) is calculated without allowing any deduction or tax credit for the external tax.

How is the relief granted?

(6) The external tax is to be credited against corporation tax chargeable on a company’s dividend or interest income from the subsidiary.

What rules apply to the procedure for claiming this relief?

(7) A claim for this relief must be made in writing within six years of the end of the accounting period to which the claim relates.

If the inspector refuses to allow the claim, there is a right to have the case heard by the Appeal Commissioners as an appeal against a corporation tax assessment, and where necessary to have the case reheard by a Circuit Court Judge. There is also a right to have a case stated for the opinion of the High Court on a point of law.

Section 831 Implementation of Council Directive No 90/435/EEC concerning the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States

What is the Parent-Subsidiary Directive?

(1) This section implements in Irish law the Parent-Subsidiary Directive which requires that where a parent company receives a distribution from its 25% subsidiary in another EU State, the parent company’s EU State must either exempt the distribution from tax, or give credit for the tax paid by the subsidiary.

The subsidiary’s EU State (with the exception of Germany, Greece and Portugal) may not apply withholding tax to the dividend.

The parent’s EU State must not apply withholding tax at source (where, for example, the distribution, on arrival in the parent’s EU state, is paid through a paying agent).

A company means a company of an EU Member State. This is defined in the Parent-Subsidiary Directive for each Member State.

A parent company is:

(i) a company resident in the State that owns at least 5% of the share capital of a non-resident company, or

(ii) a non-resident company that owns at least 5% of the share capital of a company resident in the State.

A tax treaty (or protocol to a tax treaty) between the Irish government and the government of another country (i.e., abilateral agreement) may provide a stricter definition of parent company: that a company is only regarded as a parent during a continuous two year period throughout which it owns 5% of the share capital (or voting rights) in the other company. In such a case, the stricter treaty definition applies.

A distribution means income payable to shareholders entitled to participate in the company’s profits. It includes amounts treated as income of the subsidiary under the tax laws of the country in which the subsidiary is resident.

Tax means tax imposed by a treaty country (relevant territory) which corresponds to Irish income tax or corporation tax.

Foreign tax means tax payable under the laws of another EU State, of a kind listed in the Directive, which is substantially similar to Irish income tax or Irish corporation tax.

Note

Two year holding period for 25% share: Denkavit International BV and others v Bundemsamt für Finanzen, ECJ 291/94, 292/94, [1996] STC 1445.

Is there a credit for tax on a distribution from an EU subsidiary?

(2) Where an Irish parent company receives a distribution from an EU subsidiary it is entitled to a credit against Irish CT for:

(a) Withholding tax charged on the distribution by the other EU State.

(b) Foreign tax (other than withholding tax) borne by the subsidiary which is properly attributable to the proportion of its profits represented by the distribution, in so far as that foreign tax exceeds the normal level of tax credit payable on the distribution (for the EU State in which the subsidiary in resident).

(c) Foreign tax that would be fall to be allowable as a credit to the relevant company on the basis that such tax was suffered by its (connected, i.e., 5%) subsidiary – but without the need for the 5% connection. In other words, tax suffered by lower tiers of subsidiaries may be taken into account for the purposes of credit relief to the parent receiving dividends from its EU subsidiaries, provided there is a 5% shareholding at each tier.

A credit is not given for a distribution received on a winding up (a capital distribution).

Such a distribution is not to be treated as a foreign dividend (payable out of securities of non-resident persons and assessable at source on a paying agent under Schedule D).

How does the credit apply if a subsidiary is tax transparent in the parent State?

(2A) This deals with the situation where a subsidiary is regarded as a company in its home EU State but is treated as transparent for tax purposes in its parent’s EU State. In this case, proportionate credit is allowed to the parent.

What rules apply to calculate the credit?

(3) The detailed rules in Schedule 24 are used to calculate the precise tax credit to be allowed.

Do these rules affect existing tax treaties?

(4) The credit rules are not to disturb any existing tax treaty arrangements.

Must an Irish company deduct DWT from a dividend to to a non-resident parent?

(5) An Irish company need not deduct DWT from a distribution to a non-resident parent.

When must an Irish company deduct DWT?

(6) DWT must be deducted (i.e., subs (5) does not apply) if the majority voting rights in your company are controlled by persons other than residents of the treaty country.

However, if it can be shown that a company exists for bona fide commercial reasons and not as part of a tax avoidance scheme, DWT need not be applied.

Are there anti-avoidance provisions?

(7) Yes. The benefits of the parent-subsidiary directive will not apply if a main purpose of the arrangement is to obtain a tax advantage and the arrangement is not genuine, i.e. the arrangement is not put into place for valid commercial reasons.

Section 831A Treatment of distributions to certain parent companies

Must withholding tax be applied to a payment made to a 25% parent which is resident in another EU State?

(1) As part of the agreement between the EU and Switzerland, by which Switzerland would implement the EU Savings Directive and apply withholding tax to interest payments, it was agreed that Swiss companies would be extended the benefits of the EU Parent-Subsidiary Directive.

Under the terms of that Directive Irish company need not apply withholding tax on a payment made to its 25% parent which is resident in another EU State.

The agreement extends the benefit of that Directive to parent companies which are resident and subject to tax in Switzerland in respect of dividends received from their EU-based 25% subsidiaries. The exemption only applies to companies of the type listed in the agreement with Switzerland.

What DWT rules apply on dividends to Swiss parents?

(2) An Irish company which is a 25% subsidiary of a company which is resident and taxed in Switzerland, need not apply dividend withholding tax (DWT) on dividends paid to its Swiss “parent” (since 1 July 2005).

Section 832 Provisions in relation to Convention for reciprocal avoidance of double taxation in the State and the United Kingdom of income and capital gains

What is meant by “the Convention”?

(1) The Convention means the Ireland/UK double tax treaty (SI 319/1976).

Article 11(4) of the Ireland-UK Double Tax Agreement which is contained in the Double Taxation Relief (Taxes on Income and Capital Gains)(United Kingdom) Order 1976 (SI 319/1976).

Does the remittance basis still apply?

(3) Yes. The remittance basis, which was not available to non-domiciled and non-ordinarily resident persons, in respect of UK source income, is now available section 73(2).

What income is included in computing a friendly society’s liability to Irish tax?

(4) UK friendly societies carrying on life assurance business (section 707) in the State may only deduct management expenses attributable to contracts made on or after 6 April 1976.

Income attributable to contracts made before that date is to be ignored in the computation of the friendly society’s liability to Irish corporation tax.

Section 833 Convention with United States of America

Amendments

Section 833 deleted by Finance Act 1998 section 48 and Schedule 3 para 10 from 1 January 1998, the effective date of the Double Taxation Relief (Taxes on Income and Capital Gains) (United States of America) Order 1997 (S.I. 477/1997).

Section 834 Relief in respect of ships documented under laws of United States of America

Amendments

Section 834 deleted by Finance Act 1998 section 48 and Schedule 3 para 10 from 1 January 1998, the effective date of the Double Taxation Relief (Taxes on Income and Capital Gains) (United States of America) Order 1997 (S.I. 477/1997).

Section 835 Saver for arrangements made under section 362 of Income Tax Act, 1967

Which sea and air transport agreements are still in force?

Sea and air transport agreements with South Africa (SI 210/1959) and Spain (SI 26/1977) continue in force.

Section 835A Interpretation

What definitions apply for the purposes of transfer pricing?

(1) Transfer pricing is a method of shifting profits (usually between group companies under common control) from a high tax country (e.g. the US, 35%) to a low tax country (e.g. Ireland, 12.5%) by artificially increasing the price charged by the entity in the low tax country.

These rules counter these practices by providing that where a relevant person benefits as a result of such anarrangement, arm’s length prices should be substituted in place of the price charged.

How is “control” defined in relation to transfer pricing?

(2) Control means the power a person has to secure that that company’s affairs are conducted in accordance with that person’s wishes.

Section 835B Meaning of associated

When are persons regarded as “associated” for the purposes of transfer pricing?

(1) Two persons are regarded as associated if one participates in the management, control or capital of the other, orthe same person participates in the management, control or capital of both persons.

Person A is regarded as participating in the management, control or capital of Person B only if Person B is a company controlled by Person A.

When is a company treated as controlled by an individual?

(2) A company is treated as controlled by an individual if it is controlled by that individual and his/her relatives, i.e. persons connected with him/her.

Section 835C Basic rules on transfer pricing

Transfer Pricing Documentation Obligations: Tax Briefing Issue 07 – 2010

What type of transactions are covered by the transfer pricing rules?

(1) The transfer pricing rules apply where there is a transfer pricing arrangement, i.e.:

(a) there is an arrangement involving the supply and acquisition of goods, services, money, or intangible assets,

(b) the supplier and the acquirer are associated at the time of the supply,

(c) the profits from the relevant activities are chargeable to tax under Schedule D Case I or II.

How are transfer pricing rules given effect?

(2) Where the actual consideration payable exceeds the arm’s length amount, the acquirer’s profits are computed as if the arm’s length amount were substituted for the actual consideration paid.

Where the actual consideration receivable is less than the arm’s length amount, the supplier’s profits are computed as if the arm’s length amount were substituted for the actual consideration receivable.

What is the meaning of “arm’s length amount” in the context of transfer pricing?

(3) The arm’s length amount is the consideration that would have been agreed between independent parties had such parties entered into the arrangement.

Section 835D Principles for constructing rules in accordance with OECD guidelines

What OECD material relates to transfer pricing?

(1) The OECD has published its own transfer pricing guidelines and these have been updated by supplements published in 1996, 1997 and may be updated by future material.

The OECD also publishes a Model Tax Treaty, Article 9(1) of which sets out rules in relation to transfer pricing.

How are the transfer pricing rules applied?

(2) Profits under Schedule D Case I or II are to be computed in the basis that the OECD’s transfer pricing guidelines have effect (even if no tax treaty exists). However, the implementation of the OECD’s transfer pricing guidelines does not override double tax relief under a treaty.

Can the Minister for Finance include additional OECD material under these transfer pricing rules?

(3) The Minister for Finance may make an order designating any additional material issued under OECD transfer pricing guidelines to be part of the transfer pricing guidelines.

Must orders in relation to transfer pricing be approved by Dáil Éireann?

(4) Yes, any orders (see (3)) in relation to transfer pricing must be laid before and passed by Dáil Éireann.

Section 835E Small or medium-sized enterprise

Are any companies exempt from the transfer pricing rules?

(1) Yes – the transfer pricing rules do not apply to small or medium-sized enterprises (see (2)).

Which enterprises can be classed as small or medium-sized?

(2) A small or medium-sized enterprise is defined under EU law in the Annex to the Commission Recommendation – broadly, it must have less than 250 employees and turnover of less than €50m, or assets of less than €43m.

Section 835F Documentation and enquiries

Transfer Pricing Documentation Obligations: Tax Briefing Issue 07 – 2010

What records must be kept in relation to transfer pricing?

(1) A person must keep such records as are necessary to determine that person’s liability to income tax under Schedule D Case I or II.

What rules apply in relation to transfer pricing records?

(2) The records must be kept on a timely basis in written form, or electronically in a Revenue-approved format.

What Revenue powers apply in relation to transfer pricing records?

(3) An authorised Revenue officer may:

(a) call for the production of such records (section 900), and

(b) apply to the High Court to order a person to produce such records.

Who may initiate an enquiry in relation to transfer pricing?

(4) An enquiry relating to transfer pricing matters may only be initiated by an authorised Revenue officer.

Section 835G Elimination of double counting

Does a transfer pricing adjustment apply to the supplier and the acquirer?

(1) Yes. The profits and losses are computed as if an arm’s length price were substituted for the actual consideration receivable or payable, as the case may be.

Does a transfer pricing adjustment affect credits for closing trading stock?

(2) No. The acquirer’s figure for closing trading stock does not need to be adjusted.

When can an acquirer eliminate double-counting by substituting an arm’s length price?

(3) The acquirer may only substitute that arm’s length price after the supplier has paid the tax due by him on the basis of arm’s length price.

How does a transfer pricing adjustment affect credit for foreign tax?

(4) The foreign tax credit is recalculated based on the arm’s length price (in place of the actual consideration payable or receivable).

Can group companies elect not to make a transfer pricing adjustment?

(5) Yes. Such an election must be made on writing to the Inspector on or before the return filing date for the supplier.

How can Revenue enforce a transfer pricing adjustment?

(6) Revenue can make any adjustments they consider necessary by making, or amending, an assessment.

Section 835H Capital allowances

Are capital allowance computations, charges and allowances subject to transfer pricing adjustments?

No.

Section 836 Allowances for expenses of members of Oireachtas

How are expenses paid to Oireachtas members taxed?

(1) Expenses paid to a TD or senator (i.e., Oireachtas member) are exempt from income tax.

Does the income tax exemption for Oireachtas members apply to other allowances?

(1A) The income tax exemption mentioned in (1) also applies to:

(a) certain allowances payable to Oireachtas members in respect of travelling facilities,

(b) allowances payable under the Oireachtas (Allowances to Members) Act 1962 section 1 or 2.

What expenses are deductible for Schedule E tax calculations?

(2) An Oireachtas member may not therefore deduct such expenses when calculating tax due under Schedule E.

However, a government minister, junior minister or the Attorney General, who is also a TD (or senator) for a constituency outside the greater Dublin area, is allowed to deduct the costs of maintaining a second residence which he/she obliged to maintain as a consequence of his/her Oireachtas duties but not Local Property Tax or water charges..

Section 837 Members of the clergy and ministers of religion

What expense deductions can a member of the clergy or a religious minister claim?

A minister of any religious denomination, in calculating his/her income for tax purposes, is allowed to deduct any expenses incurred wholly, exclusively and necessarily in the performance of his/her profession.

A deduction of up to one-eighth of the rent paid for a residence used for ministerial duties may be claimed.

For cases on clergyman’s expenses see Charlton v Corke (1890) 27 SLR 647; Lothian v Macrae (1884) 2 TC 65;Jardine v Gillespie, (1906) 5 TC 263; Friedson v Glyn-Thomas, (1922) 8 TC 302; Butcher v Chitty, (1925) 9 TC 301;Mitchell v Child, (1942) 24 TC 511.

Section 838 Special portfolio investment accounts

Amendments

This section is now spent.

 

Section 839 Limits to special investments

Amendments

This section is now spent.

Section 840 Business entertainment

What is meant by “business entertainment”?

(1) Business entertainment means entertainment (including food, drink, hospitality or accommodation) provided by a person, a member of staff or a service-provider, in connection with the person’s trade, business, profession or employment.

A member of staff means an employee and, in the case of a company, it also includes a director or manager of the company.

It does not include anything provided for bona fide staff members unless its provision for them is incidental to its provision for others.

Expenses incurred in providing entertainment also include expenses incurred in providing anything incidental to that entertainment.

The use of an asset for providing entertainment also includes the use of the asset in providing anything incidental to that entertainment.

Service-provider: for example, the costs of a public relations firm in providing a drinks party. The “food and drink” element of their costs is disallowed (see (6)).

Bona fide staff members: allows, for example, the costs of a staff canteen or Christmas party.

The leading case on entertainment expenses is Bentleys, Stokes and Lowless v Beeson, (1952) 33 TC 491. See alsoFleming v Associated Newspapers Ltd, (1972) 48 TC 382.

Are business entertainment expenses deductible?

(2) Business entertainment expenses, and gifts, may not be deducted in computing:

(a) profits chargeable to tax under Schedule D,

(b) an investment company’s management expenses (sections 83, 707),

(c) an employee’s employment-related expenses (section 114).

A trader may offer a “free gift” to a customer who buys certain items, for example he/she may give a radio worth €20 to each purchaser of a washing machine (worth €400). In these circumstances, the contract between the trader and the customer involves both the washing machine and the radio. In effect, the radio is not a “free gift”, and the cost of the radio is allowable (section 81). The cost of the radio is not disallowable as entertainment expenditure.

The cost of providing accommodation to a foreign potential customer is regarded as entertainment expenditure and therefore is not an allowable deduction (Revenue Precedent IT95-3505, 26 October 1994).

Can plant or machinery allowances be claimed on an asset used for business entertainment?

(3) Expenditure on an asset used for business entertainment (for example, a yacht or an aircraft) will not qualify for machinery or plant capital allowances, to the extent that it is used for business entertainment.

What if staff are paid for business entertainment?

(4) Business entertainment expenses includes sums paid on behalf of, or placed at the disposal of, staff members for business entertainment.

Is the full amount paid to a service provider disallowed?

(5)-(6) Only the business entertainment element of an amount paid to a service-provider is disallowed.

That element is to be determined by the inspector to the best of his/her knowledge and judgment.

The inspector’s decision may, on appeal, be amended by the Appeal Commissioners or a Circuit Court Judge.

Section 840A Interest on loans to defray money applied for certain purposes

Is interest on a loan used to acquire assets from a connected company deductible?

(1)-(2) Where an investing company borrows money from a connected company and uses it to acquire assets from a connected company, the interest on the loan is not deductible.

Is interest on a loan used to acquire a trade from a company outside the charge to corporation tax deductible?

(3) Where an investing company borrows money and uses it to acquire a trade from a company outside the charge to corporation tax, the interest deduction is limited to the chargeable profits of the acquired trade.

Is interest restricted where a company acquires part of a trade?

(4) Yes. The part of a trade is treated as it it were a separate trade.

How does the interest restriction apply in the case of an acquired trade?

(5) An acquired trade carried on by the investing company is to be treated as a separate trade and profits are to be apportioned between the existing trade and the acquired trade. The profits of the acquired trade must not exceed what they would be if that trade were carried on by an independent company acting on an arm’s length basis.

How does the interest restriction apply in the case of an acquired asset?

(6) This applies where:

(a) an acquired asset is leased for use in a trade (the first-mentioned trade) carried on by the investing company, and

(b) before being acquired, the asset was not used for a trade within the charge to corporation tax.

In such a case, the interest deduction is restricted to profits of the trade attributable to the acquired asset.

Does the interest restriction apply where money has been on-lent from unconnected persons?

(7) The interest restriction does not apply where the interest is payable to a company (the first-mentioned company) whose sole business is on-lending to the investing company money which it has borrowed from unconnected persons.

Is interest disallowed in the case of a securitisation company?

(8) No.

Does the denial of relief in (2) cover more complex arrangements?

(9) This rule applies where a person (the first-mentioned person) unconnected with the investing company, receives funds from a person connected with that company.

In such a case, the funds are treated as having been received by the investing company from a connected person.

Section 841 Voluntary Health Insurance Board: restriction of certain losses and deemed disposal of certain assets

Is the VHI Board subject to tax?

(1) Yes. From 1 March 1997, the Voluntary Health Insurance Board is no longer exempt from corporation tax.

Can the Board use losses before 1997?

(2) Losses incurred by the Board in accounting periods ending before that date may not be brought forward for set off against profits of later periods.

How were investments of the Board treated when the CGT exemption ceased?

(3) The Board is deemed to have disposed of and immediately reacquired its investments (bonds and shares held as part of its private health insurance business) at market value on 28 February 1997.

In calculating capital gains tax, if any, due on a later disposal of such investments, their acquisition cost is taken to be their market value on 28 February 1997. The part of the gain earned on such investments while the VHI was exempt is not taxed.

Section 842 Replacement of harbour authorities by port companies

What is a “relevant port company”?

(1) A relevant port company is a harbour company formed under the Harbours Act 1996 section 7 or section 87.

What rules apply on the transfer of assets to a port company?

(2) Where assets are transferred from a harbour authority to a relevant port company, the detailed rules in Schedule 26apply to ensure that no capital gains tax or balancing adjustments arise.

From what date do these rules apply?

(3) These rules apply from 1 March 1997.

Section 843 Capital allowances for buildings used for third level educational purposes

What definitions apply to capital allowances for buildings used for third level education?

(1) Qualifying expenditure on the construction of a qualifying premises used for third level education, or for associated sports and leisure activities, by an approved institution together with expenditure on related machinery or plant, may qualify for a deemed industrial building allowance known as a college building allowance.

A premises that already qualifies for an industrial building allowance under section 268 (for example, a hotel) does not also qualify for a college building allowance.

If the Minister for Education and Science on the advice of the Higher Education Authority (an tÚdarás), or the Minister for Health and Children, with the consent of the Minister for Finance, does not approve the expenditure, it does not qualify.

The qualifying period within which expenditure must be incurred is 1 July 1997 to 31 July 2006 (31 July 2008 where the conditions in (1A) are met).

An approved institution is a third level institution which:

(a) is recognised under the Higher Education Act 1971 section 1,

(b) receives public funds and provides higher education courses approved for grant purposes by the Department of Education,

(c) provides third level health and social services education and is approved by the Minister for Health and Children.

To qualify, no part of the building may be used as a home, and it must be let to the approved institution.

A qualifying premises for the purposes of section 843 means, inter alia, one which is let to an approved institution. A wholly-owned subsidiary of an approved institution may be regarded as such an institution. Accordingly, if a company is a wholly-owned subsidiary of the approved institution the premises may be let to the company and as long as it is used by the approved institution for the purposes of third level education it will be a qualifying premises (Revenue Precedent, 23 November 2000).

In what circumstances is the relief time period extended?

(1A) The extension to 31 July 2008 applies where not less than 15% of the overall construction cost has been carried out on or before 31 December 2006.

Do the industrial buildings rules apply?

(2) The college building is treated for tax purposes as an industrial building and all of the rules contained in Part 9 relating to industrial buildings (other than section 317(2) which disallows any grant aided part of the expenditure) apply.

When must the expenditure be incurred?

(2A) Only expenditure incurred within the qualifying period qualifies for capital allowances.

What is the annual writing down allowance?

(3) The annual writing down allowance is 15% for the first six years, and 10% in the seventh year.

Example

(Third level education building)
Construction or refurbishment (section 276) expenditure: 100,000

An owner-operator (or lessor) can claim 15% annual allowance (€15,000), for six years and €10,000 in the seventh year, i.e., until the maximum allowable expenditure (€100,000) has been fully allowed.

If the premises is sold before the end of its seven year writing down life, the purchaser is entitled to write off the residue of the expenditure over the remainder of the writing down life.

What certification requirements apply?

(4) At least half of the qualifying expenditure must be certified by the Minister for Finance as having been met by sources other than the State (i.e., the private sector).

In the case of a building used for sports or leisure activities associated with a third level college, the certification must be made before 1 July 2001.

The private part of the funding must be used to:

(a) pay interest on money borrowed to construct the building,

(b) pay rent on the building during the letting period,

(c) repurchase the building at the end of the letting period.

What if the building is sold more than seven years after first used?

(5) Where the college building is sold more than seven years after it was first used, no balancing charge arises.

See also: Tax Briefing 44.

What is the deadline for granting a certification under (4)?

(6)-(7) The Minister may not give a certificate unless the application was made before 1 January 2005.

Can the powers of approval be delegated?

(8) The Minister for Education and Science and the Minister for Finance may delegate their powers of approval under this section, either generally or in respect of a particular project, to the Higher Education Authority.

Since it is a deemed industrial building annual allowance, the college allowance applies for each period after that date in which the building is used as a college building.

Can expenditure for future works paid in advance of the deadline be claimed?

(9) Where work on the construction of a qualifying premises straddles the 31 July 2006 deadline, only expenditure attributable to work carried out before that date qualifies for capital allowances.

Section 843A Capital allowances for buildings used for certain childcare purposes

What is the purpose of the childcare facility allowance?

(1) Qualifying expenditure on the construction, conversion or refurbishment of a qualifying premises used to provide childcare services, i.e.:

(a) a pre-school service, or

(b) a pre-school service together with a day care centre for children other than pre-school children,

may qualify for a deemed industrial building allowance known as a childcare facility allowance if the premises complies with the Child Care (Pre-School Services) Regulations 1996 article 9-11.

A premises does not qualify for a childcare facility allowance if:

(a) it already qualifies for an industrial building allowance under section 268 (for example, a hotel),

(b) any part it is in use as a dwelling.

The qualifying period generally means 1 December 1999 to 30 September 2010. It extends to 31 March 2011 in the cases mentioned in (6)(a), and to 31 March 2012 in the cases mentioned in (6)(b).

A property developer, i.e., a person whose trade consists wholly or mainly of building or refurbishing properties in order to sell them may not be entitled to these capital allowances: see (5) below.

The requirements of articles 9-11 relate to giving notice to a relevant Health Board by a person carrying on or proposing to carry on a pre-school service or notification of a change in the circumstances of such a service and the payment of the required fee.

(Tax Briefing 37, October 1999).

Do the normal industrial building rules apply?

(2) The childcare facility is treated for tax purposes as an industrial building and all of the rules contained in Part 9 relating to industrial buildings apply.

If any part of the building is in use as a dwelling house, retail shop, showroom or office, the expenditure does not qualify, unless on the expenditure on the non-qualifying part does not exceed 10% of the total expenditure (section 268(7)-(8)).

Example

If a garage is converted into a childcare facility, or a house is extended to provide such a facility, expenditure on a hallway which is used as the entrance to the dwelling house and the childcare facility will not qualify for the allowance.

Source: Tax Briefing 37, October 1999.

See above note regarding the 10% rule.

To what extent is a capital allowance given in respect of a childcare facility?

(2A) A capital allowance is given in respect of a childcare facility to the extent to which expenditure is incurred in the qualifying period. In other words, expenditure incurred outside the qualifying period does not qualify.

What is the amount of the annual allowance?

(3) As regards qualifying expenditure incurred in the qualifying period (see (1)), the annual writing down allowance is 15% for the first six years, and 10% in the seventh year.

Example

(Childcare facility)
Construction or refurbishment (section 276) expenditure: 100,000

As an owner-operator (or lessor), you can claim 15% annual allowance (€15,000), for six years and €10,000 in the seventh year, i.e., until the maximum allowable expenditure (€100,000) has been fully allowed.

If the premises is sold before the end of its writing down life, a purchaser is are entitled to write off the residue of the expenditure over the remainder of the writing down life. In general, the writing down life is seven years, but it is 15 years for a building first used on or after 1 February 2007.

The right of a lessor of, or passive investor in, a qualifying premises to set excess capital allowances for a tax year against other income is restricted to the excess, or €31,750, whichever is lower (section 409A).

Can both free depreciation and initial allowance be claimed?

(3A) No. As regards qualifying expenditure incurred on or after 1 December 1999, qualifying expenditure qualifies for up to 100% free depreciation or a 100% industrial building initial allowance.

Example

Qualifying premises, qualifying expenditure: €100,000

As an owner-occupier, you can either claim:

(a) free depreciation of up €100,000 (100%), or

(b) an initial allowance of €100,000 (100%).

As a lessor, you could claim an initial allowance of €100,000 (100%).

Note

1. Lessors of commercial premises are not entitled to free depreciation.

2. Free depreciation and industrial building (initial) allowance cannot both be claimed for the same premises for the same chargeable period (section 273(8)).

The right of a lessor of/investor in a qualifying premises to set excess capital allowances for a tax year against other income is restricted to the excess, or €31,750, whichever is lower (section 409A).

At what point will a balancing allowance or charge no longer arise?

(4) No balancing allowance or charge arises where the childcare facility is sold more than 10 years after it was first used, or in the case of a refurbished premises (section 276), more than 10 years after the refurbishment expenditure was incurred.

Does a longer period apply in any case?

(4A) In the case of a premises first used on or after 1 February 2007, no balancing allowance or charge arises where the childcare facility is sold more than 15 years after it was first used, or in the case of a refurbished premises, more than 15 years after the refurbishment expenditure was incurred.

Are there restrictions to allowances for property developers?

(5) These capital allowances do not apply to expenditure incurred by a property developer on building, converting or refurbishing a property where:

(a) the developer holds the relevant interest (section 269) in the property on which the expenditure was incurred, and

(b) he/she or a person connected (section 10) with him/her incurred that expenditure.

Example

You are a property developer who incurs the following expenditure on constructing a property:

Qualifying premises construction expenditure: 1,000,000

Since you are a property developer, in the absence of this subsection, if you were to let the property to a person carrying on such operations, as a lessor, you could claim an initial allowance of €1,000,000 (100%).

Because you are a property developer, you cannot claim these “lessor” allowances.

Note

You may try to get around this restriction by having the development undertaken by a newly formed separate company (X Ltd.) which is not a “property developer”. This will not work if you and X Ltd. are under common control (section 10(6)).

Property Developers and Capital Allowances: Tax Briefing Issue 69 – 2008

When does the capital allowance scheme for childcare facilities terminate?

(6) The capital allowance scheme for childcare facilities ceases from 30 September 2010 (see (1)). However, if the required planning permission, and 30% of the construction costs, have been incurred by 30 September 2010, the deadline is 31 March 2011.

If outline planning permission has already been received, there is no requirement for 30% of the expenditure to have been incurred by 30 September 2010. The deadline is 31 March 2012.

How much expenditure on childcare facilities qualifies for relief?

(7) Where capital expenditure straddles the start date or end date of the qualifying period, only expenditure properly attributable to work carried out within the qualifying period qualifies for relief.

Section 844 Companies carrying on mutual business or not carrying on a business

How is a company carrying on a mutual business taxed?

(1) A mutual business is one that is “mutually” owned by its members.

If a company carrying on mutual business (including mutual insurance business) makes a profit distribution derived from such activities to a participating member, the distribution is regarded as a distribution for the purposes of corporation tax or Schedule F, to the extent that the profits are within the charge to corporation tax. Therefore, such a distribution is potentially subject to dividend withholding tax (section 172B).

Trading with non-members is not mutual and is taxable: Carlisle and Silloth Golf Club v Smith, (1913) 6 TC 48, 198. Profits from mutual trading were held exempt in Styles v New York Life Insurance Company Ltd, (1889) 2 TC 460 andJones v The South-West Lancashire Coal Owners’ Association Ltd, (1927) 11 TC 790. See also Ayrshire Employers Mutual Insurance Association Ltd v IRC, (1946) 27 TC 331 and Faulconbridge v National Employers’ Mutual General Insurance Association Ltd, (1952) 33 TC 103.

What tax rules apply to a mututal life assurance business?

(2) If a company carrying on mutual life assurance business makes a profit distribution derived from such activities to a participating member, the distribution is not regarded as a distribution for the purposes of corporation tax or Schedule F. Therefore, such a distribution is not subject to dividend withholding tax (section 172B).

Where a business includes the granting of annuities, the annuities are to be treated as charges only to the extent that they would be treated as charges if the company were not a mutual company.

Policy bonuses of a mutual life assurance company are not regarded as distributions and do not therefore carry a tax credit.

Do these rules affect the taxation of the payment in the recipient’s hands?

(3) Apart from the circumstances mentioned in (1) and (2), the fact that distributions come from a mutual concern does not alter their character (for the purposes of income tax or corporation tax) in the hands of a recipient.

If a company does not trade or hold investments, how is a distribution made by it treated?

(4) Where a company that does not trade or hold investments (and has never traded or held investments, and is not established to do so, for example, a members’ club) makes a profit distribution derived from such activities to a participating member, the distribution is regarded as a distribution for the purposes of corporation tax or Schedule F, to the extent that the profits are within the charge to corporation tax. Therefore, such a distribution is potentially subject to dividend withholding tax (section 172B).

Section 845 Corporation tax: treatment of tax-free income of non-resident banks, insurance businesses, etc

What is meant by “insurance business”?

(1) Insurance business includes industrial life assurance business, i.e., life assurance business the premiums for which are collected by insurance agents and paid at intervals of less than two months (Insurance Act 1936 section 3).

What are “tax-free securities”?

(2) Tax-free securities are government or semi-State securities issued with the condition that neither the capital nor the interest is taxable on a non-ordinarily-resident beneficial owner of the security.

How are foreign dividends and interests taxed?

(3) The application of income tax rules for corporation tax purposes in computing the profits of a banking business, insurance business (including the profits of the pension business and the general annuity business) or security-dealing business trading through a branch or agency in the State is not to prevent dividends (including interest) of foreign securities payable in the State being taxed.

Such foreign dividends are normally exempt for a non-resident security owner.

What if the business trades in the State but does not have a branch or agency?

(4) Where the banking business, insurance business or security-dealing business does not have a branch or agency in the State but trades in the State, the interest on the tax-free securities remains exempt.

When computing the profits of the business, expenses attributable to tax-free securities (other than interest on borrowed money) must be excluded.

Example

A non-resident bank trades in the State through a branch or agency.

In its accounting period of 12 months, it borrows money for the purposes of its business and purchases “tax-free securities”.

The amount of money borrowed and outstanding in the accounting period is:

€300,000 for 4 months – equivalent to €100,000 for 12 months.

€60,000 for 2 months – equivalent to €100,000 for 12 months

€400,000 for 6 months – equivalent to €200,000 for 12 months

(Average) amount outstanding in the accounting period: €400,000

The interest paid in the accounting period on the money borrowed was:

300,000 for 4 months at 11% 11,000
600,000 for 2 months at 10½% 10,500
400,000 for 3 months at 10½% 10,500
400,000 for 3 months at 10% 10,000
42,000

The average rate % of interest on money borrowed was therefore

(42,000/ 400,000) x 100 = 10½%.

Tax-free securities all of the same class, were held in the accounting period:

€200,000 (nominal) held for 12 months

€300,000 (nominal) held for 6 months,

€400,000 (nominal) held for 3 months.

These were bought for:

200,000 nominal at 75.00 cost 150,000
300,000 nominal at 80.00 cost 240,000
400,000 nominal at 82.50 cost 330,000
900,000 nominal, cost 720,000

The average cost of acquisition was therefore 720,000/900,000 = 0.8

200,000 nominal held for 12 months 200,000 for 12 months
300,000 nominal held for 6 months, equivalent to 150,000 for 12 months
400,000 nominal held for 3 months, equivalent to 100,000 for 12 months
Average (nominal) amount of holding in the AP 450,000
€450,000 nominal at average cost of acquisition (0.8) 360,000

This amount, €360,000, is less than the amount of money borrowed and outstanding in the accounting period, €400,000. The “amount ineligible for relief” is therefore €360,000 at 10½%. = €37,800.

If the average holding in the accounting period were greater than the average amount of borrowed money, €400,000, the amount ineligible for relief would be €400,000 at 10½% = €42,000.

Source: Inspector Manual 36.0.6 (updated).

Where a non-resident business is taxed under income tax rules, the foreign dividends remain exempt.

How are dividends and interest on foreign securities taxed on an overseas life assurance company?

(5) In the case of an overseas life assurance company (i.e., one whose head office is located outside the State, but which trades through a branch or agency in the State, see section 706), dividends (including interest) of foreign securities payable in the State are included as part of the life assurance fund’s investment income (even though such foreign dividends are normally exempt where you are a non-resident owner).

Section 845A Non-application of section 130 in the case of certain interest paid by banks

This section implements in legislation a long-standing Revenue administrative practice.

What is a “bank” for these purposes?

(1) A bank means a financial institution licensed to carry on banking business in the State, i.e., a person which holds a licence under section 9 of the Central Bank Act 1971, or the equivalent legislation of another EU Member State.

When does this rule apply?

(2) This rule applies where a bank (see (1)) pays to its non-resident parent, or an associated company, interest which:

(a) is treated as a distribution (section 130(2)(d)(iv)) and therefore is not tax-deductible to the payer,

(b) would be tax-deductible if it were not treated as a distribution, and

(c) represents no more than a reasonable commercial return for the use of the principal on which the interest is paid.

When can the interest be tax deductible?

(3) A bank may elect that the interest mentioned in (2) is not to be treated as a distribution. Therefore, when a bank makes this election, the interest is tax-deductible.

How is the election made?

(4) The election mentioned in (3) must be made in writing to the inspector with the bank’s return of profits for the accounting period in question.

Section 845B Set-off of surplus advance corporation tax

Amendments

This section is now spent.

Section 846 Tax-free securities: exclusion of interest on borrowed money

Is interest on tax-free securities exempt for companies who trade in the State without a branch or agency?

(1) When computing the profits of a banking, insurance or security-dealing company that does not have a branch or agency in the State but trades in the State, the interest on tax-free securities remains exempt. Expenses attributable to those securities (other than part of the interest on borrowed money) must therefore be excluded.

Is interest on borrowed money treated as a deductible expense or charge?

(2) A proportion of interest on borrowed money (the amount ineligible for relief) is also disallowed as a business expense or charge against your profits.

What interest is excluded from this section?

(3) Disallowed interest does not include interest on money borrowed to buy tax-free securities. Interest which would in any event be disallowed, is ignored, and remains disallowed.

How is the amount of disallowed interest calculated?

(4) Disallowed interest is taken as one year’s interest calculated using the average interest rate for the accounting period. Where the accounting period is shorter than one year, the disallowed interest is taken as the interest for that shorter period, using the average interest rate for that shorter period.

What if the cost of holding tax free securities fluctuates during the accounting period?

(5) Where the cost of a holding of tax-free securities has fluctuated in the accounting period, the cost is taken as the average cost of the initial holding and the average cost of any subsequent acquisitions in the accounting period. In each case, the averaging period begins when the acquisition is made and ends with the accounting period.

Securities of different classes are to be averaged separately.

Section 847 Tax relief for certain branch profits

When can profits qualify for exemption from corporation tax?

(1) This section applies to profits you receive (as an Irish company which has been certified (see (2)) before 15 February 2001 by the Minister for Finance (i.e., a qualified company)) from your foreign branch (qualified foreign trading activities). Such profits may qualify for exemption from corporation tax if applied towards an investment planin Ireland.

You must use the profits to make a substantial permanent capital investment which will create substantial new employment in the business carried on (or to be carried on) by the company, or an associated company, in the State.

Two resident companies are associated if one is a 75% subsidiary of the other, or both are 75% subsidiaries of a third resident company.

Two companies do not qualify for 75% association unless the parent is entitled to at least 75% of the subsidiary’s profits (section 414) available for its equity holders (section 413), and at least 75% of the assets available for its equity holders on a notional winding up (section 415).

Share capital owned by a share dealing company is not taken into account in calculating the 75%.

Branch foreign trading activities carried on as part of another trade are to be treated as a separate trade.

The receipts and expenses of the foreign branch trade are separated from the general trading receipts and expenses so that the net income from the foreign branch trade may be correctly calculated.

Note

This relief is similar to that contained in section 222, which provides that, on the approval of an investment plan, dividends from a foreign subsidiary are exempt from tax.

See also Schedule 24 para 9A which provides unilateral credit relief.

How can an Irish company obtain the branch profits exemption?

(2) To obtain the exemption, a (Irish) company must submit an investment plan to the Department of Finance showing how it intends to invest the foreign branch profits in Ireland.

The Minister may issue the company a certificate if he/she is satisfied that the company will make a substantial permanent capital investment in Ireland that will result in substantial new employment, and the continuance of that employment will depend on the foreign branch’s activities.

The investment plan should be sent to:

The Minister for Finance,

Government Buildings,

Upper Merrion Street,

Dublin 2.

The plan must supply details of:

(a) The promoters: the applicant company’s history, size, structure, activities, and recent performance.

(b) The proposed Irish operation: activities, organisation structure, ownership, level and timescale of investment, funding of the proposed investment, proposed capital structure, and projected profit and loss accounts and balance sheets for the period of the plan, projected employment build up, and location of the proposed activity.

(c) The foreign branch’s activities: interaction of its activities with the claimant company’s activities.

(d) General information: regulatory authorities in the State responsible for approving the proposed activity, and names and addresses of the company’s Irish legal and tax advisors.

What rules determine if the requirements are met?

(3) The Minister must produce guidelines as to what constitutes a substantial permanent capital investment which will create substantial new employment in the business. The guidelines may specify required employment levels, and any other criteria considered appropriate.

Substantial new employment means at least 40 new incremental jobs within three years of the project’s commencement.

Substantial permanent capital means a level of permanent capital appropriate to the type of business.

Can other conditions be imposed?

(4) The certificate may list conditions to be fulfilled if the company is to qualify for exemption on its foreign branch profits.

Can the certificate be revoked?

(5) Yes. The certificate may be revoked if your company ceases in business or does not comply with any of the conditions attaching to the certificate.

What tax rules apply to the foreign branch profits of a certified company?

(6) The foreign branch profits of a company certified by the Minister for Finance are exempt.

Charges and management expenses attributable to the exempt foreign branch profits must therefore be excluded when computing the company’s overall profits.

Does a chargeable gain arise on the disposal of assets?

(7) Where a company disposes of assets (excluding Irish land, mineral rights or exploration rights or shares deriving their value from any of these) used wholly and exclusively for the foreign branch trade, no chargeable gain arises.

What information may be required by Revenue regarding branch profit relief?

(8) Where a company claims this relief, an inspector may write to you asking you to provide any information he/she needs to decide whether the company is entitled to the relief.

From what date does branch profit relief cease to apply?

(9) This relief does not apply to accounting periods ending after 31 December 2010. If an accounting period straddles that date, it is divided into two accounting periods, one ending on 31 December 2010 and the other ending on the last day of the accounting period.

Can a company claim relief in respect of foreign branch losses even though the profits are exempt?

(10) Yes, but only as respects losses for accounting periods beginning on or after 1 January 2011. In this regard, the trading activities carried on through the foreign branch are regarded as a separate trade.

The company can offset the “separate trade” loss against all other profits in the same accounting period.

Section 847A Donations to certain sports bodies

What definitions are relevant in relation to donations to certain sports bodies?

(1) This section provides tax relief in respect of a relevant donation to an approved sports body, i.e., a donation of at least €250 which you make (as a donor) to fund an approved project (see (5)) as follows:

(a) If an individual donates during a tax year, (the relevant year of assessment),

(b) If a company donates during an accounting period, (the relevant accounting period).

An appropriate certificate is a certificate on a Revenue-approved form which states:

(a) that a donation made by an individual in PAYE employment to an approved sports body meets the conditions listed in (5), and that income tax (other than tax on retained charges and DIRT) will be paid on an amount equivalent to the donation grossed up at the individual’s marginal tax rate,

(b) how much of the grossed up amount of the donation is liable at the standard rate, and how much of it is liable at the higher rate,

(c) the individual’s personal public service number (PPSN).

An approved sports body is one which has a certificate from Revenue stating that is exempt from income tax or corporation tax on the income from its activities (section 235), and has a valid tax clearance certificate.

An approved project is one which the Minister for Tourism, Sport and Recreation (the Minister) has given a certificate that the project meets the conditions in (4).

A project of an approved sports body means:

(a) the purchase, construction, or refurbishment of a building or structure used for the body’s activities,

(b) the purchase of land to be used in the body’s activities,

(c) the purchase of permanent equipment for use the body’s activities,

(d) the improvement of the body’s activities,

(e) the payment, from 1 May 2002, of interest on money borrowed to fund expenditure in (a)-(d).

What is meant by the “grossed up” amount of a donation?

(2) The grossed up amount of a donation is the amount which, after deducting tax at the standard rate, leaves the donation.

Example

You make a donation of €800.

The grossed amount of donation is €800 divided by 20%, i.e., €1,000.

This is because €1,000 – 20% (€200) = €800.

When is a tax clearance certificate issued?

(3) Revenue must issue a tax clearance certificate to a body which is compliant in relation to payment of tax and filing of returns.

The procedures relating to application, refusal, and appeal against refusal of a tax clearance certificate apply in relation to a tax clearance certificate given to an approved sports body.

What rules apply to the certification of a project?

(4) The Minister may certify that a project to be undertaking by an approved sports body is an approved project.

The application for a certificate must be in a form directed by the Minister.

The Minister may by written notice revoke a certificate given in respect of a project. If he/she does so, donations made to the body after the date of the notice do not qualify for tax relief.

The Minister must not give a certificate to a body if the cost of the project exceeds, or is estimated to exceed, €40m.

When is a donation considered to be a “relevant donation” to a sports body?

(5) To qualify for tax relief, i.e., to be regarded as a relevant donation, the donation must meet the following requirements:

(a) it must be made to an approved sports body for the sole purpose of funding an approved project,

(b) it must be applied by the approved sports body for that purpose,

(c) where you are a company, your donation must not otherwise be tax deductible as a trading expense, management expense or charge,

(d) it must not be a donation to a Revenue approved charity (section 848A),

(e) it must not be “temporary”, i.e., it must not be made under a condition that it be repaid at some future time,

(f) as the donor, you and any person connected with you must not receive a benefit as a result of making the donation,

(g) it must not depend on, or be part of an arrangement involving, the acquisition of property (except as a gift) by the approved body from you as the donor, or a person connected with you.

What is the method of granting relief to a donor?

(6) The method of granting tax relief to a donor depends on whether the donor is:

(a) a company,

(b) a self-employed individual,

(c) an individual in an employment subject to PAYE.

How does a corporate donor obtain relief?

(7) A corporate donor obtains relief by treating the net donation as a trading expense or management expense of the accounting period in which the donation was made.

Example

A company donates €500 to an approved body.

Assuming a corporation tax rate of 12.5%, relief to the company is €62.50, i.e., €500 at 12.5%. While the approved body has the benefit of €500, the cost of making the donation is only €427.50 (€500 – €62.50). It will simply claim a deduction for the donation in the company’s tax return. There is no grossing up arrangement and therefore no repayment claim by the approved body arises.

What rules apply to a company making a claim under this section?

(8) A company chargeable to tax under the self-assessment system must include any claim for relief with its self-assessment return for the accounting period in which the relevant donation was made.

How does a self-employed donor obtain relief?

(9) An individual donor who is self-employed obtains relief by deducting the amount of the donation from his/her total income (including if jointly assessed, his/her spouse’s total income) for the tax year in which the donation was made.

The reduction in total income is not taken into account when computing net relevant earnings for pension purposes. In other words, the percentage relief (15% to 40%, depending on age) is calculated on the basis of total income beforedonations to approved bodies. This gives a higher net relevant earnings figure than might otherwise be the case.

Example

1. You are an individual taxed at the standard rate, i.e., 20%.

You donate €500 and receive tax relief at 20% (€100). The cost to you is €400 and receipt by the approved body is €500 – there is no grossing up arrangement and therefore no repayment claim by the approved body arises.

2. You are an individual taxed at the higher rate, i.e., 41%.

You donate €500 and receive tax relief at 41% (€205). The cost to you is €295 and receipt by the approved body is €500 – there is no grossing up arrangement and therefore no repayment claim by the approved body arises.

How does a self-employed donor claim the relief?

(10) A donor who is chargeable to tax under the self-assessment system must include any claim for relief with his/her self-assessment return.

How is donation relief given to a PAYE employee?

(11) Where a PAYE employee makes a donation, the relief is given to the approved body as follows:

(a) the grossed up amount of the donation is treated as an annual payment made to the approved body net of tax at his/her marginal tax rate as indicated on the appropriate certificate (see (1)) which he/she gives to the approved body, and

(b) as the approved body is exempt from tax, it is entitled to reclaim the tax deemed to have been deducted at source from the payment made to it.

This allows the approved body to reclaim the tax shown on the certificate from Revenue. However, the relief given to the approved body is limited to the amount of tax actually paid by the donor.

Example

1. You are an individual taxed at the standard rate, i.e. 20%, and you donate €500.

The value of donation to the approved body = €625 (i.e. €500/€635 x (100/80).

The tax associated with the donation is €625 – €500 = €125.

The approved body will therefore be able to claim a repayment of €125 from Revenue at the end of the tax year.

2. You are an individual taxed at the higher rate of tax, i.e. 41%, and you donate €500.

The value of donation to the approved body = €847, i.e., €500 x (100/59).

The tax associated with the donation is (€847 – €500) = €347.

The approved body will therefore be able to claim a repayment of €347 from Revenue at the end of the tax year.

What returns must be made by the approved body?

(12) An approved body must make a return to Revenue in electronic format of details shown in the appropriate certificates given to it, together with a declaration that the return is correct and complete.

Does the return have to be in electronic format?

(13) Not always. Revenue may allow an approved body to file a return on the official form, with a declaration that the return is correct and complete, if they are satisfied that the approved body does not have the facilities to file an electronic return.

What other details may be demanded?

(14) Every approved body must, if requested in writing by the Minister, file a return providing details of total donations received for each relevant project.

Who can Revenue consult to decide if a project can be approved?

(15) Revenue may consult with the Minister for Tourism, Sport and Recreation whether to grant approval to a particular project or donation.

What details must be on the receipt to a donor?

(16) An approved body must give each donor a receipt which:

(a) states that:

(i) it is a receipt for tax relief purposes,

(ii) the body is an approved body for tax relief purposes,

(iii) the donor is a relevant donation, i.e., it meets the conditions in (5),

(iv) the project is an approved project,

(b) shows:

(i) the donor’s name and address,

(ii) the amount of the donation in figures and in words,

(iii) the date the donation was made,

(iv) the approved sport body’s full name,

(v) the date the receipt was issued,

(vi) particulars of the approved project, and

(c) is signed by authorised official of the approved body.

When is a receipt not required to be given by a sports body?

(17) An approved sports body is not required to give a receipt if:

(a) an individual donor’s income tax liability is computed under the self-assessment system,

(b) the donation does not qualify because the body has exceeded its €40m “cap” in respect of an approved project.

Is there a maximum cap on sports body project donations?

(18) Tax relief is not given in respect of a donation if the approved body has exceeded its €40m cap for an approved project.

What if an approved sports body does not use the donation for the approved project?

(19) If an approved body does not use a relevant donation towards an approved project, the donation is subject to income tax or corporation tax as appropriate, i.e., it is not exempt (section 235(2)).

Can Revenue delegate their powers?

(20) Yes – Revenue may delegate their powers and functions in relation to approved sports projects to an authorised Revenue official.

Relief in respect of Vodafone shares

What relief is given in respect of Vodafone shares?

(1)-(3) Where an Irish individual shareholder received a dividend on C shares (representing a return of value) of not more than €1,000 it is treated as a capital receipt and liable to CGT unless the shareholder elected in his or her return of income to take it as income.

Section 847C Tax treatment of return of value on certain shares where shareholders affected by postal delays

To what does this section refer?

This section deals with the consequences of postal delays that resulted in elections by Irish shareholders of Standard Life to take B shares by the deadline. This resulted in the return of value being treated as income rather than a CGT event. The section allows such shareholders to receive CGT treatment if they can show that the election forms were completed and signed before the deadline and were only received late by the company due to the postal delays.

Section 848 Designated charities: repayment of tax in respect of donations

Amendments

Section 848 repealed by section 848A(13), as inserted by Finance Act 2001 section 45(1).

Section 848A Donations to approved bodies

The net effect of this section is that as an individual, you can get tax relief for gifts to charities. Companies were already entitled to tax relief for donations to certain charities.

What definitions apply regarding donations to approved bodies?

(1) An annual certificate is a certificate on a Revenue-approved form which states:

(a) that a donation by an individual to a body listed in Schedule 26A (an approved body) meets the conditions listed in (3), and the donor will pay income tax (other than tax on retained charges, and DIRT) on an amount equivalent to the donation grossed up at the donor’s marginal tax rate,

(b) that the grossed up amount of the donation is liable at the specified rate,

(c) the donor’s personal public service number (PPSN).

An enduring certificate is a certificate like an annual certificate but which is valid for 5 years.

A relevant donation is a donation of at least €250 that meets the conditions in (3), which is made by a company in an accounting period (the relevant accounting period) or by an individual in a year of assessment (the relevant year of assessment).

The specified rate is 31%.

What is the method of giving relief to the donor?

(2) The method of giving relief to the donor and the approved body depends on what kind of “person” the donor is. For a company, the method set out in (4) is to be used. For an individual, the method set out in (9) is to be used.

What conditions must the donation meet to qualify for tax relief?

(3) To qualify for tax relief, i.e., to be regarded as a relevant donation, the donation must meet the following requirements:

(a) it must not be “temporary”, i.e., it must not be made under a condition that it be repaid at some future time,

(b) the donor (and any connected person) must not receive a benefit as a result of making the donation,

(c) it must not depend on, or be part of an arrangement involving, the acquisition of property (except as a gift) by the approved body from the donor or a connected person,

(d) in the case of a company, it would not otherwise be tax-deductible as a trading or management expense,

(e) where the donor is an individual:

(i) is resident in the State for the tax year,

(ii) has given the annual certificate or enduring certificate (see (1)) to the approved body, and

(iii) has paid the tax referred to in the certificate and is not entitled to repayment of any of it.

The general rule is that donations should be at arm’s-length: Tax Briefing 44.

What special rules apply where a donor is associated with an approved body?

(3A) A limit applies to donations to approved bodies with which you (as donor) are associated. The limit is 10% of your total income, and the part of any donation which exceeds the limit is not tax-deductible.

In all cases there is a limit of €1,000,000 per year applies.

A person associated with an approved body who is an employee or member of that body, or of another approved body with which the first approved body is associated. An approved body is associated with another approved body if:

(a) persons having a reasonable commonality of identity have (or have had) the power to control, directly or indirectly, the trading operations of both approved bodies,

(b) persons having a reasonable commonality of identity control both approved bodies.

What happens if Revenue approval is withdrawn?

(3B) Where authorisation is withdrawn from an approved body a company or an individual entitled to deduct a donation from their taxable income shall, where the donation was made in good faith, be deemed nonetheless to have made a relevant donation.

How does a corporate donor to an approved body obtain relief?

(4) A corporate donor obtains relief by treating the net donation as a trading expense or management expense of the accounting period in which the donation was made.

Example

A company donates €500 to an approved body.

Assuming a corporation tax rate of 12.5%, relief to the company is €62.50, i.e., €500 at 12.5%. While the approved body has the benefit of €500, the cost of making the donation is only €427.50 (€500 – €62.50). The company will simply claim a deduction for the donation in its tax return. There is no grossing up arrangement and therefore no repayment claim by the approved body arises.

Source: Tax Briefing 44.

How does a corporate donor claim the relief?

(5) A company chargeable to tax under the self-assessment system must include any claim for relief with its self-assessment return for the accounting period in which the relevant donation was made.

What if the accounting period is of less than 12 months?

(6) For a donor company whose accounting period is shorter than 12 months the limits are proportionately scaled back.

How does the relief apply in the case of individuals?

(9) For a donation from an individual, the relief is given to the approved body as follows:

(a) the grossed up amount of the donation is treated as an annual payment made to the approved body net of tax at the specified rate, and

(b) as the approved body is exempt from tax, it is entitled to reclaim the tax deemed to have been deducted at source from the payment made to it.

This allows the approved body to reclaim the tax shown on the certificate from Revenue. However, if the tax shown on the annual certificate or the enduring certificate is not paid by you, the relief given to the approved body is limited to the amount of tax you actually paid.

Example

1. You are an individual and you donate €500.

The value of the donation to the approved body = €725 (i.e. €500 x (100/69)).

The tax associated with the donation is €725 – €500 = €225.

The approved body will therefore be able to claim a repayment of €225 from Revenue at the end of the tax year.

Can CGT relief for donations to the State etc be claimed in respect of donations under this section?

(9A) No.

Can the grossed up tax be reclaimed by a taxpayer?

(9B) The amount of grossed up tax given to the approved body does not count for any repayment claim by the donor under section 865

What returns must be made by the approved body?

(10) An approved body must make a return to Revenue in electronic format of details shown in the annual certificates or enduring certificates given to it, together with a declaration that the return is correct and complete.

At the end of the tax year in which the donation was made, approved bodies may claim a repayment of the tax associated with PAYE donations received by them through forwarding the details contained in the Appropriate Certificates to Revenue in an agreed electronic format together with a declaration that the details are correct and complete: Tax Briefing 44.

Does an approved body have to file a return in an electronic format?

(11) Not always. Revenue may allow an approved body to file a return on the official form, with a declaration that the return is correct and complete, if they are satisfied that the approved body does not have the facilities to file an electronic return.

Can I also get a deduction for third level scientific research for the donation?

(12) The deduction given to traders who fund third level scientific research is not given where a deduction is claimed under this section in respect of the same donation.

How do these rules interact with previous tax reliefs?

(13) This section, which must be read together with Schedule 26A, consolidates various existing tax reliefs for charities and approved bodies:

(a) gifts to Enterprise Trust Ltd (section 88),

(b) gifts for education in the arts (section 484),

(c) gifts to third level institutions (section 485),

(d) gifts to designated schools (section 485A),

(e) gifts to the Scientific and Technological (Educational) Investment Fund (section 485B),

(f) gifts to First Step (section 486),

(g) corporate donations to eligible charities (section 486A),

(h) payments to approved bodies for research in, or teaching of, approved subjects (section 767),

(i) covenants to third level colleges to carry out research (section 792(1)(b)(ii)-(iii) and (3)) and covenants to human rights bodies (section 209),

(j) gifts to designated third world charities (section 848).

These pre-consolidation sections are repealed by subsection (13).

The new Schedule 26A re-lists these bodies, and adds Revenue-approved charities to the list.

See also: Tax Briefing 44.

Lists of charities, approved arts bodies and designated schools are available at www.revenue.ie under publications/lists.

What transitional measures apply?

(14) Approvals already in existence for bodies mentioned in Schedule 26A Parts 2 and 3 (see (13) above)) continue in force.

Section 848AA Tax treatment of return of value on certain shares

To what does this section apply?

(1) This is a relief measure for small shareholders in Vodafone who may not have realised the tax consequences of the return of value by means of a dividend under the company’s scheme of arrangement of 2014.

What relief is given?

(2) The receipt by an individual shareholder, under the scheme of arrangement of a dividend not exceeding €1,000 is treated as a capital receipt, liable to CGT, unless the individual elects to have it treated as income. The effect of this is that no liability arises as the cost price of the shares was greater than value returned.

How is an election for income treatment made?

(3) An election to have the amount received treated as income is made by including it as income in the return of income for 2014.

Section 848B Interpretation

Amendments

This section is now spent.

A Special Savings Incentive Account (SSIA) was an investment vehicle to which the government added a contribution.

Section 848C Special savings incentive account

Amendments

This section is now spent.

A Special Savings Incentive Account (SSIA) was an investment vehicle to which the government added a contribution.

Section 848D Tax credits

Amendments

This section is now spent.

A Special Savings Incentive Account (SSIA) was an investment vehicle to which the government added a contribution.

Section 848E Payment of tax credit

Amendments

This section is now spent.

A Special Savings Incentive Account (SSIA) was an investment vehicle to which the government added a contribution.

Section 848F Declaration on commencement

Amendments

This section is now spent.

A Special Savings Incentive Account (SSIA) was an investment vehicle to which the government added a contribution.

Section 848G Acquisition of qualifying assets

Amendments

This section is now spent.

A Special Savings Incentive Account (SSIA) was an investment vehicle to which the government added a contribution.

Section 848H Termination of special savings incentive account

Amendments

This section is now spent.

A Special Savings Incentive Account (SSIA) was an investment vehicle to which the government added a contribution.

Section 848I Declaration on maturity

Amendments

This section is now spent.

A Special Savings Incentive Account (SSIA) was an investment vehicle to which the government added a contribution.

Section 848J Gain on maturity

Amendments

This section is now spent.

A Special Savings Incentive Account (SSIA) was an investment vehicle to which the government added a contribution.

Section 848K Gain on cessation

Amendments

This section is now spent.

A Special Savings Incentive Account (SSIA) was an investment vehicle to which the government added a contribution.

Section 848L Gain on withdrawal

Amendments

This section is now spent.

A Special Savings Incentive Account (SSIA) was an investment vehicle to which the government added a contribution.

Section 848M Taxation of gains

Amendments

This section is now spent.

A Special Savings Incentive Account (SSIA) was an investment vehicle to which the government added a contribution.

Section 848N Transfer of special savings incentive account

Amendments

This section is now spent.

A Special Savings Incentive Account (SSIA) was an investment vehicle to which the government added a contribution.

Section 848O Declaration on transfer

Amendments

This section is now spent.

A Special Savings Incentive Account (SSIA) was an investment vehicle to which the government added a contribution.

Section 848P Monthly returns

Amendments

This section is now spent.

A Special Savings Incentive Account (SSIA) was an investment vehicle to which the government added a contribution.

Section 848Q Annual returns

Amendments

This section is now spent.

A Special Savings Incentive Account (SSIA) was an investment vehicle to which the government added a contribution.

Section 848QA Other returns

Amendments

This section is now spent.

A Special Savings Incentive Account (SSIA) was an investment vehicle to which the government added a contribution.

Section 848R Registration etc

Amendments

This section is now spent.

A Special Savings Incentive Account (SSIA) was an investment vehicle to which the government added a contribution.

Section 848S Regulations

Amendments

This section is now spent.

A Special Savings Incentive Account (SSIA) was an investment vehicle to which the government added a contribution.

Section 848T Offences

Amendments

This section is now spent.

A Special Savings Incentive Account (SSIA) was an investment vehicle to which the government added a contribution.

Section 848U Disclosure of information

Amendments

This section is now spent.

A Special Savings Incentive Account (SSIA) was an investment vehicle to which the government added a contribution.

Section 848V Interpretation

What is the purpose of the Part on incentive tax credits on pensions?

This Part provides an incentive to an individual with gross income of less than €50,000 to invest the proceeds received on maturity of an SSIA into a pension product. This section defines terms used in later sections.

Section 848W Transfer of funds on maturity of SSIA

What conditions apply the pension incentive?

To avail of this incentive the following conditions must be met:

(a) Gross income, for the tax year preceding the year in which the SSIA matures, must not exceed €50,000.

(b) None of taxable income for that year is chargeable at 42%. Married persons are treated as separately assessed in determining whether any income is chargeable at 42%. In addition the claimant:

(i) Must, within three months of the maturity date, provide his/her maturity statement to a pension scheme administrator, and make a pension subscription to the administrator, of all or some of the funds in the SSIA – either as an additional voluntary contribution (AVC), a PRSA contribution, or a premium under an annuity contract.

(ii) Must make the appropriate declaration (section 848X).

(iii) Must not claim a tax deduction in relation to the first €7,500 of his/her pension investment, or the related Exchequer contribution.

(iv) Must not reduce any pension contribution he/she is already committed to making in the tax year in which the pension tax credit (section 848Y) arises.

Section 848X Declaration

What are the requirements for a declaration?

The declaration that must be made to the administrator (section 848W) must be in writing and it must meet the following conditions:

(a) It is made and signed by the claimant.

(b) It is made on the prescribed Revenue form which warns about the making of a false declaration (section 848AF).

(c) It includes the claimant’s name, address, PPS number, date of birth, and pension subscription details.

(d) It declares that:

(i) His/her gross income, for the tax year preceding the year in which the SSIA matures, does not exceed €50,000.

(ii) None of his/her income for the previous year is chargeable at 42%.

(iii) He/she will not claim a tax deduction for the pension subscription, or the related tax credit, under any other heading.

(iv) He/she has not and will not reduce any pension contribution he/she is already committed to make.

Section 848Y Entitlement to pension tax credit

How much tax credit is given for investing SSIA proceeds into a pension?

An individual who irrevocably invest his/her SSIA proceeds into a pension product is entitled to the following incentive:

(a) He/she is treated as having paid an amount, which, after deducting 25% tax, leaves the subscription. In other words, his/her payment is grossed up at 25%, and the grossed up amount is treated as your pension subscription.

(b) He/she is entitled to a tax credit for the “25% tax” so deducted.

Section 848Z Tax credits

Is there a limit on the tax credit available?

(1) Yes – the tax credit for a pension subscription must not exceed €2,500. Revenue add €1 for every €3 invested.

Is there any further credit?

(2) Revenue will also add an additional tax credit (see (3)).

How is the additional tax credit calculated?

(3) The additional tax credit consists of the SSIA exit tax, which is calculated as

A x C
B

Where

A is the exit tax,

B is the net funds in the SSIA, and

C is the pension subscription.

In effect, therefore, the additional tax credit depends on the percentage of funds reinvested in the pension product.

Section 848AA Payment of tax credits

What rules apply to the payment of pension tax credits?

If an individual become entitled to a tax credit and an additional tax credit:

(a) Revenue must pay the tax credit and the additional tax credit directly to the pension fund administrator.

(b) On receiving the tax credit, the administrator must treat it as an AVC, a PRSA contribution or an annuity premium (whichever is appropriate) made by the individual.

(c) The pension subscription (to the extent it does not exceed €7,500) and the tax credits cannot be deducted as normal (tax-deductible) pension contributions.

Section 848AB Monthly return

What returns must be made in relation to SSIA pension tax credits?

The administrator must, within 15 days of the end of each month, make a return in relation to tax credits. The return must:

(a) State for each individual who became entitled to tax credits in the previous month:

(i) the aggregate tax credits,

(ii) the aggregate additional tax credits, and

(iii) the number of pension subscriptions concerned.

(b) Contain a declaration on the Revenue-prescribed form that the information is correct.

Section 848ABA Withdrawal of tax credits

What is the purpose of the section on withdrawal of tax credits?

(1) This is an anti-avoidance section. Under section 848W an individual with income less than €50,000 per annum could invest up to €7,500 of his/her SSIA proceeds into a pension product. He/she is treated as having paid an amount, which after deducting 25% tax, leaves the subscription. In other words, the payment is grossed up at 25%, and the grossed up amount is treated as his/her pension subscription.

The tax credit for a pension subscription must not exceed €2,500. In other words, Revenue add €2,500 to the €7,500 invested. Revenue also add an additional tax credit equivalent to the SSIA exit tax. Revenue must pay the tax credit and the additional tax credit to the fund administrator.

A person at the point of retirement could contribute the maximum amount from his/her SSIA to a pension and then withdraw 25% of the pension fund as a cash lump sum on retirement.

The retained amount is equal to:

R  x     C   
S + C

where-

R is the requested amount,

C is the aggregate of the pension tax credit and additional tax credit, and

S is the amount subscribed to the pension.

Example

You are at the point of retirement, and you contribute €40,000 to your pension fund, €32,500 from savings (or your employer), €7,500 from your SSIA.

You get a credit for €2,500 in respect of the €7,500 and say (15,000/17,200) x 300 = €262 in respect of maturity tax. So your total credit is €2,762.

You then withdraw 25% on retirement i.e., €10,000. In effect, you are immediately getting back the €2,762 as part of the €10,000.

When do the withdrawal of tax credit rules apply?

(2) These rules apply where the vesting day of a pension product is after 28 September 2006 and the individual requires the pension fund administrator to pay him/her a requested amount.

If the payment is made on or after 10 April 2007, the administrator must deduct the retained amount from the requested amount. This is the amount determined by the formula in (1).

Example

Continuing with the previous example:

R = 10,000

C = 2,762

S = 40,000

Therefore, R x (C/(S+C)) = 10,000 x 2,762/42,762

= €646

If the payment is made before 10 April 2007, an assessment must be made for an amount equal to the retained amount.

What is done with the retained amount?

(3) The administrator must pay the retained amount to Revenue in accordance with their arrangements.

What if the requested amount exceeds the tax credits and pension subscription?

(4) This rule applies where the requested amount exceeds the aggregate of the tax credit, the additional tax credit, and the pension subscription. In such a case, the retained amount is nil.

What details may Revenue request in relation to tax credits?

(5) This subsection allows Revenue to gather the information necessary to make assessments on individuals who requested payments from their pensions as described in (2). The administrator must provide the following details to Revenue as regards each payment:

(a) his/her name,

(b) his/her address,

(c) his/her personal public service (PPS) number,

(d) the tax credit claimed and paid,

(e) the additional tax credit claimed and paid,

(f) the requested amount,

(g) the amount deducted from the requested amount,

(h) the date the payment was made to you,

(i) any other information Revenue may require.

Section 848AC Other returns

What other returns are required by Revenue from an administrator?

An administrator must also make a return for the four month periods ending on:

(a) 30 September 2006 – this is due on or before 28 October 2006,

(b) 31 January 2007 – this is due on or before 28 February 2007,

(c) 31 May 2007 – this is due on or before 28 June 2007,

(d) 30 September 2007 – this is due on or before 31 October 2007.

That return must state:

(a) For each individual for whom tax credits were claimed in the period:

(i) the person’s name,

(ii) the person’s address,

(iii) the person’s PPS number,

(iv) the maturity date of the person’s SSIA account,

(v) the gross funds in the account,

(vi) the net funds in the account,

(vii) the maturity tax on the account,

(viii) the pension subscription,

(ix) the tax credit claimed and paid in relation to the pension subscription,

(x) the additional tax credit claimed and paid,

(xi) whether the tax credits were treated as an AVC, PRSA contribution, or premium under an annuity contract.

(b) The total tax credits in relation to pension subscriptions and the total additional tax credits.

Section 848AD Registration and audit of administrators

Who can become an administrator for the purposes of pension tax credits?

(1) An administrator for the purposes of pension tax credits must be registered with Revenue for such purposes.

How do Revenue ensure that returns are correct?

(2) Revenue may audit returns made by administrators and they may examine procedures put in place by administrators to ensure returns are correct.

Section 848AE Regulations (Part 36B)

What regulations can Revenue make in relation to pension tax credits for SSIA accounts?

(1) Revenue may make regulations detailing the procedures to be followed in relation to pension tax credits for SSIA accounts. Such regulations may provide:

(a) the registration procedure for an administrator (section 848D),

(b) the procedure for filing a monthly return (section 848AB), and for correcting errors in such returns,

(c) the procedure for filing a quarterly return (section 848AC), and for correcting errors in such returns,

(d) the manner in which tax credits are to be claimed,

(e) the period for which documents must be maintained,

(f) the manner in which Revenue may examine procedures put in place to verify returns.

How are these regulations passed?

(2) Such regulations must be laid before Dáil Éireann. If annulled within 21 days, the regulations are cancelled, but any thing done under the regulations within that 21 day period remains effective.

Section 848AF Offences (Part 36B)

What penalties apply in the case of a false declaration?

A fine of €3,000, and/or imprisonment for six months applies for a false declaration by an administrator (section 848X) or in relation to a monthly return (section 848AB).

Section 848AG Retention of declarations

For how long must an administrator retain declarations regarding SSIAs?

The administrator must keep the maturity statements and declarations for each individual who claims tax credits in relation to an SSIA which is transferred to a pension fund.

Section 849 Taxes under care and management of Revenue Commissioners

See also Revenue Charter of Rights.

Particular enquiries: Revenue Guidelines: Inspector Manual 37.0.2.

Code of practice for dealing with compliants: Inspector Manual 37.0.22.

External Review Procedure: Tax Briefing 38.

What administration responsibilities do Revenue have?

(1)-(2) The Revenue Commissioners are responsible for the administration of income tax, corporation tax, and capital gains tax.

What powers do Revenue have with regard to administration?

(3) The Revenue Commissioners are empowered to do “such acts as may be deemed necessary” to ensure that tax due to the State is collected.

Unless the Minister for Finance directs otherwise, and in so far as Revenue staff are not to be appointed by some other authority, they must appoint staff to manage the collection of tax.

Revenue may initiate court proceedings to collect unpaid tax, make secondary legislation in the form of regulations to be approved by the Oireachtas etc.

Revenue duty regarding confidentiality of files and documents in its possession: Brown’s Trustee’s v Hay (1897) 3 TC 598; Re Hargreaves (Joseph) Ltd, (1900) 4 TC 173; Shaw v Kay, (1904) 5TC 74; Soul v Irving and Another, (1963) 41 TC 517; R v IRC ex parte J Rothschild Holdings plc, [1986] STC 410.

Revenue may withdraw advance clearance given in relation to a project on the basis that full facts were not disclosed:Matrix Securities Ltd v Theodore Goddard, [1998] STC 1.

What happens if a Commissioner dies or retires?

(4) If one of the Commissioners dies in office or retires, Revenue staff appointments made during his tenure continue in force (i.e., do not automatically become invalid).

What powers do Revenue have in relation to their staff?

(5) The Revenue Commissioners may suspend or restore the appointment of any their staff.

Section 850 Appeal Commissioners

What is the function of the Appeal Commissioners?

(1) The Minister for Finance must appoint Appeal Commissioners to hear and decide tax appeals.

Equivalent to District Court judges, the Appeal Commissioners are independent justices appointed to resolve appeals (i.e., disputes between Revenue and taxpayers). An appelant who is dissatisfied with a decision of an Appeal Commissioner may ask to have the case reheard before a judge of the Circuit Court, or may, on a point of law, ask to have a “case stated” for hearing before a judge of the High Court.

Who decides the remuneration of Appeal Commissioners?

(2) The Minister for Finance must decide the salaries and expenses allowed to Appeal Commissioners.

Appeal Commissioners are appointed at a grade equivalent to Assistant Secretary of a Department.

How is an Appeal Commissioner’s appointment confirmed?

(3) An Appeal Commissioner’s appointment and details of his prospective salary must, within 20 days of the appointment, be laid before Dáil Éireann for approval.

How many commissioners are needed to carry out the functions?

(4) Unless expressly provided otherwise, Appeal Commissioner functions may be carried out by any two or more Appeal Commissioners.

Section 851 Collector-General

How is the Collector-General appointed?

(1) The Revenue Commissioners must appoint a Collector-General from their staff. They may revoke his/her appointment at any time.

Can Revenue allow other employees to exercise the Collector-General’s functions?

(3) Yes. The Revenue Commissioners may nominate other employees to exercise some or all of the Collector-General’s powers or functions in relation to income tax, corporation tax or capital gains tax.

An instalment payment arrangement is between the taxpayer company and the Collector-General. It does not change because a new managing director (unaware of the arrangement) is appointed: Metal Products Ltd, (In receivership) v Hearne, HC January 1988.

What happens if the Collector-General is ill?

(4) If the Collector-General is ill or unable to carry out his/her duties, the Revenue Commissioners may nominate an acting Collector-General to carry out his/her duties.

Can a nomination of an an acting Collector-General be revoked?

(5) Yes.

Section 851A Confidentiality of taxpayer information

Are Revenue obliged to keep all taxpayer information confidential?

(1)-(2) Yes. Information can be disclosed to outside parties only in the limited circumstances set out in this section or as otherwise allowed by statute.

What penalties apply to a Revenue official who breaches taxpayer confidentiality?

(3) A Revenue official or any other person who receives taxpayer information who breaches taxpayer confidentiality is guilty of an offence, and if convicted may be liable to a fine of €3,000 (€10,000 if convicted on indictment).

Can a court require a Revenue official to breach taxpayer confidentiality?

(4) No – but see (5).

When can a court require a Revenue official to breach taxpayer confidentiality?

(5) In criminal proceedings or in any legal proceedings relating to administration or enforcement of the tax legislation.

Can a Revenue official report a suspected criminal offence by a taxpayer?

(6) Yes.

Can Revenue disclose the name of a professional person to that person’s governing body?

(7) Yes. A Revenue officer may disclose the name of a professional person to the governing body if he feels the work of an agent does not meet the body’s professional standards.

In what circumstances can a Revenue official disclose taxpayer information?

(8) A Revenue official may disclose taxpayer information in the following circumstances:

(a) Under freedom of information legislation (but not confidential taxpayer information).

(b) To a tribunal of enquiry.

(c) To the taxpayer in question.

(d) Where the taxpayer consents to the disclosure.

(e) To the taxpayer’s agent.

(f) Official information relating to charitable status etc.

(g) To the Department of Finance to help in formulating fiscal policy.

(h) To assist in the determination of another taxpayer’s liability or entitlement to credits etc.

(i) Information which is not specific to a taxpayer.

(j) Information which can be disclosed by law,

(k) To a person who is engaged by Revenue for carrying out work in relation to the administration of tax,

(l) to the Minister for Agriculture in respect of a failure of a registered farm partnership to meet its conditions for registration.

Can Revenue disclose information in relation to film relief?

(8A) Yes. They may disclose the cited information.

Can a Revenue official share taxpayer information with another Revenue officer?

(9) Yes.

What penalty applies in indictable proceedings?

(10) Criminal Procedure Act 1967 section 13 lists offences that must be tried on indictment.

Subs (2) allows the court to impose a penalty, which is to be read as “€3,000.”

Section 852 Inspectors of taxes

Can Revenue appoint inspectors of taxes?

(1) The Revenue Commissioners may appoint inspectors of taxes. Inspectors and other Revenue employees must obey the instructions of the Revenue Commissioners.

Can Revenue revoke an inspector’s appointment?

(2) REvenue are entitled to revoke an appointment of any inspector.

What about inspectors appointed by the Minister for Finance?

(3) Inspectors appointed by the Minister for Finance before 27 May 1986 are deemed to have been appointed by the Revenue Commissioners.

Section 853 Governor and directors of Bank of Ireland

Amendments

Section 853 deleted by Finance Act 2012 section 38(1)(c) from a day to be appointed by the Minister for Finance.

Section 854 Appointment of persons for purposes of assessment of certain public offices

Amendments

Section 854 deleted by Finance Act 2012 section 131 and Schedule 5 para 2(b) from 31 March 2012.

Section 855 Declaration to be made by Commissioners

Amendments

Section 855 deleted by Finance Act 2012 section 131 and Schedule 5 para 2(b) from 31 March 2012.

Section 856 Disqualification of Commissioners in cases of personal interest

Can a Commissioner be involved in an income tax matter that is of personal interest to him/her?

(1) No. A Commissioner must not involve him/herself in any income tax appeal proceedings or matter in which he/she has an interest, either on the Commissioner’s own behalf, or on behalf of another person.

What happens if a Commissioner breaches this rule?

(2) A penalty of €60 applies to a Commissioner who does not withdraw from a case in which he/she has an interest.

What rules apply to the Appeal Commissioners?

(3) An Appeal Commissioner must not involve him/herself in any corporation tax appeal in which he/she has an interest, either on the Commissioner’s own behalf or on behalf of another person.

Section 857 Declarations on taking office

Must a prospective Revenue official or Appeal Commissioner make a declaration?

(1) A prospective Appeal Commissioner, Clerk to the Appeal Commissioners, inspector of taxes, Collector-General, or collecting officer, must make the appropriate declaration (Schedule 27 Part 1) testifying that he/she will carry out his/her duties without fear or favour.

Who must the declaration be made before?

(2) The declaration must be made before a Peace Commissioner.

What happens if the declaration is not made?

(3) A fine of €125 applies to a person who performs his/her duties in relation to Schedule D without having sworn the appropriate declaration.

Section 858 Evidence of authorisation

How is a genuine Revenue officer identified?

(1) A Revenue official (an authorised officer) may be authorised, nominated, or appointed under the legislation relating to income tax, corporation tax, capital gains tax, value added tax, capital acquisitions tax, stamp duties, customs and excise and Intrastat regulations (the Acts).

An authorised officer’s identity card is a card issued to him/her by the Revenue Commissioners which:

(a) states that he/she is a Revenue official who has been authorised to perform functions in relation to specified legislation (the specified provisions) shown on the card,

(b) bears the authorised officer’s photograph and signature,

(c) bears a hologram showing the Revenue logo,

(d) bears a facsimile signature of a Revenue Commissioner,

(e) states the specified provisions in relation to which the officer has been authorised.

Must a Revenue officer show on request his/her identity card?

(2) The production of his/her identity card by an authorised officer, on request, in the course of his/her duties is to be taken as evidence that that officer has been properly authorised under the appropriate provision, and has produced his/her authorisation.

When does this section come into force?

(3) This section takes effect from a day to be appointed by the Minister for Finance.

Section 859 Anonymity of authorised officers in relation to certain matters

When is an officer’s anonymity maintained?

(1)-(2) All reasonable care must be taken to ensure that the identity of a Revenue official nominated by the Revenue Commissioners to be a member of the staff of the Criminal Assets Bureau (an authorised officer) is not revealed.

What other rules apply to Criminal Assets Bureau officers?

(3) In particular, in relation to the law relating to income tax, corporation tax, capital gains tax, value added tax, capital acquisitions tax, residential property tax, stamp duties, customs and excise and vehicle registration tax (the Revenue Acts):

(a) An authorised officer need not produce any authorisation or identify him/herself and must be accompanied by a Garda Síochána member who will identify him/herself as a Garda.

(b) An authorised officer need not sign any documents or correspondence in the course of his/her duties; all correspondence is to be issued in the name of the Criminal Assets Bureau.

(c) An authorised officer need not identify him/herself in any proceedings (including an appeal hearing), and any documents relating to the proceedings should not reveal his/her identity.

(d) An Appeal Commissioner or judge may direct that an authorised officer may give evidence in any proceedings out of sight of any other person.

Section 860 Administration of oaths

Who may administer an oath?

(1) A Peace Commissioner may administer an oath to be taken before a Commissioner by an officer or other person in relation to income tax, corporation tax or capital gains tax.

Can anyone but a Peace Commissioner administer an oath?

(2) An Appeal Commissioner may administer an oath to be taken before the Appeal Commissioners by an officer or other person in relation to income tax or corporation tax.

Section 861 Documents to be in accordance with form prescribed by Revenue Commissioners

Must Revenue assessments etc be issued in a prescribed format?

(1) Assessment notices, demand notices and documents used to charge or collect income tax, corporation tax or capital gains tax must be on the official Revenue form.

Must a tax return be made in a prescribed format?

(2) A return relating to income tax, corporation tax or capital gains tax must be made on the official Revenue form.

Section 863 Loss, destruction or damage of assessments and other documents

What is Revenue’s position if documents are lost or destroyed?

(1) Where an original assessment or return in respect of income tax, corporation tax or capital gains tax has been lost or damaged, Revenue retain the right to do anything they would have done had the original assessment or return not been made.

If Revenue lose a return, they may ask for a fresh return (as if a return had not been filed). If a Revenue assessment is lost or damaged, Revenue may make a fresh assessment.

If tax has been paid must Revenue have to give credit?

(2) If a person charged to income tax, corporation tax or capital gains tax, can that the relevant tax for the tax year or accounting period in question has been paid, credit for that payment must be given (by reducing the amount charged, or by repayment if necessary).

Section 864 Making of claims, etc

What formalities apply to making claims?

(1) In relation to income tax, corporation tax and capital gains tax: a claim for a deduction, allowance or exemption, repayment of tax, or relief of any kind for which no right of appeal exists, must be made on the official Revenue form.

The claim must be determined by a Revenue official (including an inspector) authorised to determine such matters.

Are there other specific rules apply to making claims?

(2) Where a resident company (or a non-resident company chargeable to corporation tax) receives an annual payment net of income tax, it may offset the income tax withheld against its corporation tax liability for the accounting period in which the payment falls. This relief must be claimed.

In so far as an income tax exemption applied for corporation tax purposes gives rise to a repayment of corporation tax, the exemption must be claimed.

What penalty applies for filing, or helping another to file, incorrect information with Revenue?

(3) A €3,000 penalty applies where a person files, or knowingly or carelessly assists or induces another person in filing, a false account, declaration or statement in order to claim an exemption, allowance, credit or relief (to which he is not entitled).

Section 864A Electronic claims

What electronic options are available for claiming “low risk” tax allowances?

(1)-(2) This section allows you as a PAYE taxpayer the option to claim “low risk” tax credits by means of approved electronic communications including telephone apparatus, i.e., telephone self-service facility, touch tone, voice recognition and text messaging.

A claim for allowance, deduction or relief includes the making of an election, the giving of notice and amendment or withdrawal of a claim, election or notice.

How are Revenue’s requirements for e-communication advertised?

(3) Revenue must make known any requirements they have in relation to approved electronic communication.

What if my claim doesn’t comply with Revenue conditions?

(4) Where conditions made by Revenue within (3) are in force, electronic claims must comply with these conditions.

Is extended time given to make a claim by using electronic claims?

(5) Conditions made by Revenue in relation to electronic claims cannot extend the period within which a claim can be made nor can they vary the contents of a claim.

How does a taxpayer know that a claim is received by Revenue?

(6) A claim made by approved electronic communications is:

(a) deemed, unless the contrary is proved, to have been filed by the purported claimant,

(b) treated as made when acknowledged by Revenue.

Can Revenue check an “e-claim”?

(7) Yes.

Can details issued on foot of a claim by electronic communication be relied on?

(8) If a claim by approved electronic communication results in the issue of, or the amendment of, a determination of tax credits and standard rate cut-off point, the inspector is deemed to have issued that amended determination.

What other rules apply?

(9) Section 917M, which deals with proceedings in relation to electronic returns, also applies for the purposes of claims made by approved electronic communications.

Can Revenue delegate their authority?

(10) Yes. Revenue may delegate their authority under this section to an authorised official.

Section 865 [Claims for repayment, interest on repayments and time limits for assessment]

When is a person entitled to a repayment of tax?

(1)-(2) A taxpayer who has overpaid any income tax, corporation tax or capital gains tax, or interest on those taxes (taxpaid under the Acts) is entitled to be repaid.

Must the return and self assessment be amended?

(2A) For a repayment claim to be valid the return and self assessment must be amended in accordance with section 959V.

How are claims for periods before 1 January 2013 treated?

(2B) This subsection adapts the references to section 959V in subsection (2) to cover “returns” for periods before 1 January 2013 as “self assessments” did not exist before that date.

What are the requirements of a valid claim?

(3) Revenue must not make a repayment of tax overpaid (see (2)) unless a valid claim is made.

Is it possible to get a repayment if the requirements for a valid claim have not been met?

(3A) The rule in (3), which prevents Revenue making repayments in the absence of a documented return or claim, is disapplied if Revenue are satisfied (for example, in the case of a claim made by approved electronic communication) that a repayment for the tax year in question is due.

However, this disapplication of the rule in (3) cannot be made if the claim is already out of time.

What time limits apply to claiming a repayment?

(4) A claim for repayment of income tax, corporation tax, or capital gains tax is not allowed unless you make it:

(a) within 10 years after the end of the chargeable period to which the claim relates, in the case of claims made on or before 31 December 2004, where the claim relates to a chargeable period ending before 31 December 2002,

(b) within four years after the end of the chargeable period to which the claim relates, in the case of claims made on or after 1 January 2005, where the claim relates to a chargeable period ending before 31 December 2002,

(c) within four years after the end of the chargeable period to which the claim relates, where the claim relates to a chargeable period beginning on or after 1 January 2003.

Are these time limits fixed?

(5) Where a claim for repayment of income tax, corporation tax or capital gains tax arises under any other section, and the legislation provides a time limit for making the claim which differs from the time limit mentioned in (4), then that time limit applies in

place of the time limit mentioned in (4).

Can Revenue use their discretion in repaying tax?

(6) No. Revenue must not repay any tax or interest paid to them unless specifically authorised to do so by legislation.

Can a decision in relation to a repayment be appealed?

(7) Yes. A taxpayer aggrieved by a Revenue decision in relation to a repayment of tax may appeal in writing to the Appeal Commissioners within 30 days of the decision.

How can the repayment be received?

(8) The Revenue may make a repayment of tax (see (2)) directly into a taxpayer’s bank account.

Can Revenue examine a claim for repayment?

(9) Revenue may examine claims for repayment and where necessary make or amend assessments or make a determination as required.

Section 865A Interest on repayments

What interest will Revenue pay on an overpayment made due to their mistake?

(1) Where a tax repayment arises due to a Revenue mistake, Revenue must pay interest for each day or part of a day the repayment is not made. The interest runs from the first day after the chargeable period to which the claim relates.

What if the overpayment was not due to a Revenue error?

(2) Where a tax repayment arises for any other reason (see (1)), Revenue must pay interest for each day or part of a day the repayment is not made. The interest runs from 93 days after the claim becomes valid.

What interest rate applies to repayments?

(3) The interest rate applicable to repayments of tax is 0.011 per cent for each day or part of a day until the repayment is made.

The Minister for Finance may vary this rate by order. Such an order must be laid before and passed by Dáil Éireann.

What other rules apply to the payment of interest?

(4) Interest is not to be paid if it amounts to less than €10.

Revenue are not required to deduct tax from interest on tax overpaid, and such interest is itself exempt from income tax, corporation tax and capital gains tax.

When is interest not repaid under this section?

(5) Interest is not to be repaid under this section if interest is already payable under some other provision of tax law.

Section 865B No offset where repayment prohibited

Can a repayment of tax more than four years old be offset?

(1) In general, a repayment of tax is prohibited if the claim is outside of the time limit, i.e., it is more than four years since the end of the accounting period or tax year (relevant period) in which the repayment arose. This section prevents such a repayment from being offset against any other tax liabilities.

What taxes cannot be offset if the repayment is more than four years old?

(2) A repayment which is outside the time limit cannot be offset against tax outstanding.

This rule applies to income tax, USC, corporation tax, capital gains tax, stamp duty, gift tax, inheritance tax, excise duties and VAT.

Is there any exception to the rule prohibiting offset?

(3) There is one exception to the rule on the prohibition of offsets – see (4).

What is the exception to the rule on prohibition of offsets?

(4) An “out of time” repayment can be offset against a Revenue assessment for the same period, but only up to the amount of the tax assessed. The Revenue assessment must be made four years or more after the end of the period.

Is there a general prohibition on offset of taxes?

(5) There is a general prohibition on offset except as provided under the Acts (see (1)).

Section 866 Rules as to delivery of statements

What obligations has a person who delivers a statement of profits?

A person who delivers a statement of profits subject to income tax, corporation tax or capital gains tax must ensure that the statement contains all the information required (Schedule 28).

Section 867 Amendment of statutory forms

Can Revenue amend the form of declarations?

Revenue may amend the declarations to be made by prospective Commissioners and officers (Schedule 27) and the forms on which the statements of profits are to be made by those who file them (Schedule 28).

Section 868 Execution of warrants

Who executes a warrant relating to tax?

(1) A warrant issued in relation to income tax, corporation tax or capital gains tax must be executed by the person to whom it is directed.

Can Gardaí aid in the execution of warrants?

(2) Garda Síochána members must aid in the execution of warrants relating to income tax, corporation tax and capital gains tax.

Section 869 Delivery, service and evidence of notices and forms

How should Revenue deliver notices or documents?

(1) A notice or document to be served on a company (any body corporate) may be delivered or sent (including by post) by a Revenue official to the company’s registered office or place of business.

A notice or document to be served on an individual may be delivered or sent (including by post) by a Revenue official to the last known address or place of business, or place of employment of the individual.

Note

Tax returns, notices etc may be served by sending them through the post to the usual or last known place of residence, or place of business or employment of the taxpayer, even if abroad: IRC v Huni, (1923) 8 TC 466; Whitney v IRC, (1925) 10 TC 88. Company notices are usually sent to the registered office.

Service to the last known place of business was not effective in Re a debtor, (No 1240/SD/91), ex parte the debtor v IRC, [1992] STC 751.

What rules apply if a document is to be signed by Revenue?

(2) A notice or document required to be signed and given by the Revenue Commissioners may be signed and given by a Revenue officer authorised for that purpose. A notice signed by an authorised Revenue officer is valid as if signed by a Revenue Commissioner.

Can Revenue use copy documents as evidence in proceedings?

(3) In judicial proceedings, Revenue may produce purported copy of a notice (or other Revenue record in computer, photocopy or any other format of such a notice) given in relation to income tax, corporation tax or capital gains tax.

This is to be taken as prima facie evidence that the notice is valid, and Revenue do not need to prove the authority, signature or position of the person who signed the notice.

How should a notice on the Appeal Commissioners be delivered?

(4) A notice to be served on the Appeal Commissioners may be delivered to their Clerk.

How do these delivery rules interact with other rules?

(5) These delivery rules apply irrespective of any other rules relating to income tax, corporation tax or capital gains tax.

Section 870 Effect of want of form, error, etc on assessments, charges, warrants and other proceedings

How is a defective assessment treated?

(1) If a flawed or defective assessment, charge or warrant is made on the correct person, and in substance, it conforms with the intent and meaning of the law relating to income tax, corporation tax or capital gains tax, the document is not to be regarded as invalid by reason of a mistake or omission it contains.

What sort of errors will not render a document invalid?

(2) An assessment or charge in relation to income tax, corporation tax or capital gains tax is not to be invalidated by reason of:

(a) a mistake in the taxpayer’s name or surname,

(b) the description of any profits or property,

(c) the amount of tax charged,

(d) any difference between the notice and the certificate of assessment or charge.

An incorrect description of the trade did not invalidate assessments in Deighan v Hearne, 3 ITR 533. See also Martin v IRC, (1938) 22 TC 330 and Baylis v Gregory, [1986] STC 22. If the taxpayer can establish negligence by the Revenue Commissioners, he/she may be able to show that he/she had a legitimate expectation: Carbery Milk Products Ltd v Minister for Agriculture, 4 ITR 492.

The Deighan decision was affirmed in Criminal Assets Bureau v Hutch, unreported, HC, 14 May 1999.

What must be contained in a notice of charge?

(3) A notice of charge must be served on the person to be charged. The certificate must contain the particulars of the charge, and every such charge must be heard and determined by the Appeal Commissioners.

Section 871 Power to combine certain returns and assessments

Can a CGT return be combined with an income tax return?

An assessment, return or document relating to capital gains tax may be combined with one relating to income tax or corporation tax.

Section 872 Use of information relating to other taxes and duties

Can Revenue use information acquired under one tax heading in relation to another?

(1) Yes. Revenue may use information acquired in relation to any tax or duty in connection with any other tax or duty for which they are responsible.

What evidence can Revenue use to assist collection or assessment of any other tax or duty?

(2) In relation to the assessment and collection of income tax, corporation tax or capital gains tax, Revenue may also use and produce in evidence any returns, documents or information legally obtained by Revenue officials in connection with any other tax or duty for which they are responsible.

Section 873 Proof that person is a Commissioner or officer

What is required to prove that a person is a Commissioner or Revenue officer?

In judicial proceedings in relation to income tax, corporation tax or capital gains tax, Revenue do not need to prove that a person was a Commissioner or Revenue officer at the time of the matter. They need only prove that he/she was “reputed to be” or had acted as a Commissioner or officer.

Section 874 Limitation of penalties on officers employed in execution of Tax Acts and Capital Gains Tax Acts

What penalties apply to Revenue officials?

(1) A person engaged in the assessment or collection of income tax, corporation tax or capital gains tax is not liable to any penalty other than provided for by the relevant tax law, in relation to such duties.

Person, in this context, means a Commissioner, inspector, assessor, clerk, Collector-General, sheriff or county registrar.

Can a person claim damages for the improper seizure of goods?

(2) If civil or criminal proceedings are taken against a Revenue official on account of goods being seized, and such proceedings are successful, the plaintiff is only entitled to have the seized goods returned.

Section 874A Prescribing of forms, etc.

Can Revenue make and change forms for tax purposes?

(1)-(2) A Revenue form or other document can be approved by a Revenue Commissioner or an Assistant Secretary for the purposes of the Acts, i.e.:

(a) income tax and corporation tax,

(b) capital gains tax,

(c) universal social charge,

(d) domicile levy,

(e) capital acquisitions tax,

(f) stamp duties, and

(g) motor tax.

Can minor changes in Revenue forms be made without a senior official’s approval?

(3) Minor deviations in official forms prescribed by legislation do not invalidate the forms used (Interpretation Act 2005section 13).

Section 875 Exemption of appraisements and valuations from stamp duty

Amendments

Section 875 repealed by Finance Act 1999 section 197 and Schedule 6 from 6 April 1999.

Section 876 Notice of liability to income tax

When must a person notify an inspector of an income tax liability for a given tax year?

A person who has not been required by the inspector to file a statement of profits or gains (section 877) or file a return of income (section 879) must, if he/she is chargeable to income tax for a tax year, within one year of the end of the tax year, so notify the inspector.

Note

In a particular case, a non-resident who did not have an Irish source of income was regarded as liable to make a return of income, as he exercised an employment in the State (Revenue Precedent IT97-1502, 7 April 1997).

Section 877 Returns by persons chargeable

How does a chargeable person respond to a Revenue notice to file a statement of all income sources?

(1) A person chargeable to income tax must, if requested to do so by the inspector, file within the specified time limit, a signed written statement of profits or gains received from every source according to its respective Schedule.

If requested by the inspector, a person must must file a statement of profits or gains, under Schedule C, D, E, and F. This is, in effect, a return of total income. A statement of profits under Schedule D Case I would normally take the form of a set of accounts, with a separate computation showing the profits for tax purposes. The return of total income must be made on the official income tax return (section 879).

The return is confidential: Shaw v Kay, (1904) 5 TC 74.

What signed declarations must be included in statements of income submitted?

(3) A statement of profits or gains must also contain a declaration stating that the amounts shown as received from each source are correct, after allowing any legitimate deductions.

What interest or other annual payments should be excluded from the statement?

(4) The statement must not include interest or annual payments chargeable to tax in the hands of another person.

Can a non-liable person be penalised for non-compliance?

(5) Where notice to file a statement of profits or gains or income chargeable under Schedule D or E is received, the statement must be filed in the format requested.

The penalty which applies for non-compliance with this section (section 1052 and Schedule 29) is reduced to €5 where yit is shown that the person was not chargeable.

Section 878 Persons acting for incapacitated persons and non-residents

How must an agent respond to a Revenue notice to declare a person’s income sources?

(1) An agent of an incapacitated or non-resident person must, if requested to do so by an inspector, on behalf of that person within the specified time limit, submit a signed written statement of profits or gains received from each source according to each Schedule.

The statement of profits or gains must contain a declaration stating that the amounts shown as received from each source are correct, after allowing any legitimate deductions.

Note

A trustee, guardian or representative of an incapacitated person; a representative of a non-resident person.

What are the obligations of two or more agents who are jointly responsible for the affairs of an incapacitated or non-resident person?

(2) Where agents are jointly responsible for the affairs of an incapacitated or non-resident person together with one or more other people, any one responsible may file the return.

Each such agent may notify the inspector of the district in which he/she is charged to tax on his/her own account, and in which district he/she wishes to be charged as agent of the incapacitated or non-resident person.

Where several agents are involved, only one assessment is made as agent (as it would be incorrect to include in one assessment the agent’s personal income and the income of the person he/she represents).

Section 879 Returns of income

Can Revenue request me to make more than one return annually?

In prescribing the format of the income tax return, Revenue must ensure as far as possible that no individual has to complete more than one annual return of income in respect of all his/her sources of income.

What can Revenue require for a particular year?

(2) When requested to do so by an inspector, a taxpayer must file an income tax return within the time specified, showing, for the tax year in question: all his/her sources of income, details of income from each source, and any other details required on the return form.

This section applies to returns of income by individuals. It does not apply to partnerships, trustees, personal representatives, or friendly societies.

Note

Other details: the return form is framed to elicit information regarding capital allowances and balancing adjustments, retirement annuity payments etc.

A return was not regarded as filed:

(a) Where the return showed the exact income exemption limit (with no supporting records): Bairead v McDonald, 4 ITR 475. The return was referred to the taxpayer for completion.

(b) By including in it a formula to compute the taxpayer’s liability: Horner v Madden, [1995] STC 802.

(c) By the making of an election: R v Special Commissioners, ex parte Tracy, [1996] STC 34.

How is income/profit from each income source calculated?

(3) The income from each source is to be computed on an actual basis (i.e., the income arising in the tax year), with the exception that profits of an established trade or profession may be computed on the basis of a 12 month account period ending within the tax year.

Where a 12 months accounts period ends in the short tax year 2001, the profits are scaled back to 74% of the profits for the full period. This is to adjust for the fact that the short tax year is 74% of the length of a full year.

What is the difference between a voluntary and a non-voluntary submission of a tax return?

(4) A return filed without being requested by the inspector, is deemed to have been filed at the inspector’s request.

Section 880 Partnership returns

What electronic options are available for claiming “low risk” tax allowances?

(1)-(2) This section allows you as a PAYE taxpayer the option to claim “low risk” tax credits by means of approved electronic communications including telephone apparatus, i.e., telephone self-service facility, touch tone, voice recognition and text messaging.

A claim for allowance, deduction or relief includes the making of an election, the giving of notice and amendment or withdrawal of a claim, election or notice.

How do I know Revenue’s requirements for e-communication?

(3) Revenue must make known any requirements they have in relation to approved electronic communication.

What if my claim doesn’t comply with Revenue conditions?

(4) Where conditions made by Revenue within (3) are in force, electronic claims must comply with these conditions.

Do I get extended time to make a claim by using electronic claims?

(5) Conditions made by Revenue in relation to electronic claims cannot extend the period within which a claim can be made nor can they vary the contents of a claim.

How do I know that my claim is received by Revenue?

(6) A claim made by approved electronic communications is:

(a) deemed, unless the contrary is proved, to have been filed by the purported claimant,

(b) treated as made when acknowledged by Revenue.

If I make an “e-claim”, does this mean Revenue won’t check it?

(7) No.

Can I rely on details issued on foot of a claim by electronic communication?

(8) If a claim by approved electronic communication results in the issue of, or the amendment of, a determination of tax credits and standard rate cut-off point, the inspector is deemed to have issued that amended determination.

What other rules apply?

(9) Section 917M, which deals with proceedings in relation to electronic returns, also applies for the purposes of claims made by approved electronic communications.

Can Revenue delegate their authority?

(10) Yes. Revenue may delegate their authority under this section to an authorised official.

Section 881 Returns by married persons

Must inclusion of a spouse’s income be notified to the Inspector?

(1) A person chargeable to income tax, if requested by the inspector to file a statement of total income (section 877), may, within 21 days of receipt of the notice, notify the inspector that her/his total income includes income of her/his spouse.

Can an inspector require a return from the spouse?

(2) Where an inspector receives notice that income includes income of a spouse, he/she may request the spouse to file a separate statement of his/her total income (section 877).

In joint assessment what are the obligations of the chargeable spouse?

(3) The filing, at the inspector’s request, of a separate statement of income by a spouse, does not, in the case of a married couple jointly assessed to tax, relieve the chargeable spouse of the obligation to report her/his spouse’s earnings on the return.

Section 882 Particulars to be supplied by new companies

What definitions are relevant for new company formations?

(1) In the case of a company, secretary means the company secretary, or the person who performs company secretarial duties. In the case of a non-resident company, the term includes the company’s agent, manager or representative.

In the case of a body of persons, it means the treasurer, auditor or receiver.

A company’s ultimate beneficial owners are:

(a) the individuals who control it, or

(b) in the case of a company controlled by a trustee of a settlement:

(i) a person who is a settlor in relation to the settlement,

(ii) a beneficiary or potential beneficiary under the settlement,

(iii) the ultimate beneficial owners of a settlor or beneficiary that is a company.

A person controls a company if he/she can directly or indirectly control the company’s affairs, or if he/she is entitled to more than half the of the company’ share capital, voting power, distributable income, or assets on winding up (section 432(2)). Shares or voting power obtainable at some future date are counted as available immediately, as are shares held through nominees. Rights and powers held by a person’s associates or companies which he/she controls are treated as available to that person (section 432(3)-(6)).

A settlement includes any trust, disposition, covenant, agreement or arrangement, and any transfer of money or other property.

A settlor is a person who makes a settlement (trust) and can include any person who directly or indirectly funds the settlement.

What are the reporting obligations of new companies carrying on a trade or business in the State?

(2) A company that is incorporated or carrying on business in the State must provide information, in writing, to Revenue within 30 days of:

(a) beginning its trade, profession or business in the State,

(b) the occurrence of a material change in information previously provided in this regard,

(c) a request by an inspector to provide the information.

A company must provide the following information:

(I) The company’s name.

(II) The address of its registered office.

(III) The company’s main business address.

(IV) The company secretary’s name and address.

(V) The date the company began in business.

(VI) The nature of the company’s trade, profession or business.

(VII) The date to which the first accounts will be made up.

(VIII) Any other information that Revenue require.

If the company is incorporated but not resident in the State, it must provide details of the country in which the company is resident for the purposes of tax corresponding to Irish income tax or corporation tax.

If the company is neither incorporated nor resident in the State but carries on business in the State, the following information must be provided:

(I) The company’s main business address in the State.

(II) The name and address of its agent, manager or representative in the State.

(III) The date on which the company began to carry on business in the State.

What action will Revenue take against a new company for failure to deliver a statement of particulars?

(3) The Revenue Commissioners, or an officer nominated by them, may notify the registrar of companies if a company has failed to file the information required by (2). Such notification is not regarded as breaching the rules in relation to official secrecy.

Where a company has commenced to carry on a trade, profession or business, satisfactory completion of form IIF CRO may be regarded as fulfilling the company’s obligations under section 882 (Inspector Manual 38.2.8).

Section 883 Notice of liability to corporation tax

When must a company notify Revenue that it is chargeable to corporation tax?

A company that is chargeable to corporation tax for an accounting period must, within one year of the end of that accounting period, notify the inspector that it is so chargeable.

Section 884 Returns of profits

What does a return include?

(1) A return includes a statement, list or declaration.

What must a corporation tax return show?

(2) An inspector or Revenue officer may request a company to file a corporation tax return within a specified time, showing, for the accounting period in question:

(a) The company’s profits from each source of income, details of asset disposals in the accounting period, details of charges and any other details required on the return form.

(aa) Information, accounts, statements and reports relevant to the company’s corporation tax liability. In practical terms, this means accounts prepared in accordance with company law (see (2A)).

(b) Other corporation tax particulars required by the notice or specified in the return form.

(c) Distributions received from companies resident in the State.

(d) Annual payments made by the company from income not brought into charge to tax (section 238).

(e) A loan to a participator that is treated as an annual payment (section 438).

In practice, the return form is designed to elicit all the required information.

Can Revenue require accounts to be filed in more detail than required by company law?

(2A) The Revenue power to require accounts with a corporation tax return means such accounts including information and documents that must annexed to the accounts as contain sufficient information to enable the company’s chargeable profits to be determined.

This is to facilitate filing of electronic financial statements (in iXBRL) with the corporation tax return via the Revenue Online System (ROS).

What other transactions constitute a disposal which must be included in a corporation tax return?

(3) A share-for-share exchange in the course of a company amalgamation (section 586) or reconstruction (section 587), although not generally regarded as a disposal giving rise to a chargeable gain, is regarded as a disposal for the purposes of this section. In other words, it must be reported on the return form.

What form is used for a return of company profits and gains?

(4) The inspector may requirea return for any period during which a company was within the charge to corporation tax.

Note

A single form CT1 can cover at a maximum a period of 12 months: Tax Briefing 1.

Submission of the company’s accounts or any other document without a form CT1 is not sufficient and is not regarded as the making of a return: Tax Briefing 3.

What is the nature of a CT1 declaration?

(5) The return must also contain a declaration stating that the amounts shown as received from each source are correct, after allowing any legitimate deductions.

Must payments on which income tax has been borne be shown?

(6) If the profits shown on the return include payments received under deduction of income tax, the amount of income tax withheld must be stated.

What other details must be shown on a CT1 return?

(7) The return must also include details of management expenses and balancing adjustments taken into account in arriving at the profits for tax purposes.

What capital gains tax information must be included on a CT1 form?

(8) The return must also include details of assets (other than assets that are exempt from capital gains tax and assets acquired as trading stock) acquired during the accounting period, the person from whom the asset was acquired, and the price paid for the asset.

Assets (i.e., shares) acquired as part of a company amalgamation or reconstruction may not be ignored and must also be reported on the return form.

What power does an authorised officer have in relation to profits returns?

(9) If a return of company profits is not filed, or is unsatisfactory return, an authorised Revenue officer may write requesting the company to:

(a) file copies of the company’s audited profit and loss account and balance sheet within a specified period,

(b) make the company’s books and records available for inspection within a specified period.

The inspector may take copies of, and make extracts from, the books and records presented for inspection.

Section 885 Obligation to show tax reference number on receipts

What definitions apply to tax reference numbers and receipts?

(1) Business means a trade which consists, wholly or partly, of a service (in VAT terms), or a profession.

A specified person is an individual who is carrying on business on her/his own account or who is a partner in a partnership business.

A specified person’s tax reference number means her/his Personal Public Service (PPS) Number:

(a) as stated on her/his certificate of tax credits and standard rate cut-off point,

(b) as stated on an income tax notice of assessment, or

(c) her/his VAT number.

In VAT terms, a supply of a service is “the performance or omission of any act or the toleration of any situation” other than a supply of goods (Value Added Tax Act 1972 5 not found(1)).

This provision does not apply to companies.

What information must be included in business receipts?

(2) A specified person must quote her/his tax reference number on any invoice, credit note, debit note, receipt or voucher issued by her/him to the value of €7 or more.

If the is no tax reference number, her/his full name and address must be showm on the document.

Section 886 Obligation to keep certain records

What are business records and linking documents?

(1) Records means the following books, maintained (whether manually, electronically, or by microfiche) in respect of a business:

(a) A cash receipts book detailing all money received by the business and a cheque payments book detailing all money spent by the business.

(b) A sales book detailing all sales made by the business and a purchases book detailing all purchases made by the business.

(c) A register of assets and liabilities of the business.

(d) A record of capital assets acquired for, or disposed of by, the business.

Linking documents are the documents that show how a set of accounts was prepared from the records of the business.

Records must be maintained so that self-assessment tax returns may be audited.

Personal bank statements that relate solely to personal transactions are not “records”. In other words, if the statements are not used to enable a true return to be made of the profits or gains of the trade or profession, they are not “records” (Revenue Precedent IT92-3062, 13 July 1992).

What records must be maintained to complete a tax return?

(2) A person who carries on a business, receives investment income, or incurs a chargeable gain must keep records that will enable a true income tax, corporation tax or capital gains tax return to be made.

The records must be maintained continuously and consistently from one year to the next.

The linking documents used to prepare a set of accounts from the records are the property of the owner of the records.

In the case of a partnership business, the precedent partner must ensure the appropriate records are kept.

Consistency in accounting policies from one period to the next (for example, in relation to depreciation) is a fundamental accounting concept (SSAP 2).

Linking documents (accountant’s working papers for the preparation of a set of accounts) are the taxpayer’s property, and therefore subject to inspection: Quigley v Burke, 4 ITR 332.

How must business records be maintained?

(3) Business records must be kept manually, electronically, by microfiche, or in writing, in English or Irish.

How long must business records be kept?

(4) Business records and their linking documents must be retained for six years after the transactions or events to which they relate.

If a self-assessment return is not filed on or before its due date, the business records and linking documents must be retained for six years from the end of the tax year or accounting period in which the return was filed.

Where a transaction or other matter is the subject of a Revenue inquiry or investigation, a claim under this Act or any appeal or proceedings the records must be maintained until the matter is determined or the time limit for the appeal or proceedings has expired.

Where a person ceases to carry on a business, receive investment income or incur a chargeable gain records must be kept for 5 years following the cessation.

How long must records of a liquidated company be retained?

(4A) The six year period for retention of records applies to companies that are liquidated or dissolved without being liquidated.

The records must be retained by the liquidator or, in the case of a dissolved company, the persons who were directors immediately prior to the dissolution.

Must an executor or administrator retain records?

(4B) Where a person has died the responsibility to retain records rests with the executor or administrator of the deceased’s estate.

What is the penalty for not maintaining proper records?

(5) A penalty of €3,000 applies where records are not kept for a tax year or accounting period unless a person proves that she/he is not a chargeable for that period.

Section 886A Retention and inspection of records in relation to claims by individuals

What records must be kept?

(1) A person who wishes to claim an allowance, deduction, or relief must retain any supporting records.

How long must I retain records?

(2) The records in (1) must be kept for the longer of the following periods:

(a) the date in which any Revenue inquiry into the claim is completed, and

(b) six years from the end of the tax year to which the claim relates.

What is the penalty for not retaining records?

(3) A penalty of €1,520 applies.

When does the penalty for failure to keep records not apply?

(4) The penalty in (3) does not apply if facts underlying the claim can be proved by other documentary evidence.

What is the time limit for Revenue to inquire into a claim?

(5) A Revenue official may inquire into a claim, or any amendment to such claim, within four years of the end of the tax year in which the claim or amendment is made.

Can Revenue require supporting documents to be produced?

(6) A Revenue official may inquire into a claim, or an amendment to a claim and may, by written notice, require a person within a specified time limit:

(i) to produce any supporting documentation to vouch the claim, and

(ii) to provide the official with any other particulars he/she may reasonably require to vouch the claim.

Can copies of documents be submitted to Revenue?

(7) Yes, but the official may still require sight of the originals.

Can Revenue take copies of documents?

(8) The official may take copies of, or extracts from, the supporting documents.

Section 887 Use of electronic data processing

What is the meaning of “records” in the context of tax returns?

(1) Records means documents required to be produced for inspection in relation to income tax, corporation tax, capital gains tax, value added tax, capital acquisitions tax or residential property tax.

What safeguards must be built into electronic data recording?

(2) Records may be generated, stored, maintained or transmitted in non-manual format provided the process used:

(a) ensures the integrity of the record from the time it was first generated in the process,

(b) allows the record to be displayed, or printed out, in a form that is intelligible,

(c) allows the record to be readily accessible for display or print out, and

(d) conforms to the information technology and procedural requirements drawn up by Revenue (see (3)).

What obligations do Revenue have to publish standards for electronic data processing (EDP) systems?

(3) Revenue must publish in Iris Oifigiúil the information technology and procedural requirements for storage, maintenance, transmission and reproduction of records.

Guidelines: Tax Briefing 46.

Can Revenue revoke or amend standards applying to EDP systems?

(4) Revenue’s authority to devise and publish information technology and procedural requirements also includes the authority to revoke or amend such requirements.

What information can Revenue request in relation to an EDP system?

(5) Where records are stored in electronic (or other non-manual) format Revenue may require, within 21 days of the date of a written request, full details of the storage process (including software) used.

A penalty of €3,000 applies for failure to comply with a request from Revenue to provide details of the storage method.

When are proper EDP records deemed not kept?

(6) If records are kept in a non-manual format that does not comply with the Revenue’s requirements, there is a deemed failure to keep proper records. As such, the same penalties that apply to a person for failure to keep records apply.

The penalty provisions do not apply ifp proper records are kept in manual format.

Are documents from non-manual records admissible as evidence to the same extent as the original records?

(7) Yes.

Can Revenue delegate their functions under this section to an authorised officer?

(8) Yes.

Section 888 Returns, etc by lessors, lessees and agents

What definitions apply to Case V returns filed by lessors, lessees or agents?

(1) A lease includes any tenancy and any lease type agreement whereby a lessor (landlord) receives rent from alessee (tenant) in respect of a leased premises (land or buildings in the State). Rent includes any payment in the nature of rent (for example, work done by a tenant on the leased premises).

Agents in receipt of rental income from property in any country (not just Ireland) must make the appropriate return.

Who can Revenue request to provide information with regard to rental property?

(2) In order to compute rental profits chargeable to tax under Schedule D Case V (or Case IV) an inspector may require:

(a) A landlord (or former landlord) of a premises to provide within a specified time, details of the lease terms and payments made to the landlord under the lease.

(b) A tenant (or former tenant) of a premises to provide within a specified time, details of the lease terms or in the case of a written lease, a copy of the lease agreement.

(c) A tenant (or former tenant) to provide details of any premium paid for the granting of the lease.

(d) A property management agent to file a return stating the addresses of all such premises under his/her management, the local property tax number of each residential premises, the owner of each premises, the rents arising from the premises, and any other information required in relation to the premises.

(e) A government department, health board, or local authority, which pays rent for any premises to file a return stating the addresses of all such premises, the local property tax number of each residential premises, the owner of the premises, the tax reference number of each owner, the rents arising from the premises, and any other information required in relation to the premises.

What do tax reference numbers mean in the context of rental returns?

(3) This rule deals with rent paid by a government department, the Health Service Executive (HSE), a local authority, or a board or authority established under statute. Before paying rent such a body must obtain the landlord’s tax reference number.

The landlord must comply with the request to provide this information.

If the tax number is not provided, the body must state on its electronic return that it cannot provide the information required.

Section 889 Returns of fees, commissions, etc paid by certain persons

This section is used to gather information on fees and commissions paid to self-employed service providers (subcontractors). The return is made on Form 46G.

What definitions apply to fees or commissions paid by certain persons?

(1) A specified person is an individual carrying on business on her/his own account or a partner in a partnership business.

A tax reference number means a Personal Public Service (PPS) number or a VAT number.

A payment includes a payment in kind, and where a payment is made in kind, the requirement to state the amount of the payment is a requirement to provide details of the payment in kind.

A payment for services includes a commission payment of any kind, and also includes any expenses incurred in providing the service.

What returns can be required?

(2) A person who carries on a trade or business, if requested to do so by the inspector, must file a return within the time specified, showing for the period specified in the notice:

(a) Payments made for business services provided by persons ordinarily resident in the State who are not employed by the business.

(b) Payments made for services related to the formation, acquisition, development or disposal of the business by persons (ordinarily resident in the State) who are not employed by the business.

(c) Payments made in respect of copyright to persons ordinarily resident in the State.

What information must a body of persons include in such a return?

(3) A body of persons (including a government department and a statutory body) must file a return within the time specified, showing for the period specified in the notice:

(a) Payments made for business services provided by persons ordinarily resident in the State who are not employed by the body.

(b) Payments made in respect of copyright to persons ordinarily resident in the State.

Who must make up a return in the case of an unincorporated body of persons?

(4) For an unincorporated body of persons, the return is to be made by the person who is the secretary, or who performs the secretarial duties.

What information must be included regarding payees?

(5) The return must also show each payee’s name and tax reference number, details of the services or rights provided by him/her, the period over which they were provided, and the payee’s business name and business or home address.

What payments on behalf of clients or from client accounts must be included on the return?

(6) The reporting provisions apply to payments made on behalf of clients including from “client accounts”.

Solicitors

At the time of the passing of the underlying legislation, solicitors were concerned about client confidentiality and as a consequence meetings were held in 1993 between Revenue and the Incorporated Law Society of Ireland. The result was that the general rules for the making of third party returns (Statement of Practice SP – IT/1/92, Returns of Certain Information – Third Party Returns) apply in relation to solicitors as follows:

(a) The reporting provisions will not apply to payments made to or on behalf of clients which relate to the period to 1 September 1993. The Statement of Practice date of 1 January 1993 will apply, where relevant, to all transactions on solicitors’ “office accounts”). For earlier periods, a solicitor was not obliged to include payments out of his client account on Form 46G (Revenue Precedent IT90-2003, 19 February 1990).

(b) A minimum limit of €127 will apply to genuine individual client payments for aggregation purposes (i.e., individual payments of less than €127 need not be aggregated). For this purpose a transaction should not be regarded as genuine if it is split to keep the value below €127, (This limit does not apply to “office account” items).

(c)(i) Rents reflected in apportionment accounts on the closing of sales or rents collected (whether initial rent or a deposit) on the drawing up of new leases need to be reported.

(ii) Ground rent collections for clients which are less than €635 in aggregate for a return period need not be report

(d) Payments made towards the maintenance of a child or his/her parent (e.g., in circumstances which might have given rise to an affiliation or maintenance order being granted against the payer) need not be reported.

(e) Debts collected need not be reported in the following circumstances:

(i) Debts collected which are incidental to the main services provided for a client.

(ii) Debts collect on behalf of persons listed in Sch 14 (accountable persons – withholding tax), building societies, plcs.

(iii) Debts collected for a client which do not exceed €3,810 in aggregate for a return period.

(f) The cost of special software to facilitate third party returns reporting requirements may be treated as a revenue item rather than a capital item.

Personal representatives of deceased persons

Where a solicitor or other professional, as personal representative, is a chargeable person either in respect of pre- or post-death income, the question of a third party return in respect of that income will not arise. In very limited circumstances, for example, executor trading, a third party return in respect of payments made by the executor in that capacity would arise in the normal way.

As regards specific legacies, or where in accordance with existing practice the date of death is regarded as the date of ascertainment of the residue for residuary legatees and income is attributed accordingly to the beneficiaries, a third party return will not be required provided the inspector is advised regarding the estate, how the assets and income are being distributed, etc.

Forms

Form 46G Return of payments by individuals and bodies of persons, other than companies.

Forms 46G (Company) Equivalent form for companies.

The general issue of Forms 46G (Company) is made to coincide with the general issue of Forms CT1 for each accounting period.

The third party reporting obligations operate on an automatic basis. Practitioners requiring forms for clients who may not have received them, can obtain them from any tax office.

What payments can be excluded from the return?

(7) The following payments need not be included in the return:

(a) Annual and other payments from which income tax is deductible.

(b) Payments totalling less than €635 in the period covered by the return made to any one person.

(c) Payments made in a tax year ending more than three years before the date of the notice requesting the information.

Payments for services to any one person in any return period which do not exceed €3,810 in the aggregate do not have to be reported (see notes to section 894(3)).

What penalty applies for failure to file full particulars in a return?

(8) A penalty of €3,000 applies if a true and correct return is not filed within the specified time limit when requested.

What proof will a court admit as evidence in proceedings to recover a Revenue penalty?

(10) In judicial proceedings to collect a penalty, a certificate signed by an inspector that the return form was not received may be given in evidence without proof, and is evidence, until the contrary is proved, that the return was not received.

Section 890 Returns by persons in receipt of income belonging to others

What returns must be made by a person in receipt of income of others?

(1) Where a person receives income on behalf of another person (for example, a commission agent or a trustee of a non-resident person) must, if requested to do so by the inspector, file a return within the time specified, stating, for each person to whom the income belongs:

(a) The amount of income.

(b) The payee’s name and address.

(c) The payee’s age, marital status and residence status, together with a declaration as to whether the person is incapacitated.

This section has been used to obtain a return from an underwriting agent: Lord Advocate v Gibb, (1906) 5 TC 194, and a bank acting as trustee: A-G v National Provincial Bank Ltd, (1928) 14 TC 111. See also Hughes v Bank of New Zealand, (1936) 21 TC 472.

A livestock agent in receipt of a sales commission must return the gross sales figure for each seller: Fawcett v Special Commissioners and Lancaster Farmers’ Auction Mart Co Ltd, [1997] STC 171.

Forms

Form 8-2 Return by persons (other than companies) in receipt of income belonging to others

Form 8-2 (Company) Equivalent form for companies

What obligations does a joint agent receiving income belonging to others have?

(2) Where a person in receipt of income on behalf of another person receives the income jointly with another person (for example, in the case of a joint agent, or co-trustee), she/he must report the names and addresses of the co-recipients (joint agents or co trustees).

How much income must an agent receive to have an obligation to file a return on behalf of others?

(3) Receipts totalling less than €635 for the period covered by the return on behalf of any one person need not be included in the return.

For €635 read €3,810: see notes to section 894(3).

Section 891 Returns of interest paid or credited without deduction of tax

What return must be made by a bank or moneylending business that pays interest without deduction of tax?

(1) A bank or moneylending business that pays interest without deduction of tax, if requested to do so by an inspector, must file a return within the time specified stating for each person to whom interest was paid or credited during the year specified in the notice:

(a) The amount of interest.

(b) The payee’s name and address.

Form 8B: Return by financial institutions paying or crediting interest without deduction of tax.

What obligations do credit unions have to report interest paid or credited?

(1A) In relation to chargeable periods beginning on or after 1 October 1997, the requirement to file a return does not apply to interest paid or credited by a credit union which is registered under the Credit Union Act 1997.

From 2 April 2007, the requirement to file a return does apply in relation to interest paid gross to an account holder who is aged 65 or over or who is permanently incapacitated (section 256(1A)-(1B)).

Above what level must interest be returned by a finance institution?

(2) Interest totalling less than €65 paid or credited without deduction of tax to any one person during the year specified in the notice need not be included in the return.

Interest information may not be sought for interest paid in a tax year ending more than three years before the date of the notice.

Can Revenue seek information both from a branch and from a head office of a financial institution?

(3) Separate interest information requests may be sent to any branch of a bank or moneylending business. Such an information request is regarded as having been sent to the head office of the bank.

Information previously sought from individual branches of the business may not be subsequently sought from the head office of a bank.

This prevents the same information being sought twice, i.e., once from the branch and once from head office.

What obligations do post offices have to file returns of interest paid?

(4) The Post Office Savings Bank must, if requested by an inspector, make a return of interest paid without deduction of tax.

Is it necessary for a financial institution to make a return of interest arising outside the State?

(5) The obligation to make a return of interest only applies to interest paid without deduction of tax on monies received or retained in the State.

What obligation does a bank have as respects non-resident and nominee account holders?

(6) Where an account holder declares to a bank that the person beneficially entitled to the interest is non-resident, the bank need not include the interest in a return.

If the bank is not satisfied that an account holder is non-resident, the account holder must give an affidavit to the bank stating his/her name, address and country of residence.

In the case of a nominee account holder (i.e., an account holder not beneficially entitled to the interest), the affidavit must also state the name, address and country of residence of the person beneficially entitled to the interest.

If the bank is satisfied that an account holder is non-resident, and that account holder later declares that he/she was not beneficially entitled to the interest, the account holder must report the name and address of the beneficial owner (if that owner is resident in the State).

This was introduced to counteract the making of false declarations of non-residence.

What are a bank’s obligations regarding non-residence declarations?

(7) A bank must keep its account holders’ non-residence declarations and affidavits for six years from the date of the declaration.

If requested in writing by the Revenue Commissioners, a bank must:

(a) state whether a named person has lodged a non-residence declaration in respect of an account, and

(b) provide within the time specified a copy of a particular non-residence declaration and affidavit.

Section 891A Returns of interest paid to non-residents

Does an Irish company have to file a return of interest paid to non-residents?

(1)-(2) A company or collective investment undertaking (i.e., a relevant person) that pays interest to a company resident in a country with which Ireland has a tax treaty (relevant interest), must file a return to the appropriate inspector (section 950(1)), on or before the self assessment return filing date for the chargeable period (i.e., the accounting period or tax year basis period, see section 321(2)).

That return must state, for each person to whom interest was paid:

(a) the payee’s name and address,

(b) the interest paid to the person in the chargeable period,

(c) the country in which the person is resident for tax purposes.

Relevant interest included in a return under this section need not also be included in a return under section 891.

The penalty for failure to file a return (section 1052), as increased, where appropriate in the case of a body of persons (section 1054) applies where you fail to file a return under this section.

Section 891B Returns of certain payments made

What definitions apply in relation to returns of payments?

(1) This section enables Revenue to make regulations requiring an assurance company, financial institution, or Government Department or public body (a relevant person) to make an automatic return to Revenue. That return must provide names, addresses and tax numbers of persons to whom a relevant payment has been made:

(a) In the case of an assurance company, financial institution or collective fund, it means: interest, a payment or return in respect of an investment or any similar payment (as defined in regulations – see (3)) made to or through you.

(b) In the case of a Government Department or public body, it means a payment (as defined in regulations – see (3)) made to or through you.

Is an amount credited or set off treated as paid?

(2) If an amount is credited or set off rather than actually paid, it is treated as having been paid.

The amount of any payment is the gross payment before deduction of tax.

Can Revenue make regulations requiring a relevant person to file a return?

(3) Revenue may, with the consent of the Minister for Finance, make regulations requiring a member of a class ofrelevant persons (i.e., a specified person) to file a return of relevant payments made to, or through it for the period specified in the regulations.

It may also be required to include the recipient’s tax reference number.

See also:

Return of Payments (Banks, Building Societies, Credit Unions and Savings Banks) Regulations 2008 (SI 136/2008)

Return of Payments (Banks, Building Societies, Credit Unions and Savings Banks) (Amendment) Regulations 2009

Revenue Guidance Notes on Interest Reporting (2009)

What can regulations provide for as respects payments made?

(4) The regulations may provide for:

(a) notifying a person that they are required by regulations to make a return,

(b) setting the date by which a particular return is to be filed,

(c) specifying a particular Revenue office to which returns must be sent,

(d) defining the type of payments covered by the regulations,

(e) defining the class of recipients to be included in returns under a particular set of regulations,

(f) determining the identity (name) and residence or place of establishment of a recipient of a payment,

(g) setting out the payment details (e.g., amount, bank account number, policy number),

(h) requiring, from a date set out in the regulations:

(i) specified persons to obtain a tax reference number from customers,

(ii) customers to provide their tax reference number to the specified person in request,

(i) defining books and records for the purposes of the regulations,

(j) determining how records are to be kept, and the period for which such records must be retained,

(k) requiring the production of records and the provision of information and assistance to authorised Revenue officers,

(l) providing supplemental measures to enable those subject to comply with the regulations, and for general administration including delegation of authority and authorisation of officers.

How are changes in the regulations covering returns of certain payments made?

(5) Such regulations must be laid before Dáil Éireann. If annulled within 21 days, the regulations are cancelled, but anything done under the regulations within that 21 day period remains effective.

What entry powers do Revenue have to ensure compliance with the returns regulations?

(6) An authorised officer may at all reasonable times enter a specified person’s place of business to determine whether information in a return is correct and complete. The officer may also examine the procedures put in place to ensure compliance with regulations.

What penalties apply for failure to make a return?

(7) The penalties that apply for failure to file a return under the EU Savings Directive (section 898O) also apply for failure to file, and for making an incorrect, return under the regulations.

A penalty of €1,265 applies if you do not comply with a request made by an authorised Revenue officer.

Is a separate return of interest also required?

(8)-(9) Where a return is filed under these regulations, a return under section 891 or section 891A is not required.

Is An Post obliged to make a return of payments?

(10) The Post Office Savings Bank Act 1861 does not prohibit disclosure of payment information to Revenue.

Section 891C Returns of certain information by investment undertakings

Can Revenue obtain information on the value of units held in an investment undertaking?

(1) This section enables Revenue to make regulations requiring an investment undertaking to automatically report, on an annual basis the value of the units held by certain unit holders.

How do Revenue obtain information on the value of units held in an investment undertaking?

(2)-(3) Revenue are emowered to make regulations requiring investment undertakings to return information regarding unit holders from 1 January 2012.

Does an investment undertaking need to return information that is covered by the Savings Directive?

(4) Investment undertakings are not required to report, any information that is to be included in a return under the European Savings Directive.

What do the investment undertaking regulations cover?

(5) The regulations may provide for:

(a) notifying an investment undertaking that they are required by regulations to make a return,

(b) setting the date by which a particular return is to be filed,

(c) specifying a particular Revenue office to which returns must be sent,

(d) defining the values of units covered by the regulations,

(e) defining the class of unitholders to be included in returns under a particular set of regulations,

(f) determining the identity (name) and residence or place of establishment of a unitholder,

(g) setting out the payment details (e.g., amount, bank account number, policy number),

(h) requiring, from a date set out in the regulations:

(i) investment undertakings to obtain a tax reference number from unitholders,

(ii) unitholders to provide their tax reference number to the investment undertkaing in request,

(i) defining books and records for the purposes of the regulations,

(j) determining how records are to be kept, and the period for which such records must be retained,

(k) requiring the production of records and the provision of information and assistance to authorised Revenue officers,

(l) providing supplemental measures to enable those subject to comply with the regulations, and for general administration including delegation of authority and authorisation of officers.

A Revenue officer may at all reasonable times enter an investment undertaking’s place of business to determine whether information in a return is correct and complete. The officer may also examine the procedures put in place to ensure compliance with regulations.

A penalty of €1,265 applies if the investment undertaking does not comply with a request made by an authorised Revenue officer.

Must investment undertaking regulations be approved by Dáil Éireann?

(6) Such regulations must be laid before Dáil Éireann. If annulled within 21 days, the regulations are cancelled, but anything done under the regulations within that 21 day period remains effective.

Section 891E Implementation of the Agreement to Improve Tax Compliance and Provide for Reporting and Exchange of Information concerning Tax Matters (United States of America) Order 2013.

To what does this section apply?

(1)-(4) The purpose of this section is to give legal effect to an agreement between Ireland and the USA to provide information from financial institutions for the purpose of the Foreign Account Tax Compliance Act (FATCA) of the US.

Revenue are empowered to make regulations specifying the information to be provided by financial institutions and the time and manner in which it should be provided.

What may be specified in the regulations?

(5) This subsection lists the provisions which may be included in the regulations.

Must the regulations be approved by Dáil Éireann?

(6) The regulations must be laid before the Dáil as soon as possible after being made. If the Dáil annuls them they cease to have effect but anything done before the annulment remains valid.

Can Revenue verify the information provided?

(7) Yes. Revenue may enter the premises of a financial institution to verify information provided and to examine the institution’s procedures for complying with the regulations.

Are there penalties for non-compliance?

(8) Yes. The same penalties apply as for failure to provide returns required for the EU Savings Directive or for failing to make a correct return.

Do taxpayer confidentiality rules apply?

(9)-(10) Rules governing the confidentiality of taxpayer information do not apply to information required to be provided to the US authorities under this section.

Can arrangements be made to avoid obligations under this section?

(11) No. Where such arrangements are entered into the section and regulations will apply as if the arrangements had not been made.

Section 891F Returns of certain information by financial institutions

To what does this section apply?

(1)-(3) This section provides for gathering and reporting information concerning financial accounts held by non-residents in the State. The definitions are contained in the OECD’s “Standard for Automatic Exchange of Financial Information”. The section provides that the Revenue Commissioners may make regulations covering the information to be provided by financial institutions.

What may be specified in the regulations?

(4) This subsection lists the provisions which may be included in the regulations.

Must the regulations be approved by Dáil Éireann?

(5) The regulations must be laid before the Dáil as soon as possible after being made. If the Dáil annuls them they cease to have effect but anything done before the annulment remains valid.

Can Revenue verify the information provided?

(6) Yes. Revenue may enter the premises of a financial institution to verify information provided and to examine the institution’s procedures for complying with the regulations.

Are there penalties for non-compliance?

(7) Yes. The same penalties apply as for failure to provide returns required for the EU Savings Directive or for failing to make a correct return.

Do the Post Office Savings confidentiality rules apply?

(8) The confidentiality rules do not apply to disclosures of information under the regulations made in accordance with this section.

Can arrangements be used to avoid disclosure?

(9) No. If there are such arrangements the regulations will be applied as if they had not been entered into.

How are words used in the regulation s to be interpreted?

(10) Where the regulations contain words that are defined in Section VIII of the Standard (see subsection 2) they are to be interpreted by reference to Section VIII.

Section 891G Implementation of Council Directive 2014/107/EU of 9 December 2014 amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation

To what does this section apply?

1)-(3) This section brings into Irish tax law the cited EU Directive which provides for gathering and reporting information concerning financial accounts held by non-residents in the State. The definitions are contained in the OECD’s “Standard for Automatic Exchange of Financial Information”. The section provides that the Revenue Commissioners may make regulations covering the information to be provided by financial institutions.

What may be specified in the regulations?

(4) This subsection lists the provisions which may be included in the regulations.

Must the regulations be approved by Dáil Éireann?

(5) The regulations must be laid before the Dáil as soon as possible after being made. If the Dáil annuls them they cease to have effect but anything done before the annulment remains valid.

Can Revenue verify the information provided?

(6) Yes. Revenue may enter the premises of a financial institution to verify information provided and to examine the institution’s procedures for complying with the regulations.

Are there penalties for non-compliance?

(7) Yes. The same penalties apply as for failure to provide returns required for the EU Savings Directive or for failing to make a correct return.

Do the Post Office Savings confidentiality rules apply?

(8) The confidentiality rules do not apply to disclosures of information under the regulations made in accordance with this section.

Can arrangements be used to avoid disclosure?

(9) No. If there are such arrangements the regulations will be applied as if they had not been entered into.

How are words used in the regulation s to be interpreted?

(10) Where the regulations contain words that are defined in Section VIII of the Standard (see subsection 2) they are to be interpreted by reference to Section VIII.

How does this section affect section 891F?

(11) when this section applies to a reportable account section 891F does not apply to it.

Section 891H Country-by-country reporting

What definitions apply to this section?

(1) Various cited definitions are to be found in Article 1 of the OECD model legislation.

Income tax means income or corporation tax or any equivalent foreign tax.

What are the obligations of an Irish parent of a multi-national group?

(2) An Irish parent must within 12 months of the end of its fiscal years commencing on or after 1 January 2016 provide Revenue with a country-by-country report for that year.

Must an Irish parent of a multi-national group notify Revenue of its status?

(3) Yes. An Irish parent of a multi-national group must notify Revenue when it is the ultimate parent that group.

What information must a country-by-country report contain?

(4) The report must, for each country in which the group operates, provide the information listed in this subsection.

Can Revenue make regulations under this section?

(5) Yes. They make make regulations as to the manner and form of the reports.

What matters can the regulations cover?

(6) The regulations can-

 (a)-(b) require a group member that is not the parent to make the country-by-country report and specify when it must be made;

(c) amend the information that must be supplied in the report;

(d)-(e) require an entity that is not the parent or a surrogate parent to provide the required information;

(f) provide for an Irish subsidiary to be notified of a systemic failure in the state of residence of its parent;

(g)-(h) specify and modify how reports are to be made and how the information is to be used;

(i)-(j) make provisions regarding confidentiality and such other matters as may be necessary to enable entities to fulfil their obligations and for the operation of the regulations.

What penalties apply?

(7) The penalties that apply to failure to make tax returns and for making incorrect or incomplete returns also apply to country-by-country reports.

Must records be retained?

Such records as are necessary to confirm the accuracy of country-by-country reports must be retained for 6years following the end of the fiscal year to which the report relates.

Do Revenue powers apply to country-by-country reports?

(8) Yes. Revenue’s powers to seek books and information and ,if necessary, apply to the Court for them, apply to country-by-country reports.

Must regulation be laid before Dáil Éireann?

(9) Yes.. Regulations made by Revenue must be approved by Dáil Éireann.

Can Revenue communicate with other tax authorities?

(10) Notwithstanding their confidentiality obligations Revenue may communicate with other tax authorities in relation to country-by-country reports provide there is an agreement for exchange of information in place.

How are words and expressions in the regulations to be interpreted?

(11) They are to be given the same meanings as in the OECD model legislation unless a contrary intention is clear..

Section 892 Returns by nominee holders of securities

What is meant by “securities”?

(1) Securities includes company shares, bonds or debentures. It also includes a promissory note, or declaration of indebtedness, made by a company to a loan creditor (section 433(6)).

It also includes Irish government securities, semi-State and local authority securities guaranteed by the Minister for Finance, and foreign government securities.

What information must be contained on a nominee shareholder return?

(2) A nominee holder of securities (i.e., a person who holds the securities on behalf of the real or beneficial owner), if requested to do so in writing by the inspector, must file a return within the time specified, stating, for each person on whose behalf securities are held:

(a) The beneficial owner’s name and address.

(b) The nominal value of the securities. If the securities are company shares, you must also state the number and class of such shares.

(c) The date the securities were registered in her/his name.

A vendor who disposes of shares of which he/she was the registered and beneficial owner need not make a return as a nominee shareholder on behalf of the new beneficial owners in the interval before the shares are registered in the purchaser’s name (Tax Briefing 9, January 1993).

Form 21R Return by nominee shareholders

Section 893 Returns by certain intermediaries in relation to UCITS

Amendments

Section 893 deleted by Finance Act 2001 section 232(1)(b) and (2) as respects any chargeable period (within the meaning of section 321(2)) commencing on or after 15 February 2001.

Section 894 Returns of certain information by third parties

What definitions apply to third party returns?

(1) The appropriate inspector is:

(a) the inspector who last requested a return of income from a relevant person (see (2)),

(b) if there is no such inspector, the inspector to whom it was customary to send a return of income,

(c) if there is no such inspector, the Revenue-nominated inspector of returns.

The return filing date (specified return date for the chargeable period) means:

(a) 31 January 2002 as regards the tax year 2000-01, 31 October 2002 as regards the short tax year 2001, and 31 October as regards each subsequent tax year, and

(b) the last day of the ninth month following the end of a company’s accounting period.

Who must file a third party return?

(2) The following relevant persons must make a return of information or payments made:

(a) A property management agent (section 888(2)(d)).

A government department, health board, or local authority, which pays rent for any premises (section 888(2)(e)).

(b) A person carrying on a trade or business who pays fees or commissions to a self-employed service provider or subcontractor (section 889).

(c) A person who receives income on behalf of another person (section 890).

(d) A bank that pays interest without deduction of tax (section 891).

(e) A nominee holder of securities (section 892).

(f) An intermediary acting on behalf of an undertaking for collective investment in transferable securities which is based in another EU State (section 893).

A person who does not qualify as a relevant person under any one of these headings, can potentially remain a relevant person under any other heading.

In the case of a body of persons, only the secretary is required to report the information.

Example

You are a property management agent and you also receive income on behalf of a non-resident company.

You are therefore a relevant person under two headings.

Assume that you had no property management activities and you were not a relevant person under that heading (section 888(2)(d)). You remain a relevant person as regards the income received on behalf of the non-resident company (section 890).

What is the deadline for a third party return?

(3) A relevant person must file a third party return to the appropriate inspector on or before the due date for the self-assessment return. The return must contain the required information regarding payments made to any of the listed third parties during the chargeable period for the self-assessment return.

Can an inspector exclude a person from the obligation to file a third party return?

(4) An inspector may, by written notice, exclude a person for a specified period from the obligation to complete a third party return.

Can an inspector limit the third party information required?

(5) An inspector may, by written notice, confine the reporting requirement to a particular type or category of information or payment.

Can an inspector require a third party return?

(6) Although taxpayers are now obliged to self-report payments to, and information regarding third parties, they remain obliged if requested by the inspector to provide the information under the appropriate category heading.

In the same way, although an inspector may have requested information regarding, a particular category, they remain obliged to self-report that information in the third party return.

What penalties apply for failure to file a third party return?

(7) The same penalties apply for failure to file a third party return as apply for failure to file a tax return.

Section 894A Returns by third parties in relation to personal reliefs

What is a PPS number?

(1) A PPS number means a personal public service number, as defined in Social Welfare legislation.

Can Revenue require a person to provide information to help them establish an individual’s reliefs?

(2) A person who has information relating to expenditure defrayed by a person (for example, a hospital that the person attended) may, if such information can establish the person’s entitlement to tax relief (personal relief), provide such information to Revenue if they request it.

In what format must information be submitted to Revenue?

(3) Such information must be provided in electronic format and must contain the name, address and PPS number of the provider.

Can a person’s PPS number be given to Revenue?

(4) For the purpose of a return under (3) a person may provide a taxpayer’s PPS number and, if necessary, may request it from the taxpayer but must say why it is required..

Can Revenue use information relating to reliefs for other purposes?

(5) Revenue may only use the information provided to them under (2) to establish an entitlement to tax relief. It must not be used for any other purpose.

Can Revenue delegate their powers to obtain information regarding personal reliefs?

(6) Revenue may delegate their powers under this section to an authorised Revenue official.

Section 895 Returns in relation to foreign accounts

What definitions apply relation to foreign accounts?

(1) The appropriate inspector is:

(a) the inspector who last requested a return of income from you (the relevant person),

(b) if there is no such inspector, the inspector to whom it was customary to send a return of income,

(c) if there is no such inspector, the Revenue-nominated inspector of returns.

A tax reference number means a Personal Public Service (PPS) number or a VAT number.

The return filing date (specified return date for the chargeable period) means:

(a) 31 October in the subsequent year (e.g. 31 October 2010 for the tax year 2009),

(b) the last day of the ninth month following the end of your company’s accounting period.

What obligations has an intermediary who opens a foreign account?

(2) An intermediary who acts in the State to open a foreign account on behalf of an Irish resident must, on or before the due date for his/her self-assessment return, make a foreign account return to the inspector, listing for every resident for whom such an account was opened:

(a) The resident’s name and permanent address.

(b) The resident’s tax reference number.

(c) The name and address of the foreign account holder.

(d) The date the foreign account was opened.

(e) The amount deposited in the foreign account.

What information must a person disclose to an intermediary?

(3) A resident who uses an intermediary to act in relation to a foreign account must provide him/her with the details mentioned in (2), and must take care to ensure the details are correct.

What penalties apply to an an intermediary in relation to foreign accounts?

(4) A penalty of €4,000 applies to an intermediary who does not:

(a) file a foreign account return for a self-assessment period,

(b) include all necessary details in the return, or

(c) take reasonable care to ensure the details are correct.

A penalty of €4,000 also applies to a resident who:

(a) does not provide the necessary details, or

(b) knowingly provides false information to the intermediary.

What obligations has a resident who opens a foreign account?

(6) An Irish resident who opens a foreign account (of which he is the beneficial owner), is a chargeable person for self assessment purposes and must include in the return to the inspector for the chargeable period in which the account was opened, details of:

(a) The name and address of the foreign account holder.

(b) The date the foreign account was opened.

(c) The amount deposited in the foreign account.

(d) The name and address of the intermediary, if any, used to open the account.

Section 896 [Returns in relation to certain offshore products]

What definitions apply in relation to offshore products?

(1) An intermediary is a person who carries on in the State a business of providing relevant facilities, i.e., a person who:

(a) markets offshore products,

(b) acts as an intermediary in buying or selling offshore products on behalf of Irish residents, or

(c) provides facilities in the State to make payments from an offshore product to the product owner, whether on the sale or part-sale of the product, or otherwise.

An offshore product is:

(a) a foreign life policy, i.e., a life policy provided by:

(i) a foreign branch of an assurance company, or

(ii) a foreign assurance company, other than through its Irish branch,

(b) a material interest in an offshore fund (a unit trust fund located outside the State), i.e., an investment which at the time of making the investment, the investor had a reasonable expectation of being able to realise within seven years (section 743(1)).

The appropriate inspector is:

(a) the inspector who last requested a return of income from the relevant person,

(b) if there is no such inspector, the inspector to whom it is customary to send a return of income,

(c) if there is no such inspector, the Revenue-nominated inspector of returns

The chargeable period means the accounting period or tax year basis period; see section 321(2).

Material interest: a realisable share in the market value of a fund’s assets.

What obligations apply to an intermediary who sells offshore products?

(2) An intermediary must, on or before the due date for the self-assessment return, make a return to the inspector, listing for every customer to whom he/she has sold offshore products in the chargeable period:

(a) The customer’s name and permanent address.

(b) The customer’s tax reference number.

(c) A description of the offshore products you sold, including the name and address of the person providing the offshore product.

(d) Details of all amounts which the customer has paid into, or received from, the offshore product.

What penalty applies to an intermediary who does not file a return of offshore products?

(3) A penalty of €4,000 applies if an intermediary:

(a) does not file an intermediary return (see (2)),

(b) omits from the return any customer to whom he/she sold offshore products,

(c) does not take care to check the details provided by the customer (for example, in relation to residence).

What penalty applies to a person who does not provide details to an intermediary?

(4) A penalty of €4,000 applies to a customer who:

(a) does not provide the necessary details (see (2)) to an intermediary,

(b) knowingly or wilfully provides incorrect details to the intermediary.

What obligations apply to a resident who invests in an offshore product?

(5) A resident or ordinarily resident person who invests in an offshore product is a chargeable person for self-assessment purposes and must include in the return to the inspector for the chargeable period in which the product was acquired, details of:

(a) the name and address of the offshore fund, or the person who provided the life policy,

(b) a description of the material interest or the life policy (including premiums payable), and

(c) the name and address of the intermediary, if any, used to acquire the offshore product.

Section 896A Returns in relation to settlements and trustees

What are the obligations of a person involved in the making of a trust?

(1)-(2) If the settlor was resident or ordinarily resident in the Republic of Ireland, and the trustees or a majority of them were not resident in the Republic of Ireland, he/she must file a statement with the inspector stating:

(a) the settlor’s name and address,

(b) the names and addresses of the trustees, and

(c) the date on which the settlement was made.

What is the deadline for filing the statement?

(3) If made on or after 24 December 2008, it must be filed within four months of the making of the settlement.

If made within the five year period preceding 24 December 2008, the deadline is 24 June 2009.

When are trustees of a settlement regarded as resident in the Republic of Ireland?

(4) When the trust is administered in the Republic of Ireland and a majority of the trustees are resident in the Republic of Ireland.

What powers does an authorised Revenue officer have in relation to the making of the settlement?

(5) The officer may require any person whom he/she believes has information in relation to a settlement to provide such information to Revenue within the time limit specified.

Section 896B Provision of information by Commission for Taxi Regulation

Who is the Authority?

(1) The Authority means the National Transport Authority (NTA).

Is the NTA obliged to provide information to Revenue?

(2) The NTA must, at intervals specified by Revenue, provide information to Revenue to enable them to assess and collect any tax that may be due from taxi drivers (who may not be recorded in Revenue records).

Section 896C Provision of information by Child and Family Agency

What obligations has the Child and Family Agency?

(1)-(2) The Agency is required to supply Revenue on request with information they hold regarding pre-school service providers.

Section 897 Returns of employees’ emoluments, etc

What payments are classed as payments to employees?

(1) Payments made to employees include:

(a) payments in respect of expenses, including sums put at the disposal of the employee to pay expenses,

(b) payments made on behalf of the employee and not repaid,

(c) payments made for services supplied by the employees in connection with the trade or business, whether or not such services were supplied in the course of the employment.

What information must an employer include in an employee return requested by Revenue?

(2) An employer, if requested to do so in writing by the inspector, must file a return within the specified time limit stating:

(a) The names and addresses of each of his/her employees,

(b) Details of any company car provided to an employee (section 121),

(c) Details of any preferential loans provided to an employee (section 122),

(d) Details of any scholarships he/she funds that are payable to an employee or his/her spouse, family, or dependents (section 193).

(e) Details of salary or wage payments made to employees. Salaries or wages of employees need not be reported if the pay in the tax year is below €1,905.

Form P11D: Inspector Manual 5.3.9.

See also notes to section 112(1).

Who is deemed to be the employer for employee returns filed by a body of persons?

(3) In the case of a body of persons, the secretary is deemed to be the employer, and must therefore provide the information.

Any director or manager of a body corporate is deemed to be an employee of that body.

Who is liable to a Revenue penalty when a body corporate fails to deliver a return of employee details?

(4) The body corporateis liable to a penalty applies and a separate penalty applies to the secretary (or person performing the duties of secretary).

Which employee details can be omitted from without penalty?

(5) An employer is not liable to a penalty for omitting from a return the names and addresses of employees who are exempt from income tax.

What obligations has an employer where there has been an apportionment of expenses?

(6) If the figure for expenses in a return is stated after an apportionment in relation to some other matter (for example, €1,000 allocated as to €600 work-related expenses and €400 private expenses of the employee would only be reported as €600), an employer must report that fact.

If requested in writing by the inspector, he/she must, within the specified time limit, provide a breakdown of and explain the basis of the apportionment.

An inspector who is dissatisfied with the apportionment may revise it. The employer may appeal within 21 days of receiving notice of the inspector’s revised apportionment.

How will the Appeal Commissioners treat an appeal against an apportionment of employee expenses?

(7) The Appeal Commissioners must hear and determine such an appeal in the same manner as an appeal against an income tax assessment. There is a right, where necessary, to have the case reheard by a Circuit Court Judge. There is also a right to have a case stated for the opinion of the High Court on a point of law.

Section 897A Returns by employers in relation to pension products

What details must an employer provide regarding employee benefits on the annual P35 return?

(1) This section obliges you as an employer to provide additional information relating to tax-deductible pension contributions when completing your annual P35 return. The deduction in question may be an employee pension contribution, an employer pension contribution, a PRSA employee contribution an RAC premium or a PRSA employer contribution.

How can an employer check all the details that to be provided on the P35 return?

(2) Since 1 January 2005 an employer must include on the annual P35 return the following details:

(a) the number of employees from whose emoluments a deduction was made in respect of an employee pension contribution, a PRSA contribution, or an RAC contribution,

(b) the number of employees in respect of whom an employer pension contribution or a PRSA employer contribution was made in the year,

(c) the total amounts deducted in respect of employee pension contributions, PRA contributions and RAC contributions, and

(d) the total amounts contributed by way of employer pension contributions and PRSA contributions.

What happens if an employer does not submit a P35 return?

(3) The penalty for failure to file a return (section 1052), as increased, where appropriate in the case of a body of persons (section 1054), applies where an employer fails to file a return under this section.

Section 897B Returns of information in respect of awards of shares to directors and employees

Must an employer inform Revenue of share awards made to employees?

(1)-(2) Yes. If shares are awaded to a director or employee of a company, the employer must provide details of such awards to Revenue.

Section 898 Returns of copies of rates and production of certain valuations

What is meant by a “rating authority”?

(1) A rating authority means a county corporation, a borough corporation, a county council, or an urban district council.

What authority do Revenue have to obtain local authority rate demands?

(2) The secretary or clerk of a rating authority, if requested in writing by the inspector, must send the inspector within the specified time limit true copies of the last county rate or municipal rate made by that rating authority.

What will Revenue pay for obtaining a rate demand?

(3) Revenue must pay the rating authority the cost of making the copies at a rate not exceeding €2 for every 100 ratings.

What additional information can Revenue obtain from the rating authority?

(4) The inspector must also be permitted to inspect the survey, valuation or record on which the ratings are based, and to take copies of or extracts from those documents.

The underlying legislation was originally introduced to allow inspectors to assess farming profits on the basis of the rateable valuation of the farm (Finance Act 1974 section 21).

Inspectors may now use the information gathering power to trace landlords of properties which are let.

Section 898A Format of returns etc.

Can Revenue prescribe the format in which to make up a return?

Information to be filed with Revenue under this Chapter must be filed in the appropriate form (i.e., electronic format) required by Revenue.

This is to facilitate collecting of information gathered from third party returns.

Section 898B Interpretation (Chapter 3A)

What definitions are included in Irish law to transpose the EU Savings Directive?

(1) This Chapter transposes the EU Savings Directive (Council Directive 2003/48/EC) into Irish law. That Directive deals with exchange of information on interest payments made by a paying agent in one EU State to a beneficial owner in another EU State. An interest payment is widely defined to include not just interest but other types of financial returns, including a return earned by an undertaking for collective investment in transferable securities (UCITS) for distribution to its unit holders.

This Chapter requires Irish financial institutions to establish the identity, residence and tax identification number (TIN) of customers to whom they pay interest, and report to Revenue the details of customers who are resident in other EU States. Revenue will then forward the relevant information by electronic means to the EU State concerned.

Austria, Belgium and Luxembourg have opted to apply a withholding tax to interest payments rather than exchange information with other EU States. Such withholding tax may be credited against Irish tax on the income concerned.

The Savings Directive will not go ahead until Member States are satisfied that dependent territories of the UK and Netherlands will exchange information or apply a withholding tax.

A certificate of residence for tax purposes is a document issued by the competent authority of an EU State or a non-EU State (third country) certifying that the individual is resident for tax purposes in that State.

How is residence determined under the EU Savings Directive?

(2) For the purposes of information exchange between EU States in relation to interest payments, an individual is treated as resident in the country where he/she has his/her permanent address. However, that definition of residence is disapplied in the phrase “certificate of residence for tax purposes”, because in that phrase, it takes its wider “tax residence” meaning.

How is “residence for tax purposes” determined?

(3)It is determined by reference to the law of the territory concerned. For example, a person could be tax-resident in the Isle of Man even though that territory is a dependency of the UK.

Are the definitions in the EU Savings Directive fully transposed into Irish law?

(4) Words and phrases used in this Chapter take the same meanings as they have in the EU Savings Directive, unless otherwise indicated.

Section 898C Beneficial owner

When am I regarded as a beneficial owner in relation to an interest payment?

(1) You are the beneficial owner of an interest payment if you are the person who receives it or for whom it is secured.

Who is an intermediary and what does he/she have to prove so as not to be treated as a beneficial owner?

(2) An intermediary is a person who receives an interest payment and passes it on to the beneficial owner. Anintermediary is not treated as a beneficial owner if he/she can prove to the financial institution paying him/her the interest that he/she:

(a) is a paying agent,

(b) acts on behalf of a non-individual or a collective undertaking,

(c) acts on behalf of a residual entity and meets the conditions in (3),

(d) acts on behalf of another individual who meets the condition in (4).

Under what conditions is an intermediary and a paying agent for a residual entity not treated as a beneficial owner?

(3) An intermediary between a paying agent and a residual entity is not treated as a beneficial owner if:

(a) he/she provides the residual entity’s name and address to the paying agent, and

(b) the paying agent makes a return, containing the name and address details, to Revenue within three months of the end of the tax year in which the name and address was provided to him/her.

Under what conditions is an intermediary for an individual not treated as a beneficial owner?

(4) An intermediary between a paying agent and an individual is not treated as a beneficial owner if he/she provides the individual’s name and address information to the paying agent.

What should a paying agent who knows that a person is not a beneficial owner, a paying agent, or an intermediary do?

(5) A paying agent who knows that a person is not the beneficial owner of an interest payment and not a paying agent or intermediary must take reasonable steps to identify the beneficial owner.

What must a paying agent do if he/she is unable to identify a beneficial owner?

(6) A paying agent who is unable to identify a beneficial owner must treat you as the person who receives the interest payment, or on whose behalf it is secured, as the beneficial owner.

Section 898D Paying agent and residual entity

How is a “paying agent” defined under the EU Savings Directive?

(1) A person is a paying agent if he/she, in the course of business, makes an interest payment to, or secure the benefit of an interest payment for, a beneficial owner. A paying agent includes a Government Minister, but only as respects adeemed interest payment, i.e., an interest payment made to a residual entity that has not elected to be treated as a UCITS (see section 898E(7)(a)).

A paying agent includes a residual entity, i.e., a person or undertaking in another EU State or tax treaty country who receives the interest payment on behalf of a beneficial owner. However this does not apply if the interest payer is satisfied that the payee is within (2).

Which persons or undertakings do not fall into the definition of residual entity?

(2) A residual entity does not include:

(a) a legal person other than an individual (but not including certain Swedish and Finnish legal entities mentioned in Article 4.5 of the Directive),

(b) a person liable to corporation tax, or the equivalent corresponding tax in an EU State or tax treaty country,

(c) an undertaking for collective investment in transferable securities (UCITS) established in a (non-EU) tax treaty country.

What rules apply to a residual entity which elects to be treated as a UCITS?

(3) The following rules apply in relation to a residual entity (see (1)) which is a UCITS:

(a) It can elect to be treated as recognised under the UCITS Directive. If it does so, it is referred to as a deemed UCITS.

(b) A UCITS recognised under the Directive includes a deemed UCITS.

(c) The election is invalid unless accompanied by a certificate, issued by the authorities of the EU State in which UCITS is tax resident to the person paying the interest, certifying that the person named on the certificate has made the election.

(d) As regards residual entities who are tax resident in Ireland, Revenue must make regulations:

(i) dealing with the form in which the election must be made,

(ii) providing for the issue of a certificate to the entity making the election,

(iii) setting out the details to be includes on the certificate,

(iv) requiring the entity to provide information regarding its constitution, legal status, ownership, investments, income and customers, and

(v) dealing with any other incidental matters.

Section 898E Interest payment

What is an interest payment under the EU Savings Directive?

(1) For the purposes of information exchange between EU States in relation to interest payments, an interest paymentis widely defined to include many types of financial returns obtainable by an individual:

(a) interest on savings, including an instalment savings scheme bonus, and accumulated interest on a savings certificate,

(b) building society share dividends,

(c) credit union share dividends,

(d) the excess received on redeeming a security or a strip of a security (section 55),

(e) prize bond winnings,

(f) gains realised on the sale of a security or a strip of a security,

(g) distributions deriving from interest payments made by a UCITS, a deemed UCITS, or collective investment undertaking in a non-treaty country which invest directly or indirectly in products which give rise to interest payments within (a)-(f),

(h) gains realised on the sale or redemption of units in a UCITS, a deemed UCITS, or collective investment undertaking in a non-treaty country.

What must a paying agent who is unable to identify the breakdown of UCITS distributions of goods do?

(2) If a paying agent is unable to establish the breakdown of UCITS distributions or gains (authorised, deemed and unauthorised) it must treat the full amount of distributions or gains as an interest payment.

When can a paying agent treat a gain arising on the rate of UCITS as an interest payment?

(3) A gain arising on sale of UCITS units is only treated as an interest payment if the UCITS has invested directly, or used to acquire other UCITS units, more than 40% of its assets in investments that will give rise to interest payments within (1)(a)-(f).

If the paying agent has no information to calculate the percentage of its assets so invested, 40% is treated as so invested.

From 1 January 2011, the 40% investment threshold is reduced to 25%.

What must a paying agent who is unable to establish the gain realised by a beneficial owner through the sale or redemption of UCITS do?

(4) If a paying agent is unable to establish the gains realised by a beneficial owner through sale or redemption of UCITS units, it must treat the full amount as an interest payment.

When can an EU State opt not to treat distributions by UCITS as interest payments?

(5)-(6) Under the Savings Directive, an EU State may opt not to treat distributions by UCITS as interest payments if the UCITS invests less than 15% of its assets in securities which generate interest payments.

When is an interest payment treated as a “deemed interest payment”?

(7) An interest payment to a residual entity which has not elected to be treated as a UCITS is treated as a deemed interest payment made at the time it is received by the residual entity.

The preceding rule does not apply to:

(a) an Irish resident residual entity whose investment in assets which generate interest payments is less than 15% of its total investments,

(b) a residual entity established in another EU State which has exercised the option to exclude from the definition of interest payment income from undertakings whose investment in “debt claims” is less than 15% of its total assets, or a residual entity established in a (non-EU) treaty country which has exercised an equivalent option.

What rules apply to determine the percentage of assets invested to generate interest payments?

(8) For the purposes of information exchange between EU States in relation to interest payments:

(a) the investment percentages in (3), (5) and (7)(b)(i) are determined by reference to the most recent (documented) investment policy of the person concerned,

(b) if there is no documentation, the investment percentage is to be determined by the actual composition of the assets of the undertaking or person.

When is interest treated as being paid?

(9) For the purposes of information exchange between EU States in relation to interest payments, interest is treated as paid once it has been credit to the recipient.

Is interest to be regarded as paid gross or net under the EU Savings Directive?

(10) For the purposes of information exchange between EU States in relation to interest payments, a reference to an interest payment which is subject to withholding tax means the gross amount before such tax is deducted.

Are penalties for late payments of interest ever regarded as interest payments?

(11) For the purposes of information exchange between EU States in relation to interest payments, a penalty for late payment of interest is not regarded as an interest payment within (1)(a)-(f).

Section 898F Obligations of paying agents where contractual relations entered into before 1 January 2004

What are the obligations of a paying agent who enters into a contract prior to 1 January 2004?

(1) The purpose of this section is to enable a paying agent to establish the identity and residence of an interest recipient who was a customer before 1 January 2004.

What information must a paying agent obtain from an individual?

(2) The paying agent must establish the individual’s:

(a) name and address (see (3)), and

(b) residence (see (4)).

What sources of information should a paying agent use?

(3) The paying agent must establish the individual’s name and address using all information at its disposal, in particular under the money laundering legislation.

Does a paying agent need to consider the individual’s residence status?

(4) Yes, he/she must establish the individual’s residence using all information availble, in particular under the money laundering legislation.

How long must a paying agent retain documents relating to the individual’s address and residence?

(5) A paying agent must retain, or have access to, for at least five years after the customer has left:

(a) a copy of all materials used to identify the individual (e.g., copy of passport),

(b) a copy of all materials used to establish the individual’s residence (e.g., utility bill).

The paying agent must also retain for five years original documents or legally admissible copies relating to interest payments made or secured on or after 1 July 2005.

For how long is the person treated as having the same status?

(6) A paying agent must treat an identified individual’s identity and residence as continuing until it receives information to the contrary. If the paying agent becomes aware that the individual’s circumstances have changed, or that its information is incorrect, the paying agent must make all reasonable efforts to establish the individual’s correct identity and residence.

What must a paying agent do if the individual’s circumstances have changed?

(7) If an individual informs a paying agent that his circumstances have changed, the paying agent must establish his new circumstances.

Section 898G Obligations of paying agents in other contractual relations entered into

What is meant by an “official identity card”?

(1) An official identity card of an Irish resident individual, means a document issued by Revenue or the Department of Social and Family Affairs containing his/her name, address and personal public service (PPS) number. The term may also include any other document specified in regulations made by Revenue.

What are the obligations of a paying agent who enters into a contract after 1 January 2004?

(2) The purpose of this section is to enable a paying agent to establish the identity and residence of an interest recipient who is a customer from a date on or after 1 January 2004.

If the paying agent is satisfied on the basis of documentary proof that the individual is Irish resident, it applies from 1 June 2004.

However, if the paying agent has information to indicate the recipient is non-Irish resident, he/she must make all reasonable efforts to establish the individual’s correct identity and residence.

What customer details must a paying agent establish after 1 January 2004?

(3) In the case of new customers and transactions with non-customers on or after 1 January 2004, a paying agent must establish the name, address, tax identification number (TIN), and residence of the customer or prospect.

What documentation must a paying agent for identification purposes?

(4) A paying agent must establish the individual’s name, address and TIN (where relevant) from the person’s passport or official identity card.

If the individual’s (current) address is not shown on the passport or official identity card, the paying agent must establish the address based on other documentary proof (for example, a utility bill).

If there is no TIN, the paying agent must establish the individual’s identity from the date and place of birth shown on his passport or official identity card.

What evidence does the paying agent have to examine in order to establish the residence of an individual?

(5) A paying agent must establish an individual’s residence:

(a) In the case of an individual with a passport or official identity card from an EU State or tax treaty country who claims to be resident in a third country, on the basis of a tax residence certificate issued by the competent authorities of the country in which he/she claims to be resident.

(b) In any other case, by reference to the individual’s address on his passport or official identity card, or if these are doubtworthy by documentary proof that would be acceptable in the context of the money laundering legislation.

For how long must a paying agent retain records relating to customer identities and transactions?

(6) A paying agent must retain, or have access to, for at least five years after the customer has left:

(i) a copy of all materials used to identify the individual (e.g., copy of passport),

(ii) a copy of all materials used to establish the individual’s residence (e.g., utility bill).

The paying agent must also retain for five years original documents or legally admissible copies relating to interest payments made or secured on or after 1 July 2005.

What might regulations provide in respect of identification where transactions are not face to face?

(7) Revenue may make regulations dealing with how an individual is to be identified where transactions take place by post, phone, fax or computer (i.e., not “face to face”). Such regulations may provide for the use of certified copies of identity documents.

For how long is the person treated as having the same status?

(8) A paying agent must treat an identified individual’s identity and residence as continuing until it receives information to the contrary. If the paying agent becomes aware that the individual’s circumstances have changed, or that its information is incorrect, the paying agent must make all reasonable efforts to establish the individual’s correct identity and residence.

What must a paying agent do if the individual’s tells circumstances have changed?

(9) A paying agent who is informed by an individual that that person’s circumstances have changed must establish the new circumstances.

Section 898H Returns of interest payments made to or secured for beneficial owners

When must a paying agent submit to Revenue returns of interest payments paid?

(1) A paying agent must make a return to Revenue of interest paid to, or for the benefit of, a beneficial owner on or after 1 July 2005. The return is to be filed within three months of the end of the tax year, with 2005 being the first such year (in relation to interest payments made during 1 July 2005 to 31 December 2005). The return must provide details relating to:

(a) the paying agent (see (2)),

(b) the beneficial owner (see (3)),

(c) the amount of interest paid (see (4)).

What personal details must the paying agent include in a return?

(2) The details required in relation to the paying agent are: his/her name, address and tax reference number (section 885).

What details are included in a return in respect of beneficial owners?

(3) The details required in relation to a beneficial owner are:

(a) where contractual relations were made before 1 January 2004: name, address, and country of residence;

(b) where contractual relations were made on or after 1 January 2004: name, address, country of residence and tax identification number (TIN) or if there is no TIN, date and place of birth.

What details are required in respect of interest payments?

(4) The details required in relation to payments are:

(a) The account number, or if there is no such number information capable of identifying the asset giving rise to the interest payment.

(b) The total interest paid, or if the paying agent is a residual entity the total deemed interest payments attributable to each beneficial owner who is resident in an EU State or tax treaty country. In addition, a separate report must be made for proceeds from sale, redemption or refund.

Does a financial institution paying interest to a beneficial owner also have to declare the interest on Form 8B or as a return of interest paid to non-residents?

(5) The financial institution making the interest payment does not need to include details of the interest payment in

(a) a return of interest paid or credited without deduction of tax (Form 8B),

(b) a return of interest paid to non-residents.

Section 898I Returns of interest payments to residual entities

What obligations does a person have to Revenue in respect of residual entities in other jurisdictions?

A person who makes an interest payment to a residual entity in another EU State, or a territory with which Ireland has a tax treaty or information exchange agreement, must make a return to Revenue within three months of the end of the tax year. That return must provide details of the residual entity’s name, address and the total interest payment made in the year.

Section 898J Exchange of information between Member States

With whom can Revenue exchange information in relation to beneficial owners and interest payments?

(1) Revenue can exchange information regarding interest payments to beneficial owners with:

(a) the appropriate authorities in another EU State, or

(b) territory with which Ireland has a tax treaty or information exchange agreement.

With whom can Revenue exchange information regarding residual entities?

(2) Revenue can exchange information regarding interest payments to residual entities with:

(a) the appropriate authorities in another EU State, or

(b) territory with which Ireland has a tax treaty or information exchange agreement.

When must Revenue deliver necessary information to competent authorities in other jurisdictions?

(3) Revenue must send the necessary information to the authorities in the other jurisdiction within six months of the end of the tax year in which the interest payment is made.

Section 898K Special arrangements for certain securities

Are certain securities not included in the definition of interest payments under the EU Savings Directive?

(1) This is a technical section which relates to “grandfathering” of securities.

This rule disapplies the definition of interest payment (section 898E) in relation to a security issued under a programme before 1 March 2001 or where the prospectus was approved before that date by the competent authorities.

Section 898L Certificate for the purposes of Article 13.2 of the Directive

What if Austria/Belgium/Luxembourg deduct withholding tax on interest paid?

(1) It is envisaged that some countries (including Austria, Belgium and Luxembourg) will operate a withholding tax regime pending a comprehensive information exchange agreement between the EU and British/Dutch dependencies, and Switzerland. Article 13 deals with exceptions to the withholding tax procedure.

An Irish resident who suffers such withholding tax can obtain a certificate from Irish Revenue which will state:

(a) his/her name, address and PPS number,

(b) the paying agent’s name and address,

(c) the account number necessary to identify the asset giving rise to the interest payment.

He/she can then present this certificate to the paying agent so that no tax is deducted.

For how long is a certificate from Revenue valid?

(2) The certificate is valid for three years or until such time as any information contained in it becomes inaccurate.

Section 898M Credit for withholding tax

Can an individual get a credit for withholding tax in a Savings Directive compliant territory?

(1) An individual is entitled to a credit in respect of tax deducted from an interest payment in relevant territory (i.e., a “Savings Directive compliant territory”)) if:

(a) the payment is to be included in computing his/her total income for tax purposes, or

(b) the payment is exempt from tax.

The tax deducted may be credited against his/her income tax liability for that year, and if the tax deducted exceeds that tax liability, any excess must be repaid.

How is a credit given when an interest payment is included in computing chargeable gains?

(2) An individual is entitled to a credit in respect of tax deducted from an interest payment in a Savings Directive compliant territory if the payment is to be included in computing his/her chargeable gains for tax purposes.

The tax deducted may be credited against his/her capital gains tax liability for that year, and if the tax deducted exceeds that tax liability, any excess must be repaid.

How does a credit for withholding tax interact with any foreign tax credit given?

(3) The credit mentioned in (1) or (2) applies only after any existing foreign tax credit has been given.

No credit is allowed if DTA relief has already been given or if the individual was resient in the other State in the year of the deduction..

What is required in order to claim the credit for withholding tax?

(4) The credit mentioned in (1) or (2) must not be given unless:

(a) a claim is made and a return of income and gains is filed together with the statement in (5),

(b) Revenue are satisfied that tax has been deducted from the interest payment concerned.

What details must a statement issued by the person who deducts withholding tax contain?

(5) The statement mentioned in (4) is a written statement from the person who deducted the tax, certifying:

(a) the name and address of the person deducting the tax,

(b) the beneficial owner’s name and address,

(c) the date of the interest payment,

(d) the amount of the interest payment, and

(e) the amount of tax deducted from the interest payment.

Section 898N Audit

What is an interest payment under the EU Savings Directive?

(1) For the purposes of information exchange between EU States in relation to interest payments, an interest paymentis widely defined to include many types of financial returns obtainable by an individual:

(a) interest on savings, including an instalment savings scheme bonus, and accumulated interest on a savings certificate,

(b) building society share dividends,

(c) credit union share dividends,

(d) the excess received on redeeming a security or a strip of a security (section 55),

(e) prize bond winnings,

(f) gains realised on the sale of a security or a strip of a security,

(g) distributions deriving from interest payments made by a UCITS, a deemed UCITS, or collective investment undertaking in a non-treaty country which invest directly or indirectly in products which give rise to interest payments within (a)-(f),

(h) gains realised on the sale or redemption of units in a UCITS, a deemed UCITS, or collective investment undertaking in a non-treaty country.

What must a paying agent who is unable to identify the breakdown of UCITS distributions of goods do?

(2) If a paying agent is unable to establish the breakdown of UCITS distributions or gains (authorised, deemed and unauthorised) it must treat the full amount of distributions or gains as an interest payment.

When can a paying agent treat a gain arising on the rate of UCITS as an interest payment?

(3) A gain arising on sale of UCITS units is only treated as an interest payment if the UCITS has invested directly, or used to acquire other UCITS units, more than 40% of its assets in investments that will give rise to interest payments within (1)(a)-(f).

If the paying agent has no information to calculate the percentage of its assets so invested, 40% is treated as so invested.

From 1 January 2011, the 40% investment threshold is reduced to 25%.

What must a paying agent who is unable to establish the gain realised by a beneficial owner through the sale or redemption of UCITS do?

(4) If a paying agent is unable to establish the gains realised by a beneficial owner through sale or redemption of UCITS units, it must treat the full amount as an interest payment.

Ehen can an EU State opt not to treat distributions by UCITS as interest payments?

(5)-(6) Under the Savings Directive, an EU State may opt not to treat distributions by UCITS as interest payments if the UCITS invests less than 15% of its assets in securities which generate interest payments.

When is an interest payment treated as a “deemed interest payment”?

(7) An interest payment to a residual entity which has not elected to be treated as a UCITS is treated as a deemed interest payment made at the time it is received by the residual entity.

The preceding rule does not apply to:

(a) an Irish resident residual entity whose investment in assets which generate interest payments is less than 15% of its total investments,

(b) a residual entity established in another EU State which has exercised the option to exclude from the definition of interest payment income from undertakings whose investment in “debt claims” is less than 15% of its total assets, or a residual entity established in a (non-EU) treaty country which has exercised an equivalent option.

What rules apply to determine the percentage of assets invested to generate interest payments?

(8) For the purposes of information exchange between EU States in relation to interest payments:

(a) the investment percentages in (3), (5) and (7)(b)(i) are determined by reference to the most recent (documented) investment policy of the person concerned,

(b) if there is no documentation, the investment percentage is to be determined by the actual composition of the assets of the undertaking or person.

When is interest treated as being paid?

(9) For the purposes of information exchange between EU States in relation to interest payments, interest is treated as paid once it has been credit to the recipient.

Is interest to be regarded as paid gross or net under the EU Savings Directive?

(10) For the purposes of information exchange between EU States in relation to interest payments, a reference to an interest payment which is subject to withholding tax means the gross amount before such tax is deducted.

Are penalties for late payments of interest ever regarded as interest payments?

(11) For the purposes of information exchange between EU States in relation to interest payments, a penalty for late payment of interest is not regarded as an interest payment within (1)(a)-(f).

Section 898O Penalty for failure to make returns, etc.

What is an interest payment under the EU Savings Directive?

(1) For the purposes of information exchange between EU States in relation to interest payments, an interest paymentis widely defined to include many types of financial returns obtainable by an individual:

(a) interest on savings, including an instalment savings scheme bonus, and accumulated interest on a savings certificate,

(b) building society share dividends,

(c) credit union share dividends,

(d) the excess received on redeeming a security or a strip of a security (section 55),

(e) prize bond winnings,

(f) gains realised on the sale of a security or a strip of a security,

(g) distributions deriving from interest payments made by a UCITS, a deemed UCITS, or collective investment undertaking in a non-treaty country which invest directly or indirectly in products which give rise to interest payments within (a)-(f),

(h) gains realised on the sale or redemption of units in a UCITS, a deemed UCITS, or collective investment undertaking in a non-treaty country.

What must a paying agent who is unable to identify the breakdown of UCITS distributions of goods do?

(2) If a paying agent is unable to establish the breakdown of UCITS distributions or gains (authorised, deemed and unauthorised) it must treat the full amount of distributions or gains as an interest payment.

When can a paying agent treat a gain arising on the rate of UCITS as an interest payment?

(3) A gain arising on sale of UCITS units is only treated as an interest payment if the UCITS has invested directly, or used to acquire other UCITS units, more than 40% of its assets in investments that will give rise to interest payments within (1)(a)-(f).

If the paying agent has no information to calculate the percentage of its assets so invested, 40% is treated as so invested.

From 1 January 2011, the 40% investment threshold is reduced to 25%.

What must a paying agent who is unable to establish the gain realised by a beneficial owner through the sale or redemption of UCITS do?

(4) If a paying agent is unable to establish the gains realised by a beneficial owner through sale or redemption of UCITS units, it must treat the full amount as an interest payment.

When can an EU State opt not to treat distributions by UCITS as interest payments?

(5)-(6) Under the Savings Directive, an EU State may opt not to treat distributions by UCITS as interest payments if the UCITS invests less than 15% of its assets in securities which generate interest payments.

When is an interest payment treated as a “deemed interest payment”?

(7) An interest payment to a residual entity which has not elected to be treated as a UCITS is treated as a deemed interest payment made at the time it is received by the residual entity.

The preceding rule does not apply to:

(a) an Irish resident residual entity whose investment in assets which generate interest payments is less than 15% of its total investments,

(b) a residual entity established in another EU State which has exercised the option to exclude from the definition of interest payment income from undertakings whose investment in “debt claims” is less than 15% of its total assets, or a residual entity established in a (non-EU) treaty country which has exercised an equivalent option.

What rules apply to determine the percentage of assets invested to generate interest payments?

(8) For the purposes of information exchange between EU States in relation to interest payments:

(a) the investment percentages in (3), (5) and (7)(b)(i) are determined by reference to the most recent (documented) investment policy of the person concerned,

(b) if there is no documentation, the investment percentage is to be determined by the actual composition of the assets of the undertaking or person.

When is interest treated as being paid?

(9) For the purposes of information exchange between EU States in relation to interest payments, interest is treated as paid once it has been credit to the recipient.

Is interest to be regarded as paid gross or net under the EU Savings Directive?

(10) For the purposes of information exchange between EU States in relation to interest payments, a reference to an interest payment which is subject to withholding tax means the gross amount before such tax is deducted.

Are penalties for late payments of interest ever regarded as interest payments?

(11) For the purposes of information exchange between EU States in relation to interest payments, a penalty for late payment of interest is not regarded as an interest payment within (1)(a)-(f).

Section 898P Arrangements with dependent and associated territories of Member States

What arrangements apply to dependent and associated territories of EU Member States?

(1) This Chapter implements in Irish law the agreements relating to information exchange and application of withholding tax between an EU State and its dependent territories (e.g., Netherlands and Aruba, UK and the Isle of Man).

What has been the effect of agreements made between the EU with Andorra/Liechtenstein/Monaco/San Marino/Switzerland as regards the application of withholding tax?

(2) Following the agreements made between the EU with Andorra, Liechtenstein, Monaco, San Marino and Switzerland, these countries will, in broad agreement with the Savings Directive either implement a withholding tax as regards interest earned by account-holding resident in EU States or exchange information.

If the withholding option is chosen:

(a) The withheld tax is split 75:25 between the tax authority of the country in which the account-holder is resident and that of the country applying the withholding tax.

(b) Information is exchanged on request in tax fraud cases.

These agreements also generally provide that:

The mechanism (section 898M) that allows a credit/refund in respect of withheld tax against the account-holder’s liability in the home country also applies to these “EU agreement” territories.

Revenue are empowered to make supplementary regulations as required in relation to the exchange of information with these territories. Such regulations must be laid before and passed by Dáil Éireann.

In relation to Andorra, interest may be paid gross (free of withholding tax) if the account-holder has disclosed the account’s existence to Irish Revenue.

Section 898Q Miscellaneous and supplemental

What is an interest payment under the EU Savings Directive?

(1) For the purposes of information exchange between EU States in relation to interest payments, an interest paymentis widely defined to include many types of financial returns obtainable by an individual:

(a) interest on savings, including an instalment savings scheme bonus, and accumulated interest on a savings certificate,

(b) building society share dividends,

(c) credit union share dividends,

(d) the excess received on redeeming a security or a strip of a security (section 55),

(e) prize bond winnings,

(f) gains realised on the sale of a security or a strip of a security,

(g) distributions deriving from interest payments made by a UCITS, a deemed UCITS, or collective investment undertaking in a non-treaty country which invest directly or indirectly in products which give rise to interest payments within (a)-(f),

(h) gains realised on the sale or redemption of units in a UCITS, a deemed UCITS, or collective investment undertaking in a non-treaty country.

What must a paying agent who is unable to identify the breakdown of UCITS distributions of goods do?

(2) If a paying agent is unable to establish the breakdown of UCITS distributions or gains (authorised, deemed and unauthorised) it must treat the full amount of distributions or gains as an interest payment.

When can a paying agent treat a gain arising on the rate of UCITS as an interest payment?

(3) A gain arising on sale of UCITS units is only treated as an interest payment if the UCITS has invested directly, or used to acquire other UCITS units, more than 40% of its assets in investments that will give rise to interest payments within (1)(a)-(f).

If the paying agent has no information to calculate the percentage of its assets so invested, 40% is treated as so invested.

From 1 January 2011, the 40% investment threshold is reduced to 25%.

What must a paying agent who is unable to establish the gain realised by a beneficial owner through the sale or redemption of UCITS do?

(4) If a paying agent is unable to establish the gains realised by a beneficial owner through sale or redemption of UCITS units, it must treat the full amount as an interest payment.

When can an EU State opt not to treat distributions by UCITS as interest payments?

(5)-(6) Under the Savings Directive, an EU State may opt not to treat distributions by UCITS as interest payments if the UCITS invests less than 15% of its assets in securities which generate interest payments.

When is an interest payment treated as a “deemed interest payment”?

(7) An interest payment to a residual entity which has not elected to be treated as a UCITS is treated as a deemed interest payment made at the time it is received by the residual entity.

The preceding rule does not apply to:

(a) an Irish resident residual entity whose investment in assets which generate interest payments is less than 15% of its total investments,

(b) a residual entity established in another EU State which has exercised the option to exclude from the definition of interest payment income from undertakings whose investment in “debt claims” is less than 15% of its total assets, or a residual entity established in a (non-EU) treaty country which has exercised an equivalent option.

What rules apply to determine the percentage of assets invested to generate interest payments?

(8) For the purposes of information exchange between EU States in relation to interest payments:

(a) the investment percentages in (3), (5) and (7)(b)(i) are determined by reference to the most recent (documented) investment policy of the person concerned,

(b) if there is no documentation, the investment percentage is to be determined by the actual composition of the assets of the undertaking or person.

When is interest treated as being paid?

(9) For the purposes of information exchange between EU States in relation to interest payments, interest is treated as paid once it has been credit to the recipient.

Is interest to be regarded as paid gross or net under the EU Savings Directive?

(10) For the purposes of information exchange between EU States in relation to interest payments, a reference to an interest payment which is subject to withholding tax means the gross amount before such tax is deducted.

Are penalties for late payments of interest ever regarded as interest payments?

(11) For the purposes of information exchange between EU States in relation to interest payments, a penalty for late payment of interest is not regarded as an interest payment within (1)(a)-(f).

Section 898R Commencement (Chapter 3A)

When did the new savings regime (the EU Savings Directive) come into effect?

(1) In general, the new Savings Regime took effect from 1 January 2004.

From when do the penalties apply?

(2) The penalties (section 898O) apply to acts or omissions on or after 25 March 2005.

When did the interest and returns sections of the EU Savings Directive come into operation?

(3) The Savings Directive (i.e., the interest and return sections) did not generally come into operation before 1 July 2005.

Section 898S Cessation

What is the effect of this section?

This section repeals the operation of the EU Saving Directive  from 1 January 2016 except for the cited sections.

Section 899 Inspector’s right to make enquiries

See Statement of Practice SP GEN 1/94 (Revenue Powers) May 1994.

See Statement of Practice SP GEN 2/99, (Internal Review Procedures) May 1999.

What returns may be subject to enquiries by an inspector of taxes?

(1)-(2) An inspector may make enquiries to verify the accuracy of information contained in returns of:

(a) A property management agent (section 888(2)(d)).

A government department, health board, or local authority, which pays rent for any premises (section 888(2)(e)).

(b) A person carrying on a trade or business who pays fees or commissions to a self-employed service provider or subcontractor (section 889).

(c) A person who receives income on behalf of another person (section 890).

(d) A nominee holder of securities (section 892).

(e) An intermediary acting on behalf of an undertaking for collective investment in transferable securities which is based in another EU State (section 893).

Section 900 [Power to call for production of books, information, etc]

What power do Revenue have to ask for records or information?

(1)-(2) A Revenue official authorised for the purposes of this section or section 901 (i.e., an authorised officer) may by written notice require a taxpayer to:

(a) produce for inspection any books, records or other documents in his/her power, possession or procurement which contain (or, in the officer’s opinion formed on reasonable grounds may contain) information relevant to yourliability to tax, and/or

(b) provide any information or explanations which the officer may reasonably require in relation to his/her liability to tax.

A taxpayer must be given not less than 21 days to comply with a notice under this section.

Tax includes any tax duty or levy under the care and arrangement of Revenue, and liability includes actual (past and present) and potential (future) liability.

Books, records or other documents includes:

(a) accounts and balance sheet prepared for a trader or professional person, and in the case of audited accounts a copy of the auditor’s certificate,

(b) books and other papers whether kept in bound volumes, loose-leaf binders, pages or cards, microfilm, or electronic format,

(c) the computer, software and printer used to reproduce records kept in electronic format (i.e., the means by which non-legible records are reproduced), and

(d) documents in printed, typed and manuscript format (including photocopies).

Books and records includes an accountant’s nominal ledger for the client: Quigley v Burke, 4 ITR 332.

The UK law refers to production of “documents”. Notices were held to be validly made in Monarch Assurance Co Ltd v Special Commissioners, [1986] STC 311, and R v IRC, ex parte T C Coombs and Co, [1991] STC 97; R v IRC, ex parte Continental Shipping Ltd and Atsiganos SA, [1996] STC 813; R v IRC, ex parte Ulster Bank Ltd, [1997] STC 832.

Notices were quashed as oppressive in R v O’Kane and Clarke, ex parte Northern Bank Ltd and related application, [1996] STC 1249.

What must a Revenue official do before issuing a notice to produce records or information?

(3) A Revenue official may not issue a notice under this section without first giving a person a reasonable opportunity to produce the books for inspection or provide the information required.

Authorised officers: audit managers and investigation branch officers.

A person’s co-operation in accessing the relevant books, records or other documents or explanations etc. should first be sought in accordance with subs (3).

When requested by Revenue to provide information, is client confidentiality taken into account?

(4) This Revenue power may not be used to breach professional client confidentiality, i.e., professional privilege.

A professional person need only supply information and books etc. regarding the payment of his/her fees, financial transactions, and documents which materially relate to his/her tax liability.

Information or professional advice of a confidential nature given to the client need not be disclosed.

This protects, for example, solicitor/client and doctor/patient professional confidentiality. Revenue may not access client files in such cases.

Must a taxpayer give assistance to an authorised officer seeking production of books or information?

(5) A taxpayer must provide reasonable help to the authorised officer. This includes help in relation to computerised accounts (i.e., electronically stored data).

Can an authorised officer take copies of my accounts records?

(6) Yes. The authorised officer may take copies of or extracts from the books and records produced for inspection.

Is there a penalty for failure to produce records or assistance to an authorised officer?

(7) A penalty of €4,000 applies for not producing records for inspection, not providing requested information (subs (2)), or not providing reasonable help (subs (5)) to the authorised officer.

Section 901 [Application to High Court: production of books, information, etc]

Can an authorised officer apply to the High Court to require production of information?

(1) An authorised officer may apply to a judge of the High Court for an order requiring a taxpayer to do either or both of the following:

(a) produce for inspection any books, records or other documents in his/her power, possession or procurement which contain (or, in the officer’s opinion formed on reasonable grounds may contain) information relevant to his/her tax liability, and/or

(b) provide any information or explanations which the officer may reasonably require in relation to his/her tax liability.

When can a judge grant an application for an order to produce business records?

(2) If the judge is satisfied that there are reasonable grounds for the application, he/she may, subject to such conditions as he/she may specify, order a taxpayer to:

(a) produce any books, records or other documents, and

(b) to provide any information or explanations,

specified in the order.

Is a professional person protected regarding professional privilege?

(3) This Revenue power may not be used to breach professional client confidentiality, i.e., professional privilege.

A professional person needs only supply information and books etc. regarding the payment of his/her fees, financial transactions, and documents which materially relate to his/her tax liability.

Information or professional advice of a confidential nature given to the client need not be disclosed.

This protects, for example, solicitor/client and doctor/patient professional confidentiality. Revenue may not access client files in such cases.

What level of cooperation must a taxpayer give to an authorised officer?

(4) A taxpayer must provide reasonable help to the authorised officer. This includes help in relation to computerised accounts (i.e., electronically stored data).

Can an authorised officer take copies of accounts records?

(5) The authorised officer may take copies of or extracts from the books and records produced for inspection.

Section 902 [Information to be furnished by third party: request of an authorised officer]

What information must I provide as a third party if requested to do so by an authorised officer?

(1)-(2) A Revenue official authorised for the purposes of this section (i.e., an authorised officer) may by written notice require any person (a third party other than a financial institution within section 906A) to:

(a) produce for inspection any books, records or other documents (section 900(1)) in that person’s power, possession or procurement which contain (or, in the officer’s opinion formed on reasonable grounds may contain) information relevant to the liability to tax (section 900(1)) of a taxpayer, and/or

(b) to provide any information or explanations which the officer may reasonably require in relation to that taxpayer’s liability.

 Taxpayer includes a person or a group of persons whose identities are not known to the authorised officer.

A third party must be given not less than 30 days to comply with a notice under this section.

On what grounds should an authorised officer serve a notice on a third party for information?

(3) Before serving a notice under this section, the authorised officer must have reasonable grounds to believe that the third party is likely to have information relevant to the taxpayer’s tax liability.

This power, which is not given to every inspector, allows Revenue to cross check figures in a taxpayer’s records with figures in the records of his suppliers or customers. For example, a pub’s purchases of beer could be checked against the figures recorded as supplied to the pub in the accounts of its major supplier (i.e., the debtor’s ledger account for that pub).

What is meant by “person” for the purposes of third party requests?

(4) A person, or taxpayer (see (2)), includes a company which has been dissolved or an individual who has died.

Is it necessary to disclose the name of the taxpayer in a third party request by an authorised officer?

(5) The taxpayer, where known, in relation to whose liability the officer is enquiring must be named on the notice.

As a taxpayer, will I get a copy of any notice served on a third party requesting information about my business transactions?

(6) Yes. A copy of a notice served on a third party must be given to the taxpayer concerned.

What rights do I have as a third party to inspect and take copies of documents retained by an authorised officer?

(7) The third party may inspect and take copies of any books, records or other documents that have been retained by the authorised officer.

Is the authorised officer entitled to take copies of or extracts from books or records I produce for inspection?

(8) Yes.

As a professional person, how am I protected regarding professional privilege?

(9) This Revenue power may not be used to breach professional client confidentiality, i.e., professional privilege.

As a professional person, you need only supply information and books etc. regarding the payment of your fees, your financial transactions, and documents which materially relate to your tax liability.

You need not disclose any information or professional advice of a confidential nature given to the client.

This protects, for example, solicitor/client and doctor/patient professional confidentiality. Revenue may not access client files in such cases.

As a third party, what assistance must I give to an authorised officer?

(10) The third party must provide reasonable help to the authorised officer. This includes help in relation to computerised accounts (i.e., electronically stored data).

What happens if I as a third party refuse or fail to co-operate with an authorised officer?

(11) A penalty of €4,000 applies to a person who does not produce records for inspection, provide requested information (subs (2)), or provide reasonable help (subs (10)) to the authorised officer.

Section 902A Application to High Court: information from third party

What is meant by a “taxpayer” in relation to applications to the High Court involving third parties?

(1) A taxpayer means any person. The term includes a person whose identity is not known to the authorised officer, and a group or class of persons whose individual identities are not so known.

What information is an authorised officer entitled to seek from a third party under a court order?

(2) An authorised officer may apply to a judge of the High Court for an order requiring a person (a third party other than a financial institution within section 906A) to:

(a) produce for inspection any books, records or other documents (section 900(1)) in that person’s power, possession or procurement which contain (or, in the officer’s opinion formed on reasonable grounds may contain) information relevant to the liability to tax (section 900(1)) of a taxpayer, and/or

(b) to provide any information or explanations which the officer may reasonably require in relation to that taxpayer’s liability.

 Must the taxpayer be informed of notices to third parties?

(2A) The authorised officer may request the Court to permit an order not to be disclosed to the taxpayer or other persons.

On what grounds can an authorised officer serve a notice on a third party?

(3) Before serving a notice under this section, the authorised officer must be satisfied that:

(a) there are reasonable grounds to believe that the taxpayer has failed or may fail to comply with the law relating to income tax, corporation tax, capital gains tax, value added tax, capital acquisitions tax, residential property tax, stamp duties, customs and excise (the Acts),

(b) such failure is likely to seriously prejudice the proper assessment or collection of tax having regard to the liability or potential liability of the taxpayer (see (1)),

(c) the information in the books etc is relevant to the proper assessment or collection of tax.

The authorised officer must also obtain the written consent of a Revenue Commissioner.

The report to the Revenue Commissioner requesting consent must demonstrate that these conditions are satisfied. The consent should not be sought without getting the approval of the Regional Director.

In the case of an application for non-disclosure (2A) there must be reasonable grounds for believing that disclosure would prejudice the enquiry.

When can a judge grant an application to an authorised officer to obtain information from a third party?

(4) If the judge is satisfied that there are reasonable grounds for the application, he/she may, subject to such conditions as he/she may specify, order the person to:

(a) produce any books, records or other documents, and

(b) to provide any information or explanations,

specified in the order.

What can the term “taxpayer” include in relation to orders for information from third parties?

(5) A taxpayer (see (1)) includes a company which has been dissolved or an individual who has died.

Is a professional person protected regarding professional privilege?

(6) This Revenue power may not be used to breach professional client confidentiality, i.e., professional privilege.

A professional person need only supply information and books etc. regarding the payment of his/her fees, financial transactions, and documents which materially relate to his/her tax liability.

Information or professional advice of a confidential nature given to the client need not be disclosed.

What level of co-operation must be given to an authorised officer under a court order?

(6A) The taxpayer must provide reasonable help to the authorised officer. This includes help in relation to computerised accounts (i.e., electronically stored data).

Can an authorised officer take copies of my accounts records?

(6B)The authorised officer may take copies of or extracts from the books and records produced for inspection.

How is a hearing or application for a High Court order relating to third party information held?

(7) A hearing under this section must be held in camera.

Authorised officers: audit managers and investigation branch officers.

This section is more appropriate for use in in-depth investigations (i.e., non-routine audit work. Before consideration is given to using this power, the case should be discussed with the Powers Unit.

The circumstances when section 902A may be appropriate are:

(a) in relation to a case where the third party has failed to provide the information sought in relation to a taxpayer under section 902 or where at the outset there is suspicion of serious evasion,

(b) where the identity of the person being enquired about is not known, and

(c) where a particular practice suspected of involving serious evasion is known to be operated by or through a third party and details are required in relation to a group or class of persons whose individual identities are not known and the details cannot otherwise be obtained.

Action by authorised officer

See section 908.

Section 902B Powers of inspection: life policies

How do Revenue investigate “single premium” investment policies?

(1) This legislation allows Revenue to investigate “single premium” investment policies that were opened insurance providers in relation to using money that had not been taxed.

This section allows an authorised officer to investigate relevant records of an assurance company (as defined by insurance legislation). Relevant records are non-medical records relating to a policyholder, including documents, and information stored electronically or by microfilm etc.

What directions can an authorised officer get from Revenue with regard to examining insurance policies?

(2) A Revenue Commissioner may direct an authorised officer to examine a class of policies issued by an assurance company, and the policyholders to whom they were issued.

What can a Revenue Commissioner who forms an opinion that a policy has been funded by untaxed income do?

(3) A Revenue Commissioner may give the direction in (2) where he/she forms an opinion that the premium(s) used to fund the policy were paid from income that had not suffered tax. In forming his/her opinion, the Revenue Commissioner may take into account information gathered in relation to policies issued by other assurance companies.

Is an authorised officer permitted to enter an assurance company’s premises?

(4) In carrying out his/her investigation, the authorised officer may, at a reasonable time, enter an assurance company’s premises to inspect the relevant records in respect of a sample of policies.

On entering an assurance company’s premises, what can an authorised officer request?

(5) An authorised officer who has entered an assurance company’s business premises to inspect relevant records may require the company to produce such records in a legible form, together with any additional information and explanation he/she may need in relation to those records.

Can an authorised officer take copies of accounts or records?

(6) The authorised officer may take copies of, or extracts from, the relevant records.

What can an authorised officer do with information obtained from inspecting records of an assurance company?

(7) The authorised officer may use the information he/she obtains when applying to a judge of the High Court for a order requiring a financial institution to produce books/records for inspection.

Section 903 Power of inspection: PAYE

What is the meaning of “authorised officer” and “records” in relation to PAYE inspections?

(1) An authorised officer means a Revenue officer who has a written authorisation from the Revenue Commissioners to perform PAYE inspections.

Records means personnel records relating to the payment of wages or salaries, benefits in kind provided to employees, payroll files, employees’ certificates of tax credits and standard rate cut-off point, tax deduction cards, and certificates (P45) for employees who have just changed jobs. The records may be stored manually, electronically, or by microfiche.

Records also includes any other information the authorised officer may reasonably require.

Can an authorised officer enter a premises and request PAYE records or information?

(2) An authorised officer may at all reasonable times enter a premises which he/she believes to be:

(a) an employer’s current or former premises,

(b) the current or former premises of any person paying wages, salaries, or benefits in kind to staff,

(c) a place where any person receives (or received) wages, salaries or benefits in kind,

(d) a place where records are kept.

The authorised officer may require any person on the premises (other than a customer of the employer) to produce any records for inspection. The authorised officer may search the premises for records, take copies of or extracts from the records, and remove any records and retain them for further examination or for court proceedings.

Can an authorised officer enter a private residence to conduct a PAYE inspection?

(2A) No. An authorised officer must not enter a private residence without the consent of the owner except on foot of a warrant issue by the local distinct court judge.

The judge may issue such a warrant if he/she is satisfied by information on oath that it is proper to do so.

What requests can an authorised officer make of other people in the course of a PAYE inspection?

(3) An authorised officer may require any person (other than a customer of the employer) to provide reasonable assistance, including explanations and documents, during the course of the inspection.

How must an authorised officer identify him/herself in conducting a PAYE inspection?

(4) An authorised officer must, if requested to do so by an employer, produce his/her written authorisation from the Revenue Commissioners to perform PAYE inspections.

What penalty applies for refusal to co-operate with an authorised officer in the course of a PAYE inspection?

(5) A penalty of €4,000 applies for not complying with a request of the authorised officer during the course of his/her inspection.

How long must old PAYE records be kept?

(6) PAYE records must be retained for six years after the tax year to which they relate.

This six year retention period may be reduced by Revenue.

Section 904 Power of inspection: tax deduction from payments to certain subcontractors

What definitions apply to the power of inspection of tax deduction from payments to certain subcontractors?

(1) An authorised officer means a Revenue officer who has a written authorisation from the Revenue Commissioners to perform relevant contracts inspections.

Records means records of main contractors (including subcontractor payments cards and tax deduction cards) and subcontractors (including subcontractors’ certificates, declarations that they are self-employed and records of cash received) in relation to relevant contracts withholding tax (RCWT).

Records also includes the cash receipts book, cheque payments book, sales book, purchases book, assets and liabilities register, and the capital assets record of the contractor in question.

Is an authorised officer permitted to enter a premises to investigate payments to subcontractors?

(2) An authorised officer may, at all reasonable times, enter a property which he/she believes to be:

(a) a place where construction operations, forestry operations, or meat processing operations (relevant operations) are being, or have been, carried out by a subcontractor on behalf of a main contractor (principal contractor),

(b) a place where any person makes payments to a subcontractor in relation to a construction, forestry or meat processing contract (relevant contract),

(c) a place where any subcontractor has received payment for a relevant contract,

(d) a place where records are kept.

The authorised officer may require any main contractor or subcontractor on the premises (or a bookkeeper or administrative employee of either) to produce any records for inspection. The authorised officer may search the premises for records, take copies of or extracts from the records, and remove any records and retain them for further examination or for court proceedings.

Can an authorised officer to enter a private residence to conduct an inspection?

(2A) No. An authorised officer must not enter a private residence without the consent of the owner except on foot of a warrant issue by the local distinct court judge.

The judge may issue such a warrant if he/she is satisfied by information on oath that it is proper to do so.

What assistance must must a main contractor, subcontractor or employee give to an authorised officer during an inspection?

(3) An authorised officer may require any main contractor or subcontractor on the premises (or a bookkeeper or administrative employee of either) to provide reasonable assistance, including explanations and documents, during the course of his/her inspection.

Must an authorised officer identify him/herself?

(4) An authorised officer must, if requested to do, produce his/her written authorisation from the Revenue Commissioners to perform relevant contracts inspections.

What penalty applies for failure to comply with a request from an authorised officer?

(5) A penalty of €4,000 applies if you do not comply with a request of the authorised officer during the course of his/her inspection.

How long must old records relating to relevant subcontractors be kept?

(6) Relevant contract records must be retained for six years after the tax year to which they relate.

This six year retention period may be reduced by Revenue.

Section 904A Power of inspection: returns and collection of appropriate tax

Banks, building societies and other financial institutions must deduct deposit interest retention tax (DIRT) from interest paid on deposit accounts (section 257). DIRT need not be deducted from accounts held by non-residents (section 263), companies (section 265) and charities (section 266). A DIRT return must be made, and the DIRT paid, to the Collector-General for each tax year (section 258).

What definitions apply to the power of inspection of deposit interest retention tax (DIRT)?

(1) Deposit interest retention tax (appropriate tax, or DIRT), is a withholding tax applied by financial institutions to deposit interest, i.e., interest on a relevant deposit. (section 257).

The financial institutions (relevant deposit takers) that must deduct the tax at source are: any commercial bank authorised to operate as a bank in the State, a building society, a trustee savings bank, ACC Bank plc, the Industrial Credit Corporation plc, the ICC Investment Bank Ltd, and the Post Office Savings Bank (section 256).

Two financial institution companies are associated companies if at any time or within one year previously, one controls the other or both are controlled by a third company (section 432).

An authorised officer means:

(a) a Revenue official who has been authorised in writing by Revenue to carry out DIRT audits, and

(b) an auditor who has been authorised in writing by Revenue to carry out a DIRT audit of a named financial institution for a specified tax year.

An auditor is a person qualified under the Companies Act 1990 Part X to be appointed as auditor of a company. It also includes any other person that Revenue consider suitable to be appointed as an authorised Revenue officer, having regard to his qualifications or experience.

Books, records or other documents includes:

(a) records used by a financial institution (i.e., a bank) or used in the transfer department of a bank that acts as a registrar of securities, whether kept in bound volumes, loose-leaf binders, pages or cards, microfilm, or electronic format,

(b) the computer, software and printer used to reproduce records kept in electronic format (i.e., the means by which non-legible records are reproduced),

(c) documents in printed, typed and manuscript format (including photocopies),

(d) correspondence and records of other communications between a bank and the person to whom it pays interest.

Tax includes any tax duty or levy under the care and arrangement of Revenue, and liability includes actual (past and present) and potential (future) liability.

The Companies Act provides that an auditor must be properly qualified, i.e., he/she must be a member of a recognised professional accounting body, for example, the Institute of Chartered Accountants in Ireland, the Chartered Association of Certified Accountants, the Institute of Certified Public Accountants.

What power does an authorised officer have to enter and inspect the details of a relevant deposit taker?

(2) An authorised officer may at all reasonable times enter the premises of a bank to check:

(a) the DIRT return (section 258) made by it for a tax year, and

(b) whether interest paid by the bank without deducting DIRT was correctly so paid.

What further procedures and records may be examined in the course of an audit?

(3) The authorised officer may check the DIRT return by examining:

(a) the procedures put in place by the bank to ensure that every deposit made with it is treated as liable to DIRT unless satisfied that such a deposit is not a relevant deposit, and

(b) a sample of accounts that are treated as not liable to DIRT to determine:

(i) whether the procedures put in place have been observed in practice and whether they are adequate,

(ii) whether the bank holds an appropriate declaration of non-residence (section 246A or section 263, as appropriate), the pension or charity tax exemption reference number (section 256) or the tax reference number of the recipient of deposit wholesale interest (section 246A), and

(iii) whether the bank has information which can reasonably be taken to indicate that one or more of the accounts may be liable to DIRT.

The purpose of this power is not to seek out customers of financial institutions who might have a tax liability but to enable Revenue to audit the DIRT procedures and returns of financial institutions.

What can an authorised officer do when he/she suspects that deposit accounts have not been treated correctly?

(4) Where the authorised officer in exercising or performing his or her powers and duties under the section, has reason to believe that in respect of one or more deposits the financial institution has incorrectly treated them as not being relevant deposits, the officer may make such further enquiries as are necessary to establish whether there is a liability in relation to any person.

If, in the course of the audit, the authorised officer has reason to believe that interest on a deposit account should have been, but was not, subjected to DIRT, further enquiries can be made as are necessary to establish whether there is a tax liability in relation to any person.

Where the officer, in the course of the audit, has reason to believe that the financial institution has incorrectly treated one or more deposits as not being relevant deposits, the officer may make such further enquiries as are necessary to establish whether there is a liability in relation to any person. Before making the further enquiries, the officer should notify any depositors concerned.

What must an employee of a relevant depositor provide when requested to do so by an authorised officer?

(5) The authorised officer may require the bank, or an employee of the bank, to produce books and information, and to provide reasonable help:

(a) in checking the DIRT return and the DIRT paid for a tax year (see (2)),

(b) in checking the procedures put in place in relation to DIRT, and the sample of non-DIRT accounts (see (3)),

(c) with his/her enquiries into incorrect treatment of deposits (see (4)).

What information can an authorised officer require of an associated company of a relevant deposit taker?

(6) The authorised officer may require an associated company (see (1)) of a financial institution to produce books and information, and to provide reasonable help:

(a) in checking the financial institution’s DIRT return and the DIRT paid for a tax year (see (2)),

(b) in checking the financial institution’s procedures in relation to DIRT, and the sample of non-DIRT accounts (see (3)),

(c) with his/her enquiries into incorrect treatment of deposits (see (4)).

Can an authorised officer take copies of DIRT account records?

(7) The authorised officer may take copies of or extracts from the books and records produced for inspection.

What penalty applies to an employee who does not comply with requests from an authorised officer?

(8) A penalty of €1,265 applies to an employee of a financial institution who does not comply with the authorised officer’s requirements.

How is a financial institution penalised for failure to comply with requests from an authorised officer?

(9) A penalty of €19,045 applies to a financial institution that does not comply with the authorised officer’s requirements. A further penalty of €2,535 applies for each day on which the non-compliance continues.

Section 904B Report to Committee of Public Accounts: publication etc

Amendments

This section has been spent.

Section 904C Power of inspection (returns and collection of appropriate tax) assurance companies

What definitions apply for the powers of inpection of assurance companies?

(1) An assurance company carrying on life business (section 706) must deduct retention tax (appropriate tax:section 730F) on the happening of a chargeable event (section 730C), i.e., when a life policy (section 730B) gives rise to an investment return (income or gains) for the policyholder (section 730E).

An authorised officer means a Revenue official who has been authorised in writing by Revenue to audit an assurance company’s retention tax return (section 730FA or 730G).

Books, records or other documents includes:

(a) records used by an assurance company, whether kept in bound volumes, loose-leaf binders, pages or cards, microfilm, or electronic format,

(b) the computer, software and printer used to reproduce records kept in electronic format (i.e., the means by which non-legible records are reproduced),

(c) documents in printed, typed and manuscript format (including photocopies),

(d) correspondence and records of other communications between the assurance company and its policyholders.

Tax includes any tax duty or levy under the care and arrangement of Revenue, and liability includes actual (past and present) and potential (future) liability.

What powers of entry does an authorised officer have in relation to an assurance company?

(2) An authorised officer may at all reasonable times enter the premises of an assurance company to audit the retention tax return (section 730F) made by it for a financial year.

What other procedures and records may be examined by an authorised officer in the course of an audit?

(3) The authorised officer may check the retention tax return by examining:

(a) the procedures put in place by the assurance company to ensure that every investment return on a life policy made with it is treated as liable to retention tax unless the appropriate (non-residency, or non-liable) declaration has been received,

(b) a sample of the (non-residency, or non-liable) declarations made to the assurance company,

(c) a sample of life policies to determine:

(i) whether the procedures put in place have been observed in practice and whether they are adequate,

(ii) whether the assurance company has deducted the correct amount of retention tax from the investment return payable to the policyholder, and

(iii) whether the assurance company has information which can reasonably be taken to indicate that it has not deducted retention tax from an investment return payable to a policyholder.

What can an authorised officer do if an assurance company has not deducted the correct amount of tax from an investment return?

(4) Where the authorised officer in exercising or performing his/her powers and duties under the section, has reason to believe that in respect of one or more life policies the assurance company has not deducted the correct amount of retention tax from an investment return payable to the policyholder, the officer may make such further enquiries as are necessary to establish whether there is a liability in relation to any person.

What books, records or other information must an assurance company or its employees provide?

(5) The authorised officer may require the assurance company, or an employee of the assurance company, to produce books and information, and to provide reasonable help:

(a) in checking the retention tax return and the retention tax paid for a financial year (see (2)),

(b) in checking the procedures put in place in relation to retention tax, and the sample of non-liable policies (see (3)),

(c) with his/her enquiries into failure to deduct the correct amount of retention tax (see (4)).

Is the authorised officer entitled to take copies of or extracts from books or records?

(6) Yes. The authorised officer may take copies of or extracts from the books and records produced for inspection.

What penalty applies to an employee of an assurance company who does not comply with the authorised officer’s requests?

(7) A penalty of €1,265 applies to an employee of an assurance company who does not comply with the authorised officer’s requirements.

How is an assurance company penalised for non-compliance with the requirements of an authorised officer?

(8) A penalty of €19,045 applies to an assurance company that does not comply with the authorised officer’s requirements. A further penalty of €2,535 applies for each day on which the non-compliance continues.

Section 904D Power of inspection (returns and collection of appropriate tax) investment undertakings

What definitions are relevant in the context of the power of inspection of investment undertakings?

(1) An investment undertaking (section 739B) must deduct retention tax (appropriate tax: section 739E) on the happening of a chargeable event (section 739B), i.e., when an investment produces a return (income or gains) for theunitholder (section 739B).

An authorised officer means a Revenue official who has been authorised in writing by Revenue to audit an investment undertaking’s retention tax return (section 739F).

Books, records or other documents includes:

(a) records used by an investment undertaking, whether kept in bound volumes, loose-leaf binders, pages or cards, microfilm, or electronic format,

(b) the computer, software and printer used to reproduce records kept in electronic format (i.e., the means by which non-legible records are reproduced),

(c) documents in printed, typed and manuscript format (including photocopies),

(d) correspondence and records of other communications between the assurance company and its unitholders.

Tax includes any tax duty or levy under the care and arrangement of Revenue, and liability includes actual (past and present) and potential (future) liability.

Retention tax is deducted at the standard rate from a normal annual (or more frequent) distribution of income. In other cases, it is deducted at the standard rate plus 3% from returns occurring on or after 1 January 2001, and at 40% from returns occurring before that date (section 739E).

What powers has an authorised officer to enter a premises of an investment undertaking?

(2) An authorised officer may at all reasonable times enter the premises of an investment undertaking to audit the retention tax return (section 739F) made by it for a financial year.

What further documentation may be examined by an anuthorised officer to ensure compliance?

(3) The authorised officer may check the retention tax return by examining:

(a) the procedures put in place by the investment undertaking to ensure that every investment return made with it is treated as liable to retention tax unless the appropriate (non-residency, or non-liable) declaration has been received,

(b) a sample of the (non-residency, or non-liable) declarations made to the investment undertaking,

(c) a sample of transactions with unitholders to determine:

(i) whether the procedures put in place have been observed in practice and whether they are adequate,

(ii) whether the investment undertaking has deducted the correct amount of retention tax from the investment return payable to the unitholder, and

(iii) whether the investment undertaking has information which can reasonably be taken to indicate that it has not deducted retention tax from an investment return payable to a unitholder.

What can an authorised officer do if the investment undertaking has failed to pay the appropriate tax?

(4) Where the authorised officer has reason to believe that in respect of one or more life policies the investment undertaking has not deducted the correct amount of retention tax from an investment return payable to the unitholder, the officer may make such further enquiries as are necessary to establish whether there is a liability in relation to any person.

What books, information or other assistance must an investment underaking or an employee provide?

(5) The authorised officer may require the investment undertaking, or an employee of the investment undertaking, to produce books and information, and to provide reasonable help:

(a) in checking the retention tax return and the retention tax paid for a financial year (see (2)),

(b) in checking the procedures put in place in relation to retention tax, and the sample of non-liable transactions (see (3)),

(c) with his/her enquiries into failure to deduct the correct amount of retention tax (see (4)).

Can an authorised officer take copies of accounts or records in the course of an audit?

(6) Yes.

What penalty applies to an employee who does not assist an authorised officer?

(7) A penalty of €1,265 applies to an employee of an investment undertaking who does not comply with the authorised officer’s requirements.

How is an investment undertaking penalised for failure to assist an authorised officer?

(8) A penalty of €19,045 applies to an investment undertaking that does not comply with the authorised officer’s requirements. A further penalty of €2,535 applies for each day on which the non-compliance continues.

Section 904E Power of inspection: claims by authorised insurers

What definitions are relevant to the inspection of records of authorised insurers?

(1) An authorised officer means a Revenue official who has been authorised in writing by Revenue to carry out audits of authorised insurers in relation to the tax relief at source scheme.

An authorised insurer is a person authorised under Irish or EU law to provide insurance for health expenses, for example, VHI or BUPA.

What powers does an authorised officer have to enter a premises of an authorised insurer?

(2) An authorised officer may at all reasonable times enter the premises of an authorised insurer to audit a claim for a tax year under the tax relief at source (TRS) scheme (section 470(3)(b)(ii)).

What further procedures and records may be examined by an authorised officer?

(3) The authorised officer may check:

(a) the procedures put in place by the authorised insurer to vouch claims, and

(b) a sample of the cases in which claims have been made to determine whether the procedures have been observed in practice and whether they are adequate.

What information and assistance must an authorised insurer or his/her employee provide to an authorised officer?

(4) The authorised officer may require the authorised insurer, or an employee of the authorised insurer, to produce books and information, and to provide reasonable help with his or her audit.

When must an authorised officer provide sight of his/her written authorisation to carry out an audit?

(5) An authorised officer must, if requested to do, produce his written authorisation from the Revenue Commissioners to perform an audit of an authorised insurer’s claim.

What penalty applies to an employee who fails to assist an authorised officer?

(6) A penalty of €1,265 applies to an employee of an authorised insurer who does not comply with the authorised officer’s requirements.

How is an authorised insurer penalised for failure assist an authorised officer?

(7) A penalty of €19,045 applies to an authorised insurer that does not comply with the authorised officer’s requirements. A further penalty of €2,535 applies for each day on which the non-compliance continues.

Section 904F Power of inspection: claims by qualifying lenders

What definitions are relevant to powers of inspection of the books of qualifying lenders?

(1) An authorised officer means a Revenue official who has been authorised in writing by Revenue to audit a claim by a qualifying lender under the tax relief at source (TRS) scheme.

Books, records or other documents includes:

(a) records used by a qualifying lender, whether kept in bound volumes, loose-leaf binders, pages or cards, microfilm, or electronic format,

(b) the computer, software and printer used to reproduce records kept in electronic format (i.e., the means by which non-legible records are reproduced),

(c) documents in printed, typed and manuscript format (including photocopies),

(d) correspondence and records of other communications between the lender and its borrowers.

A qualifying lender is a mortgage lender who has been authorised to operate the tax relief at source (TRS) scheme.

What powers does an authorised officer have to enter the premises of a qualifying lender?

(2) An authorised officer may at all reasonable times enter the premises of an qualifying lender to audit a claim relating to tax relief at source (section 244A(2)(b)(ii)).

What further checks on procedures and documentation in relation to claims can an authorised officer perform?

(3) The authorised officer may check:

(a) the procedures put in place by the qualifying lender to vouch claims, and

(b) a sample of the cases in which claims have been made to determine whether those procedures have been observed in practice and whether they are adequate.

What further information and assistance must a qualifying lender or employee give?

(4) The authorised officer may require the qualifying lender, or an employee of the qualifying lender, to produce books and information, and to provide reasonable help with his/her audit.

Is the authorised officer entitled to take copies of or extracts from documentation?

(5) The authorised officer may make extracts from, or copies of, the records produced for audit. He/she may also require that copies of particular records be made for him/her.

Must an authorised officer provide sight of his/her written authorisation?

(6) An authorised officer must, if requested to do so, produce his/her written authorisation from the Revenue Commissioners to perform an audit of a qualifying lender’s claim.

What penalty applies to an employee who fails to assist an authorised officer?

(7) A penalty of €1,265 applies to an employee of an qualifying lender who does not comply with the authorised officer’s requirements.

How is a qualifying lender penalised for failure assist an authorised officer?

(8) A penalty of €19,045 applies to a qualifying lender that does not comply with the authorised officer’s requirements. A further penalty of €2,535 applies for each day on which the non-compliance continues.

Section 904G Power of inspection: claims by qualifying insurers

What definitions apply to the power to inspect claims by qualifying insurers?

(1) An authorised officer means a Revenue official who has been authorised in writing by Revenue to carry out audits of authorised insurers in relation to the tax relief at source scheme.

A qualifying insurer is a provider of long-term care insurance who has been authorised to operate the tax relief at source (TRS) scheme.

What powers of entry and inspection does an authorised officer have?

(2) An authorised officer may at all reasonable times enter the premises of a qualifying insurer to audit a claim under the tax relief at source scheme.

What further procedures and information may be examined by an authorised officer?

(3) The authorised officer may check:

(a) the procedures put in place by the qualifying insurer to vouch claims, and

(b) a sample of the cases in which claims have been made to determine whether the procedures have been observed in practice and whether they are adequate.

What information and reasonable assistance must a qualifying insurer or an employee provide to the authorised officer?

(4) The authorised officer may require the qualifying insurer, or an employee of the qualifying insurer, to produce books and information, and to provide reasonable help with his/her audit.

When must an authorised officer provide sight of his/her written authorisation?

(5) An authorised officer must, if requested to do so, produce his/her written authorisation from the Revenue Commissioners to perform an audit of a tax relief at source claim by a qualifying insurer.

What penalty applies to an employeewho fails to assist an authorised officer?

(6) A penalty of €1,265 applies to an employee of an qualifying insurer who does not comply with the authorised officer’s requirements.

How is a qualifying insurer penalised for failure to assist an authorised officer?

(7) A penalty of €19,045 applies to a qualifying insurer that does not comply with the authorised officer’s requirements. A further penalty of €2,535 applies for each day on which the non-compliance continues.

Section 904H Power of inspection: qualifying savings managers

What definitions apply to Revenue audit of qualifying savings managers?

(1) An authorised officer means a Revenue official who has been authorised in writing by Revenue to carry out audits of financial institutions (qualifying savings managers) who provide special savings incentive accounts.

What powers of entry and inspection does an authorised officer have?

(2) An authorised officer may at all reasonable times enter the premises of a financial institution which is a qualifying savings manager to check:

(a) the monthly (section 848P) or annual (section 848Q) return made by the financial institution in relation to the special savings scheme,

(b) the procedures put in place by the financial institution to vouch claims, and

(c) a sample of the cases in which claims have been made to determine whether

(i) the procedures put in place have been observed in practice,

(ii) the terms under which the account was opened comply with the conditions for special savings incentive accounts (section 848C), and

(iii) the qualifying savings manager has the appropriate declaration at the time the account is opened (section 848F), when it matures (section 848I), when it is transferred (section 848O), and does not have any information to suggest the declaration is incorrect,

(d) the notice given by the transferor to the transferee when an account is transferred (section 848N(3)), and the declaration by the transferor (section 848N(5)).

What information and assistance must a qualifying savings manager or an employee or appointed person provide to an authorised officer?

(3) The authorised officer may require the financial institution, or an employee of the financial institution, to produce books and information, and to provide reasonable help with his/her audit.

The Revenue Commissioners have the power to authorise any of their officers to audit qualifying savings managers in relation to their compliance with the terms of the special savings incentive accounts scheme. As part of that audit an authorised officer can-

(a) check the monthly and annual returns made by the qualifying savings manager with the underlying data used to compile those returns;

(b) examine the procedures put in place by the qualifying savings manager to ensure compliance by the savings manager and his/her customers with the terms of the scheme;

(c) examine all, or a sample of SSIAs, to see if those procedures are being observed in practice;

(d) check whether the appropriate declaration required to be completed by customers are in possession of the savings manager and the savings manager is not in possession of any information which would suggest that any such declaration is incorrect.

When conducting his/her audit, the authorised officer is entitled to require the qualifying savings manager or an employee of the savings manager-

(a) to produce all or any records which relate to the management of the SSIAs;

(b) to furnish information, explanations and particulars; and

(c) to provide all assistance;

which the authorised officer reasonably requires for the purpose of the audit.

Such audits will take place each year as part of Revenue’s normal audit programme.

What penalty applies to an employee who fails to assist an authorised officer?

(4) A penalty of €1,265 applies to an employee of an financial institution who does not comply with the authorised officer’s requirements.

How is a qualifying savings manager or appointed person penalised for failure assist an authorised officer?

(5) A penalty of €19,045 applies to a financial institution that does not comply with the authorised officer’s requirements. A further penalty of €2,535 applies for each day on which the non-compliance continues.

Section 904I Power of inspection: returns and collection of dividend withholding tax

What definitions apply to powers of inspection of dividend withholding tax (DWT)?

(1) Dividend withholding tax (DWT) is a withholding tax that must be applied by an accountable person, i.e., a company resident in the State or an authorised withholding agent which pays a relevant distribution (a dividend or other form of distribution) from company assets including shares issued in lieu of cost dividend (section 816).

An authorised officer means a Revenue official who has been authorised by them in writing to carry out DWT audits.

Records means all records relating to DWT compliance.

What powers of entry and inspection does an authorised officer have?

(2) An authorised officer may at all reasonable times enter the premises of an accountable person to check a DWT return.

What checking and examining may a Revenue official do of DWT records?

(3) An authorised officer may check a DWT return by examining:

(a) the procedures put in place to ensure DWT in properly collected and accounted for,

(b) a sample of records to determine:

(i) whether the procedures put in place have been observed in practice and whether they are adequate,

(ii) whether the accountable person has information that indicates that the DWT records are incorrect.

What information and assistance must an accountable person or his/her employee provide?

(4) The authorised officer may require the accountable person, or an employee of the accountable person, to produce books and information and provide reasonable help in checking the DWT return and the procedures put in place to ensure the correct amount of DWT in collected and paid.

Is an authorised officer entitled to take extracts from or make copies of documentation provided?

(5) The authorised officer may take copies of or extracts from the books and records produced for inspection.

What penalty applies to an employee who fails to assist an authorised officer?

(6) A penalty of €1,265 applies to an employee of an accountable person who does not comply with the authorised officer’s requirements.

What penalties apply to an accountable person who fails to assist an authorised officer?

(7) A penalty of €19,045 applies to an accountable person that does not comply with the authorised officer’s requirements. A further penalty of €2,535 applies for each day on which the non-compliance continues.

Section 904J Power of inspection: tax deduction from payments in respect of professional services by certain persons

What definitions apply to to the power of inspection of professional withholding tax?

(1) An authorised officer means a Revenue official who has been authorised in writing by Revenue to audit the professional services withholding tax (PSWT) return made by an accountable person (section 521).

Books, records or other documents includes:

(a) records used by an accountable person, whether kept in bound volumes, loose-leaf binders, pages or cards, microfilm, or electronic format,

(b) the computer, software and printer used to reproduce records kept in electronic format (i.e., the means by which non-legible records are reproduced),

(c) documents in printed, typed and manuscript format (including photocopies),

(d) correspondence and records of other communications between the accountable person and the specified person, i.e., the person supplying the professional services in question.

What powers of entry and inspection does an authorised officer have in relation to an accountable person?

(2) An authorised officer may at all reasonable times enter the premises of an accountable person to audit the PSWT return (section 525) made by it for a tax year.

What checks of documentation may an authorised officer do?

(3) The authorised officer may check the retention tax return by examining:

(a) the procedures put in place by the accountable person to ensure that every PSWT return is correctly made,

(b) a sample of the returns to ensure the procedures mentioned in (a) are adequate.

What information and assistance must an accountable person or his/her employee provide to the authorised officer?

(4) The authorised officer may require the accountable person, or an employee of the accountable person, to produce books and information, and to provide reasonable help:

(a) in checking the retention tax return and the PSWT paid for a financial year (see (2)),

(b) in checking the procedures put in place in relation to PSWT, and the sample of returns made (see (3)).

Is an authorised officer entitled to make extracts from or take copies of documentation provided?

(5) The authorised officer may take copies of or extracts from the books and records produced for inspection.

When must an authorised officer provide sight of his/her written authorisation?

(6) An authorised officer must, if requested to do, produce his/her written authorisation from the Revenue Commissioners to perform an audit of an accountable person’s PSWT records.

What penalty is applied to an employee who fails to assist a Revenue officer?

(7) A penalty of €1,265 applies to an employee of an accountable person who does not comply with the authorised officer’s requirements.

What penalties apply to an accountable person fails to assist a Revenue officer?

(8) A penalty of €19,045 applies to an accountable person that does not comply with the authorised officer’s requirements. A further penalty of €2,535 applies for each day on which the non-compliance continues.

Section 904K Power of inspection: notices of attachment

What is the meaning of “authorised officer” and “records” in relation to attachment returns?

(1) An authorised officer means a Revenue officer who has a written authorisation from the Revenue Commissioners to audit attachment returns.

Records includes:

(a) records used by a relevant person whether kept in bound volumes, loose-leaf binders, pages or cards, microfilm, or electronic format,

(b) the computer, software and printer used to reproduce records kept in electronic format (i.e., the means by which non-legible records are reproduced),

(c) documents in printed, typed and manuscript format (including photocopies),

(d) correspondence and records of other communications between a lender and a mortgage holder.

Records also includes any other information the authorised officer may reasonably require.

Can an authorised officer enter a business premises at any time?

(2) An authorised officer may at all reasonable times enter a premises or place of business to audit a debtor return (a return showing how much you owe a tax defaulter).

Can an authorised officer require assistance?

(3) The authorised officer may require any person on the premises to produce any records for inspection and provide explanations and assistance to the officer.

Can an authorised officer make extracts from records?

(4) The authorised officer may take copies of or extracts from the records.

How must an authorised officer identify him/herself in conducting an audit?

(5) An authorised officer must, if requested to do so, produce his/her written authorisation from the Revenue Commissioners to perform audits.

What penalty applies for refusal to co-operate with an authorised officer?

(6) A penalty of €4,000 applies to you if you do not comply with a request of the authorised officer during the course of his/her inspection.

What is the penalty for failure to comply with requests from an authorised officer?

(7) A penalty of €19,045 applies to a person that does not comply with the authorised officer’s requirements. A further penalty of €2,535 applies for each day on which the non-compliance continues.

Section 905 Inspection of documents and records

This section empowers an authorised Revenue officer to carry out a Revenue audit. It gives power to enter premises and to inspect and query documents and records etc.

When is a Revenue officer an “authorised officer”?

(1) An authorised officer means a Revenue officer who has a written authorisation from the Revenue Commissioners to inspect any records relating to any tax.

Records means any document (whether in paper, electronic, or microfiche format) which relates to a business carried on by a person or which a person is obliged to keep in relation to tax: any duty or charge under care of Revenue.

Property means any asset relating to an existing tax liability, or a further tax liability established by an authorised officer during the course of an inspection.

Records therefore include: the cash receipts book, cheque payments book, sales book, purchases book, assets and liabilities register, and the capital assets record of the business together with the linking documents used to prepare the accounts (section 886) whether stored manually, electronically or by microfiche (section 887), PAYE records (section 903), relevant contracts records (section 904) and VAT records (Value Added Tax Act 1972 16 not found).

The Finance Act 2002 amendment broadened the definition of records to allow inspection of management accounts, minutes of board meeting etc.

What powers does an authorised officer have to enter a premises and inspect records as part of a Revenue audit?

(2) An authorised officer may at all reasonable times enter a premises where he/she believes:

(a) a trade, profession or business is being, or has been, carried on,

(b) anything is being, or has been, done in connection with a trade, profession or business,

(c) records relating to any trade, profession, business, tax liability or tax payments are kept,

(d) any property is, or has been, located.

The words “has been” are used to allow predecessors of “Phoenix” company to be fully investigated.

The authorised officer may require:

(a) Any person on the premises (other than a customer) to produce any records or property for inspection. The authorised officer may search the premises for records or property, take copies of or extracts from the records, and remove any records and retain them for further examination or for court proceedings. He/she may also examine any property listed in any records.

(b) Any person carrying on any business (or who is liable to any tax or has information in relation to any tax liability) to provide reasonable assistance including explanations and documents, during the course of his/her inspection.

The Revenue power may not be used to breach professional client confidentiality. A professional person need only supply information regarding the payment of his/her own fees, documents which are material in relation to the professional person’s own tax liability, and deeds required by Revenue in relation to a potential stamp duty undercharge.

This Revenue inspection power may not be used to enter a person’s private residence without his/her permission, unless the inspector has a warrant issued (see (2A)).

11.59 pm is not a reasonable time to make records available for inspection: Johnson v Blackpool General Commissioners and IRC, [1997] STC 1202.

Back duty cases won by the UK Revenue on the basis of capital statements and other evidence include: Woodrow v Whalley, (1964) 42 TC 249; Deacon (G) and Sons v Roper, (1952) 33 TC 66; Horowitz v Farrand, (1952) 33 TC 221;Moschi v Kelly, (1952) 33 TC 442; Kilburn v Bedford, (1955) 36 TC 262; Barney v Pybus, (1957) 37 TC 106; Roberts v McGregor, (1959) 38 TC 610; Chuwen v Sabine, (1959) 39 TC 1; Amis v Colls, (1960) 39 TC 148; Erddig Motors Ltd v McGregor, (1961) 40 TC 95; Hellier v O’Hare, (1964) 42 TC 155; Hillenbrand v IRC, (1966) 42 TC 617; Hurley v Young, (1966) 45 ATC 316; Hope v Damerel, (1969) 48 ATC 461. See also Argumugam Pillai v DG of Inland Revenue, [1981] STC 146; PC, Les Croupiers Casino Club v Pattinson, [1985] STC 738; Coy v Kime, (1987) STC 114; Brittain v Gibbs, [1986] STC 418.

What power does Revenue have to obtain a search warrant to enter and search a business premises?

(2A) A District Court Judge (see (2)) may issue a search warrant if he/she is satisfied that there are reasonable grounds to believe that:

(a) the taxpayer has failed or may fail to comply with the law relating to income tax, corporation tax, capital gains tax, value added tax, capital acquisitions tax, residential property tax, stamp duties, customs and excise (the Acts),

(b) such failure is likely to seriously prejudice the proper assessment or collection of tax having regard to the liability or potential liability of the taxpayer (see (1)),

(c) records necessary to properly assess and collect tax are likely to be kept or hidden at a place.

The search warrant, which is valid for one month from its date of issue, allows the authorised officer (and other accompanying officers or persons named on the warrant):

(a) to enter (by force if necessary) a premises specified in the warrant,

(b) to search that premises,

(c) to examine anything found at the premises,

(d) to inspect any records found at the premises,

(e) to remove those records if there are reasonable grounds for suspecting that those records are needed to properly assess and collect tax, or for the purposes of legal proceedings.

This allows Revenue officers to apply for a search warrant to enter and search any premises or place if there are reasonable grounds for suspecting that there is serious tax evasion and that records which are material to countering such evasion are likely to be kept at the premises or place in question.

This power will be for use principally by officers in Investigation Branch dealing with prosecutions or involved in in-depth investigations. [Investigation Branch already has experience under the existing subsections (2)(e) and (f) of obtaining Court Orders for entry to residential premises.]

The officer seeking the warrant should generally be of Senior Inspector rank, but may be accompanied by officers of lower rank.

Approval required

The approval of an Assistant Secretary in the Office of the Chief Inspector is required.

What penalty applies for failure to assist an authorised officer?

(3) A penalty of €4,000 applies to a person who does not comply with a request of the authorised officer during the course of his/her inspection.

When must an authorised officer produce his/her written authorisation?

(4) An authorised officer must, if requested to do so, produce his/her written authorisation from the Revenue Commissioners to perform a Revenue audit.

Section 906 Authorised officers and Garda Síochána

What powers do Revenue have to allow a member of An Garda Síochána to accompany an authorised officer to an audit?

An authorised officer means a Revenue officer who has a written authorisation from the Revenue Commissioners to inspect records relating PAYE (section 903), relevant contracts (section 904), or any tax (section 905).

On entering a premises, an authorised officer may be accompanied by a member of the Garda Síochána. The Garda member may arrest without warrant any person who obstructs or interferes with the authorised officer.

To use this power, a Revenue official must obtain prior approval from an appropriate senior officer.

Section 906A Information to be furnished by financial institutions

What definitions apply to information supplied by financial institutions?

(1) A financial institution means:

(a) a bank licensed under the Central Bank Act 1971,

(b) an institution that has been relieved of the obligation to hold such a licence (the Post Office Savings Bank, Trustee Savings Banks, ACC Bank plc, the Industrial Credit Corporation, building societies, industrial and provident societies, friendly societies, credit unions and investment trust companies), or

(c) a European credit institution which has been authorised by the Central Bank to carry on banking and financial business in Ireland.

Books, records or other documents includes:

(a) records used by a financial institution (i.e., a bank) or used in the transfer department of a bank that acts as a registrar of securities, whether kept in bound volumes, loose-leaf binders, pages or cards, microfilm, or electronic format,

(b) the computer, software and printer used to reproduce records kept in electronic format (i.e., the means by which non-legible records are reproduced),

(c) documents in printed, typed and manuscript format (including photocopies),

(d) correspondence and records of other communications between a bank and the person to whom it pays interest.

Tax includes any tax duty or levy under the care and arrangement of Revenue, and liability includes actual (past and present) and potential (future) liability.

Taxpayer includes a person or group of persons whose identities are not known to the authorised officer.

What specific information must a financial institution produce to Revenue on written request?

(2) A Revenue official authorised for the purposes of this section (i.e., an authorised officer) may by written notice require a financial institution to:

(a) produce for inspection any books, records or other documents in that person’s power, possession or procurement which contain (or, in the officer’s opinion formed on reasonable grounds may contain) information relevant to a taxpayer’s tax liability, and/or

(b) to provide any information or explanations which the officer may reasonably require in relation to that taxpayer’s liability.

A financial institution must be given not less than 30 days to comply with a notice under this section.

What assistance must a financial institution offer to an authorised officer in connection with books and records?

(3) The financial institution must provide reasonable help to the authorised officer. This includes help in relation to computerised accounts (i.e., electronically stored data).

What consent must an authorised officer obtain prior to serving a notice on a financial institution?

(4) Before serving a notice under this section, the authorised officer must have reasonable grounds to believe that the financial institution has information relevant to the taxpayer’s tax liability.

The authorised officer must also obtain the written consent of a Revenue Commissioner.

What records can a financial institution be required by notice to produce?

(5) The notice under (2) may specify books of a person connected with the taxpayer.

The connected person rules (section 10) apply for this section, but an individual is only regarded as connected with another person who is his/her spouse or minor child.

A trustee of a settlement is connected with the settlor, any person connected with the settlor, a close company whose participators include the trustees of, or a beneficiary, under the settlement (section 10(4)).

A partner is connected with his fellow partners, each partner’s spouse, and each partner’s relatives (section 10(5)).

A company is regarded as connected with its controller and companies controlled by that controller (section 10(6)-(7)).

Joint controllers of a company are also regarded as connected (section 10(8)).

What definition of a taxpayer applies to information to be supplied by a financial institution?

(6) A taxpayer includes a company which has been dissolved or an individual who has died.

Must the authorised officer name the taxpayer whose affairs are being checked?

(7) The taxpayer, where known, in relation to whose liability the officer is enquiring must be named on the notice.

Is a taxpayer entitled to a copy of a notice served on a third party in relation to his/her tax affairs?

(8) Yes – a copy of a notice served on a third party must be given to the taxpayer concerned.

Can the authorised officer take extracts from or make copies of documentation provided?

(9) The authorised officer may take copies of or extracts from the books and records produced for inspection.

What penalty applies to a financial institution for failure to assist an authorised officer?

(10) A penalty of €19,045 applies to a financial institution that does not comply with the authorised officer’s requirements. A further penalty of €2,535 applies for each day on which the non-compliance continues.

Authorised officers: Audit managers and Investigation Branch Officers.

Section 907 [Application to Appeal Commissioners: information from financial institutions]

Who is a taxpayer in the context of information provided by a financial institution to Revenue?

(1) A taxpayer means any person. The term includes:

(a) a person whose identity is not known to the authorised officer, and a group or class of persons whose individual identities are not so known, and

(b) a person who has made a non-resident declaration for the purposes of DIRT (section 263).

When can an authorised officer apply to the Appeal Commmissioners to compel a financial institution to provide information?

(2) An authorised officer may apply to an Appeal Commissioner for an order requiring a financial institution (section 906A) to:

(a) produce for inspection any books, records or other documents (section 906A(1)) in that person’s power, possession or procurement which contain (or, in the officer’s opinion formed on reasonable grounds may contain) information relevant to the liability to tax (section 906A(1)) of a taxpayer, and/or

(b) to provide any information or explanations which the officer may reasonably require in relation to that taxpayer’s liability.

What safeguards are provided before an authorised officer can make an application to the Appeal Commissioners for an order?

(3) Before making an application under (2), the authorised officer must satisfy him/herself that:

(a) there are reasonable grounds to believe that the taxpayer has failed or may fail to comply with the law relating to income tax, corporation tax, capital gains tax, value added tax, capital acquisitions tax, residential property tax, stamp duties, customs and excise (the Acts),

(b) such failure is likely to seriously prejudice the proper assessment or collection of tax having regard to the liability or potential liability of the taxpayer (see (1)),

(c) the information in the books etc is relevant to the proper assessment or collection of tax.

The authorised officer must also obtain the written consent of a Revenue Commissioner.

Can an authorised officer apply to the Appeal Commissioners for an order to a person connected to the taxpayer?

(4) The notice under (2) may specify books of a person connected with the taxpayer.

The connected person rules (section 10) apply for this section, but an individual is only regarded as connected with another individual who is his/her spouse or minor child.

A trustee of a settlement is connected with the settlor, any person connected with the settlor, a close company whose participators include the trustees of, or a beneficiary under the settlement (section 10(4)).

A partner is connected with his fellow partners, each partner’s spouse, and each partner’s relatives (section 10(5)).

A company is regarded as connected with its controller and companies controlled by its that controller (section 10(6)-(7)).

Joint controllers of a company are also regarded as connected (section 10(8)).

What does the definition of “taxpayer” include?

(6) A taxpayer for the purposes of this section includes a company which has been dissolved. A person who has died can also be considered as a taxpayer.

What must an authorised officer do the Appeal Commissioners determine an application is justified?

(7) Where the Appeal Commissioners determine that an authorised officer is justified in requesting books and information from a bank, the authorised officer must write to the bank within 14 days of the determination, stating that the determination has been made, and requesting that the necessary books and information be produced within 30 days of the notice.

What assistance must a financial institution offer to an authorised officer?

(7A) The taxpayer must provide reasonable help to the authorised officer. This includes help in relation to computerised accounts (i.e., electronically stored data).

Is the authorised officer entitled to take copies or make extracts of books & records?

(7B) Yes. The authorised officer may take copies of or extracts from the books and records produced for inspection.

In what manner must an appeal hearing be conducted under this section?

(8) The Appeal Commissioners must hear and determine the application in the same manner as an appeal against an income tax assessment. A copy of the application must be sent to the person and the bank concerned, and their case may be pleaded at the appeal hearing by a barrister, solicitor, accountant, qualified tax consultant, or any other person permitted to do so by the Appeal Commissioners.

Normally, therefore, the taxpayer (where identified) and the financial institution may appear or be represented.

What penalty is applied to a financial institution for failure to comply with a notice to provide information?

(9) A penalty of €19,045 applies to a financial institution that does not comply with the authorised officer’s requirements. A further penalty of €2,535 applies for each day on which the non-compliance continues.

Section 907A Application to Appeal Commissioners: information from third party

How is a “third party” defined?

(1) A third party is a person whose identity has been provided to a Revenue official in compliance with a Revenue notice.

In the context of this section, a taxpayer means a person whose identity is not known to a Revenue officer (i.e. someone who is not on Revenue record).

Can a Revenue officer request the Appeal Commissioners to serve an information notice on a third party?

(2) A Revenue officer may apply to the Appeal Commissioners for consent to serve notice on a third party, requiring that party to:

(a) produce for inspection books and records which that person has, or can procure, in relation to a taxpayer’s liabilities,

(b) provide information, explanations and particulars relating to such liability.

What authorisation is required before a Revenue officer can make the request in (2)?

(3) A Revenue official may not make an application within (2) without a Revenue Commissioner’s written consent, and without being satisfied:

(a) that there are reasonable grounds for suspecting the taxpayer is non-compliant,

(b) that such non-compliance will seriously prejudice the proper assessment or collection of tax, and

(c) that the information sought is relevant to the proper assessment or collection of tax.

What type of information can be included in a Revenue officer’s request to the Appeal Commissioners?

(4) The Revenue officer’s request will generally involve serving a notice on a third party in relation to books, records or other documents, and information and particulars from a person connected with the taxpayer.

When can the Appeal Commissioners consent to a Revenue officer’s request for an information notice?

(5) If they are satisfied that there are reasonable grounds for the application, the Appeal Commissioners may consent to the Revenue officer serving a notice on a third party, requiring that party to:

(a) produce for inspection books and records which that person has, or can procure, in relation to a taxpayer’s liabilities,

(b) provide information, explanations and particulars relating to such liability.

What is a “taxpayer” for the purposes of information notice requests?

(6) A company which has been dissolved, and a person who has died, can be treated as a “taxpayer” for the purposes of an information notice request.

Can a person be compelled to disclose legally privileged information?

(7) A person is not obliged to disclose information to a Revenue officer if that information is:

(a) subject to professional legal privilege,

(b) subject to confidential medical privilege, or

(c) professional advice of a confidential nature.

What happens after the Appeal Commissioners allow an information notice?

(8) If the Appeal Commissioners allow an information notice to be sent, the Revenue official must, within 14 days of the date on which consent was given, serve notice on the third party concerned. The third party must comply with the requirements of the notice within 30 days.

How is a Revenue application for a third party information notice to be heard?

(9) An application for consent to issue a third party information notice is to be treated as if it were an appeal against an income tax assessment. Any decision by the Appeal Commissioners in relation to a third party information notice is deemed to be final and conclusive.

What penalty applies to a person who fails to comply with a third party information notice?

(10) A penalty of €19,045 applies to a third party who fails to comply with an information notice, together with a penalty of €2,535 for each day on which the failure continues after the 30 day notice period mentioned in (8).

Section 908 [Application to High Court seeking order requiring information: financial institutions]

What definitions apply to applications to the High Court seeking information from a financial institution?

(1) A taxpayer means any person. The term includes:

(a) a person whose identity is not known to the authorised officer, and a group or class of persons whose individual identities are not so known, and

(b) a person who has made a non-resident declaration for the purposes of DIRT (section 263).

For what disclosure can an authorised officer apply for a High order?

(2) An authorised officer may apply to a High Court Judge for an order requiring a financial institution (section 906A) to:

(a) produce for inspection any books, records or other documents (section 906A(1)) in that person’s power, possession or procurement which contain (or, in the officer’s opinion formed on reasonable grounds may contain) information relevant to the liability to tax (section 906A(1)) of a taxpayer, and/or

(b) to provide any information or explanations which the officer may reasonably require in relation to that taxpayer’s liability.

Must the taxpayer be informed of notices to third parties?

(2A) The authorised officer may request the Court to permit an order not to be disclosed to the taxpayer or other persons.

What consent must an authorised officer do before seeking a High Court order?

(3) Before making an application under (2), the authorised officer must satisfy him/herself that:

(a) there are reasonable grounds to believe that the taxpayer has failed or may fail to comply with the law relating to income tax, corporation tax, capital gains tax, value added tax, capital acquisitions tax, residential property tax, stamp duties, customs and excise (the Acts),

(b) such failure is likely to seriously prejudice the proper assessment or collection of tax having regard to the liability or potential liability of the taxpayer (see (1)),

(c) the information in the books etc is relevant to the proper assessment or collection of tax.

The authorised officer must also obtain the written consent of a Revenue Commissioner.

In the case of an application for non-disclosure (2A) there must be reasonable grounds for believing that disclosure would prejudice the enquiry.

Can an authorised officer seek a High Court order in relation to a person connected with the taxpayer?

(4) The notice under (2) may specify books of a person connected with the taxpayer.

The connected person rules (section 10) apply for this section, but an individual is only regarded as connected with another individual who is his/her spouse or minor child.

A trustee of a settlement is connected with the settlor, any person connected with the settlor, a close company whose participators include the trustees of, or a beneficiary under the settlement (section 10(4)).

A partner is connected with his fellow partners, each partner’s spouse, and each partner’s relatives (section 10(5)).

A company is regarded as connected with its controller and companies controlled by its that controller (section 10(6)-(7)).

Joint controllers of a company are also regarded as connected (section 10(8)).

What information must a financial institution produce under High Court order?

(5) If the judge to whom the application is made is satisfied that there are reasonable grounds for making the order, he/she may order the financial institutions to produce the required records and particulars.

What persons are included in the definition of taxpayer?

(6) A taxpayer (see (1)) includes a company which has been dissolved or an individual who has died.

What assistance must a financial institution render under an order from the High Court?

(6A) The taxpayer must provide reasonable help to the authorised officer. This includes help in relation to computerised accounts (i.e., electronically stored data).

Can an authorised officer make copies of information produced under a High Court order?

(6B) The authorised officer may take copies of or extracts from the books and records produced for inspection.

Must an application for a High Court order be held in camera?

(7) Yes.

What further orders can a High Court judge make?

(8) The judge may also make an order freezing the person’s assets in the bank for such time as the judge considers proper.

Will the judge consider the public interestin dealing with applications for a High Court order?

(9) If the judge is satisfied that it is in the public interest, the name of the authorised officer need not be mentioned on copies of affidavits and evidential documents relating to the order.

Where it is necessary to cross examine an authorised officer who has sworn an affidavit, and the judge is satisfied that it is in the public interest, the authorised officer need not identify him/herself in court and may be cross-examined out of sight of any person other than the judge.

Section 908A Revenue offence: power to obtain information from financial institutions

What definitions apply to Revenue officers obtaining information from financial institutions?

(1) A financial institution means:

(a) a bank licensed under the Central Bank Act 1971,

(b) an institution that has been relieved of the obligation to hold such a licence (the Post Office Savings Bank, Trustee Savings Banks, ACC Bank plc, the Industrial Credit Corporation, building societies, industrial and provident societies, friendly societies, credit unions and investment trust companies), or

(c) a European credit institution which has been authorised by the Central Bank to carry on banking and financial business in Ireland.

Books, records or other documents includes:

(a) records used by a financial institution (i.e., a bank) or used in the transfer department of a bank that acts as a registrar of securities, whether kept in bound volumes, loose-leaf binders, pages or cards, microfilm, or electronic format,

(b) the computer, software and printer used to reproduce records kept in electronic format (i.e., the means by which non-legible records are reproduced),

(c) documents in printed, typed and manuscript format (including photocopies),

(d) correspondence and records of other communications between a bank and the person to whom it pays interest.

Tax includes any tax duty or levy under the care and arrangement of Revenue, and liability includes actual (past and present) and potential (future) liability.

Can an authorised officer apply to the courts for an order to inspect books and records of a financial institution where there is a suspicion of tax evasion?

(2) An authorised officer may apply to a judge of the Circuit Court or of the District Court for an order requiring a financial institution to allow the authorised officer to inspect the books, records and other documents (or documentation) of the financial institution to investigate “relevant facts” in relation to possible evasion of tax or duty.

Documentation includes records stored on a computer or in the form of microfilm.

The judge may make the order, if after hearing the evidence given under oath of an authorised officer, he/she is satisfied that there are reasonable grounds to suspect that:

(a) a serious tax or duty offence (section 1078(2)) has been or is about to be committed (having regard to the tax that would have been evaded if the relevant facts had not come to light), and

(b) a financial institution has material likely to be of substantial value in investigating the relevant facts.

Before making the application, the authorised officer must also obtain the written consent of a Revenue Commissioner.

On 25 August 2000 new District Court rules came into effect in relation to section 908A.The new rules were made to cater for changes made to section 908A by Finance Act 2000 section 68(d). Section 908A has been extended to cover all types of financial institutions and all types of information/records held by financial institutions, in relation to the person or persons in respect of whom a Court order for disclosure is obtained under that section: Tax Briefing 41.

The Finance Act 2002 changes are designed to make the section more amenable for investigating a customs offence which is about to be committed (for example, cigarette smuggling).

If the cargo seized by customs, it is no longer possible for the offence to be committed.

When could a minor tax offence be treated as serious tax evasion?

(3) An offence which considered alone would not be regarded as a serious tax offence may be so regarded if there are reasonable grounds for suspecting that it is part of a course of conduct likely to result in serious tax evasion.

What is regarded as prima facie evidence of a book entry and underlying transaction?

(4) In legal proceedings, a copy of an entry in the books of a financial institution may be accepted by the court as prima facie evidence of the entry and the underlying transaction.

What proof is required for a copy of an entry in the books of a financial institution to be accepted in evidence?

(5) In legal proceedings, a copy of an entry in the books of a financial institution may not be accepted in evidence, unless it is proved:

(a) in the case of a copy reproduced from microfiche computer records, that the copy has been so reproduced,

(b) in the case of a copy of a copy mentioned in (a), that:

(i) it is a correct copy, and

(ii) it has been reproduced in the manner referred to in (a),

(c) in any other case, that the copy has been checked with the original and is correct.

What proof must be given regarding copies of original documents from financial institutions?

(6) Proof that a copy (see (5)(a)), or a copy of a copy (see (5)(b)(ii)) has been reproduced from microfiche or computer records, must be given by a person in charge of the reproduction process.

Proof that a copy is a correct copy of a copy (see (5)(b)(i)) is to be given by a person who has checked the copy with the first copy.

Proof that a copy is a correct copy of an original (see (5)(c)) is to be given by a person who has checked the copy with the original.

Such proof may be given orally or by sworn affidavit before a commissioner or person authorised to take affidavits.

Section 908B Application to High Court seeking order requiring information: associated institutions

This section allows a Revenue official to obtain financial details held by an offshore subsidiary of an Irish financial institution.

What definitions apply to applications to the High Court for orders requiring information from associated institutions?

(1) A financial institution means:

(a) a bank licensed under the Central Bank Act 1971,

(b) an institution that has been relieved of the obligation to hold such a licence (the Post Office Savings Bank, Trustee Savings Banks, ACC Bank plc, the Industrial Credit Corporation, building societies, industrial and provident societies, friendly societies, credit unions and investment trust companies), or

(c) a European credit institution which has been authorised by the Central Bank to carry on banking and financial business in Ireland.

An associated institution is an offshore subsidiary of a financial institution, i.e., an entity which is non-resident but controlled by the Irish parent financial institution.

Books, records or other documents includes:

(a) records used by a financial institution (i.e., a bank) or used in the transfer department of a bank that acts as a registrar of securities, whether kept in bound volumes, loose-leaf binders, pages or cards, microfilm, or electronic format,

(b) the computer, software and printer used to reproduce records kept in electronic format (i.e., the means by which non-legible records are reproduced),

(c) documents in printed, typed and manuscript format (including photocopies),

(d) correspondence and records of other communications between a bank and the person to whom it pays interest.

Tax includes any tax duty or levy under the care and arrangement of Revenue, and liability includes actual (past and present) and potential (future) liability.

A taxpayer means any person. The term includes a person whose identity is not known to the authorised officer, and a group or class of persons whose individual identities are not so known.

What information can an authorised officer request in a High Court order?

(2) A Revenue official authorised for the purposes of this section (i.e., an authorised officer) may request a judge to make an order requiring a financial institution to:

(a) produce for inspection any books, records or other documents in the power, possession or procurement of that financial institution or an associated institution which contain (or, in the officer’s opinion formed on reasonable grounds may contain) information relevant to a taxpayer’s tax liability, or

(b) to provide any information or explanations or particulars held by or available from the particular financial institution or an associated institution which the officer may reasonably require in relation to such liability.

A financial institution must be given not less than 30 days to comply with a notice under this section.

What must an authorised officer do before seeking a High Court order?

(3) Before making an application under (2), the authorised officer must satisfy himself that:

(a) there are reasonable grounds to believe that the taxpayer has failed or may fail to comply with the law relating to income tax, corporation tax, capital gains tax, value added tax, capital acquisitions tax, residential property tax, stamp duties, customs and excise (the Acts),

(b) such failure is likely to seriously prejudice the proper assessment or collection of tax having regard to the liability or potential liability of the taxpayer (see (1)),

(c) the information in the books etc. is relevant to the proper assessment or collection of tax.

The authorised officer must also obtain the written consent of a Revenue Commissioner.

When will the High Court order a financial institution to produce information?

(4) If the judge to whom the application is made is satisfied that there are reasonable grounds for making the order, he/she may order the financial institutions to produce the required records and particulars.

What persons are included in the definition of a taxpayer?

(5) A taxpayer (see (1)) includes a company which has been dissolved or an individual who has died.

What assistance must be provided to an authorised officer?

(6) A person must provide reasonable help to the authorised officer. This includes help in relation to computerised accounts (i.e., electronically stored data).

Can the authorised officer take copies or extracts from the information provided?

(7) The authorised officer may take copies of or extracts from the books and records produced for inspection.

Must a hearing under this section be held in camera?

(8) Yes.

Section 908C Search warrants

What definitions apply to search warrants?

(1) In general, Revenue do not have power to enter a private residence without the occupier’s consent (section 905(2)(e)), however they may need to do so in order to gather evidence for criminal proceedings.

However, before doing so, the authorised officer must apply to the District Court judge for a search warrant (see (2)). The warrant then allows the officer (and named others) to search any place, i.e., any building, residence, vehicle, boat, aircraft or hovercraft etc., and remove any books and records, including computers (material) found there.

When will a District Court issue a warrant for the search of a premises?

(2) A District Court judge may issue a search warrant to an authorised officer, if the judge is satisfied that:

(a) an offence is being or may be committed, and

(b) material likely to be of value in investigating an offence, or evidence relating to the offence, is to be found in any place.

The warrant allows for the search of the place and any thing or persons found there.

How must a warrant to search a premises be expressed?

(3) The warrant must be expressed to allow the authorised officer, and other named Revenue officers and persons he/she considers necessary:

(a) to enter the place named in the warrant at any time within one month of the date on which the warrant was issued,

(b) to search the premises and persons fund there (but no person is to be searched by a person of the opposite sex unless consent is given),

(c) to require any person found on the premises to give his/her name, address, and occupation to the Revenue officer, and to produce any material in his/her custody to the officer,

(d) to examine, seize and retain any books, records and computers (material) found there, if the officer believes it is likely to be of value in investigating an offence or can be used as evidence in relation to the commission of an offence, and

(e) to take any steps necessary to preserve, and prevent interference with, the material.

What material can an authorised officer examine, seize and retain a copy of under a warrant?

(4) The authority to seize and retain books and records, including computers (material) includes authority to:

(a) make and retain copies of those books and records, and

(b) seize and retain any computer or other methods of storing records, and to copy such records.

Can an authorised officer examine computers and computer records under the search warrant?

(5) An authorised officer may:

(a) operate any computer at the premises being searched, or have an accomplice operate it,

(b) require any person on the premises who appears to be in a position to help gain access to the information held on the computer, to:

(i) provide any password needed to operate the computer,

(ii) help the officer examine the information on the computer in a format that is visible and legible, and

(iii) produce the information in a form in which it is, or can be made, visible and legible.

What would constitute an offence by a person subject to a search warrant?

(6) On summary conviction, a fine of €5,000 and/or six months’ imprisonment, may be imposed on a person who is found guilty of:

(a) obstructing or attempting to obstruct entry to carry out a search,

(b) obstructing the right to examine, seize or retain material,

(c) failing to provide a name, address and occupation (or providing information which is false or misleading),

(d) not providing computer passwords, or failing to help the officer gain access to computer records.

Who may accompany an authorised officer in executing a search warrant?

(7) When executing a search warrant, an authorised officer may be accompanied by one or more Garda who may arrest without warrant any person obstructing the search.

For how long can material seized for legal or criminal proceedings be retained?

(8) Material seized for legal proceedings or criminal proceedings may be retained so long as is reasonably necessary for the purpose of those proceedings.

Section 908D Order to produce evidential material

What definitions apply to orders to produce evidential material?

(1) In general, Revenue do not have power to order a third party to produce material, however they may need to do so in order to gather evidence for criminal proceedings, i.e., where an offence under the Acts has been committed.

To remedy this, an authorised officer may apply to the District Court judge to make an order (see (2)). The order then requires the person to produce the material and assist the Revenue officer in gaining access to it (if stored oncomputer).

When can a District Court order a person to produce material to an authorised officer?

(2) A District Court judge may order you to produce material to an authorised officer, or give the officer access to such material, if the judge is satisfied that:

(a) an offence is being or may be committed, and

(b) material likely to be of value in investigating an offence, or evidence relating to the offence, is to be found in any place.

How must computer records be presented as a result of a District Court order?

(3) In relation to computer records, the order to produce them is to be interpreted as an order to produce the records in a form which is visible and legible, and in which they can be taken away.

Can an authorised officer take copies of books/records under the provisions of a District Court order?

(4) The order also allows the authorised officer to take copies of books and records. The order does not extend to documents that are subject to legal privilege, but it takes precedence over any other secrecy obligations.

For what purpose is an authorised officer entitled to keep seized material?

(5) The authorised officer may keep seized material for use as evidence in criminal proceedings.

Can information obtained under court order be used as evidence in criminal proceedings?

(6) Information obtained by an authorised officer from books and records produced to him/her, or to which he/she was given access, may be used in criminal proceedings as evidence of any fact therein, unless such information:

(i) is legally privileged,

(ii) was supplied by a person who cannot be compelled to give evidence for the prosecution,

(iii) was compiled for the purpose of civil, criminal, disciplinary or other proceedings.

The relevant sections (7, 8, and 9) of the Criminal Evidence Act 1992 are relating to documentary evidence and its admissibility are to be construed as including references to books, documents and records produced to the authorised officer, or to which he/she was given access.

Who can vary or discharge an order from the District Court?

(7) The District Court judge may vary or discharge the order at the request of the authorised officer or of any other person to who the order relates.

What penalties apply to persons who fail to comply with a District Court order?

(8) On summary conviction, a fine of €3,000 and/or six months’ imprisonment, may be imposed on anyone found guilty of failing to comply with an order under this section.

Section 908E Order to produce documents or provide information

What is a relevant offence?

(1) This section allows an authorised officer who is investigating a criminal tax offence (a relevant offence) to gather evidence to be used in a possible prosecution.

How can an authorised officer gather evidence?

(2) An authorised officer may apply to the District Court for an order to require a person to:

(a) produce documents, or

(b) provide information

required for an investigation.

In what circumstances will a judge grant an order?

(3) A District Court Judge may make an order if is satisfied that:

(a) a person has possession or control of the documents,

(b) the documents are relevant to the investigation,

(c) the documents may constitute evidence in relation to the offence, and

(d) the production of the documents will benefit the investigation.

The judge may order the person to identify and categorise the documents in a particular manner produce the categorised documents to the authorised officer either immediately, or within a period specified by the judge.

Can a judge order a person to answer specified questions and make a written statement?

(4) As an alternative to producing the documents (see (3)), the judge may order the person to answer specified questions and/or to make a statement setting out the answers.

Can a person be ordered to produce non-business information?

(5) A person can only be required to produce information obtained in the course of business.

Can a judge order a person to allow access to a place where documents are kept?

(6) The judge may order a person who appears to be entitled to allow entry to a place where documents are kept, to allow an authorised officer entry and access to the documents.

Can a judge order that documents be produced in legible format?

(7) Where documents are not in a legible form, a judge may order:

(a) the provision of passwords,

(b) that documents be provided in a form that is legible and comprehensible,

(c) that documents be provided in a form in which they can be removed, and/or be made legible and comprehensible.

What effect does an order to produce documents have?

(8) An order providing for the production or removal of a document:

(a) allows the officer to copy and remove the copy,

(b) does not allow access to documents that are subject to legal professional privilege, and

(c) has effect notwithstanding any other provisions.

Can a person retain documents and have the officer make copies?

(9) A person may request permission to retain a document and have the officer take a copy of it.

The officer may agree if he is satisfied that the person requires it for their business and undertakes, in writing, to keep it and produce it when required as evidence for any criminal proceedings.

If the person fails to deliver the document when required for such proceedings, a copy of the document may be admitted in evidence.

Can an officer retain documents for use in criminal proceedings?

(10) An officer may retain documents for use as evidence in a criminal prosecution.

In what circumstances is a statement made in accordance with an order admissible?

(11) A statement made in accordance with this order is not admissible unless the offence relates to:

(a) non-compliance with the order,

(b) deliberately giving incorrect information, or

(c) refusing to deliver a document which the person has given a written undertaking to produce on request.

Can an order require a person to confirm the authenticity of the documents?

(12) A order may require a person to confirm in writing the authenticity of the documents and, in the case of non-legible documents, to provide details of the system used to reproduce the documents.

Revenue may make regulations specifying the manner in which documents may be authenticated.

What effect has a claim of lien over documents by the person producing the documents?

(13) Documents are to be produced without prejudice to any lien that the person may hold over the documents.

Can a judge vary or discharge an order to produce records?

(14) A judge may, on receipt of an application by the person concerned, vary or discharge an order.

Can a person request a judge to order the return of documents retained by Revenue?

(15) If an authorised officer does not return records at the request of the person affected, the person may apply to the District Court. The judge may make oder that the documents be returned, subject to any condition he may impose.

What sanction applies where a person refuses to comply with an order to produce records?

(16) A person who refuses to comply with an order is guilty of an offence and liable, on conviction, to a fine, imprisonment or both.

What sanction applies where a person provides false or misleading information?

(17) A person who provides false or misleading information is guilty of an offence and liable, on conviction, to a fine, imprisonment or both.

What sanction applies where a person fails to comply with an undertaking to produce records?

(18) A person who fails to comply with a written undertaking to produce a document to an authorised officer is guilty of an offence and liable to a fine, imprisonment or both.

In what District Court must an authorised officer apply for an order to produce records?

(19) An application for an order to produce records must be made to the District Court in the area where:

(a) the documents are located,

(b) the taxpayer lives or carries on business, or

(c) in the case of a company, the company’s registered office or place of business

Does this procedure affect other provisions under which a court can order production of records?

(20) This section does not affect any other provision under which a court can order the production of documents in connection with the investigation of an offence.

Section 909 Power to require return of property

What is a return of property?

(1) Property includes rights and interest of any kind, including a limited interest, a future interest, an interest in a partnership, an interest in a joint tenancy, an interest in a deceased person’s estate, shares of a company in liquidation, an annuity, and property in a settlement which the settlor has power to revoke.

A settlement means a disposition, trust, covenant, agreement, arrangement and any transfer of money or property or the right to money or property.

The cost of acquiring an asset (including any interest in an asset) includes the value of the consideration given by the acquirer together with any incidental costs of acquisition, and expenditure on enhancing or preserving title to the asset.

This anti-evasion legislation allows an inspector who believes income shown on a return to be substantially understated to estimate the possible extent of such understatement.

Power to revoke: without this phrase, a person could transfer all of his/her property to a revocable trust, make a declaration that he/she has no property and then reassume control of his/her assets by revoking the trust.

Can Revenue require a statement of affairs to be filed?

(2) If requested in writing by the inspector, a person must file within the time specified a statement of affairs as at the date specified, in the form prescribed by Revenue.

A spouse, if requested, must also file a statement of affairs as at the date specified.

If requested in writing by the inspector, a pwerson must also file within the time specified (but not less than 30 days) a statement verifying the statement of affairs details, together with any documents required by the inspector in relation to assets or liabilities shown on the statement of affairs (or which the inspector believes have been omitted from the statement of affairs).

Your spouse, if requested, must also file a statement verifying the statement of affairs.

What is a statement of affairs?

(3) A statement of affairs means:

(a) In relation to an individual who is chargeable to income tax or capital gains tax on a self-assessment basis: a statement of that individual’s total assets and liabilities as at the date specified.

(b) In relation to a spouse of an individual who is chargeable to income tax or capital gains tax on a self-assessment basis: a statement of that spouse’s total assets and liabilities as at the date specified.

In relation to (a) and (b), the statement of affairs must include assets of a minor child of the individual which were disposed of by the individual before being acquired by the child, or were funded (directly or indirectly) by the individual.

(c) In relation to an individual who is chargeable to income tax or capital gains tax as a guardian or agent of another person: a statement of the total assets and liabilities of that person as at the specified date which the individual is responsible for managing.

(d) In relation to an individual who is chargeable to income tax or capital gains tax as a trustee of a trust, a statement of the total assets and liabilities of the trust as at the specified date.

What must be disclosed in a statement of affairs?

(4) The statement of affairs must provide:

(a) a full description of every asset mentioned,

(b) its location at the specified date,

(c) its cost of acquisition,

(d) its date of acquisition,

(e) in the case of an asset acquired other than by way of bargain at arm’s length, the name and address of the person from whom the asset was acquired, together with the consideration given, and

(f) details of all policies of insurance against risk of any kind of damage or injury, or loss or depreciation of an asset.

Where the statement includes an asset which is a limited interest or future interest, details of the title under which the beneficial entitlement arises must be provided.

Example

X has a life interest (a limited interest) in a house worth €200,000. After X dies, the house will pass to his sister Y (who, therefore, has a future interest in the house).

X’s life interest, by actuarial calculation, is worth €80,000.

If requested to file a statement of affairs, X must include the full value of the house (not his limited interest). The same applies for Y, even though she has not yet come into possession.

Section 910 Power to obtain information from Minister of the Government

What powers do Revenue have to obtain information on certain payments from Ministers or public bodies?

(1) A government department, and any body established by statute must, if requested in writing by the Revenue Commissioners, provide them with information in relation to payments to classes of persons specified in the notice.

Who may Revenue authorise to carry out their responsibilities?

(2) The Revenue Commissioners may nominate a Revenue officer to perform their functions in this regard.

Must information be provided to Revenue in electronic format if they request it?

(3) The information to be provided to Revenue must be provided, if Revenue require, in electronic format.

Section 911 Valuation of assets.

Can an authorised officer inspect and ascertain the value of property?

(1)-(2) An inspector or other Revenue officer empowered to make capital gains tax assessments is authorised to inspect any property in order to ascertain its market value. As the property owner, you must allow the inspector access to the property at a reasonable time to make his/her valuation.

The authorised officer must, if requested, produce evidence of his/her authority to inspect properties for capital gains tax valuations.

Can a private residence be inspected?

(3) A private residence can only be inspected on production of an order of the District Court. A judge may issue such an order if satisfied by information on oath that it is required for the purposes of the Acts.

Who incurs the costs of a valuation?

(4) If an authorised person requires a valuation Revenue will defray the cost.

Section 912 Computer documents and records

What definitions apply to computer documents and records?

(1) These rules apply to records: documents which a person is obliged to keep or produce for inspection under the law relating to income tax, corporation tax, capital gains tax, value added tax, capital acquisitions tax, residential property tax, and customs and excise (the Acts).

Data equipment means any equipment that uses electronic, magnetic, optical or photographic means for processinginformation that is in a form that can be processed (data).

Processing means performing logical or arithmetical operations on data, or storing, reproducing or communicating data.

Software means a sequence of instructions used to control data equipment, or used by data equipment to process data.

The definitions of data and processing are taken from the Data Protection Act 1988. Examples of data equipment: a computer, an optical storage device, a microfiche reader. Software means a program.

Does Revenue’s powers apply to data equipment and software used to process records?

(2) Revenue powers in the Acts in relation to the keeping, production, inspection, checking or removal of records also apply to the data equipment and software used to process the records.

Revenue inspection (sections 903, 904) and audit powers (section 905) apply to computer equipment and software used to store information and accounts. If the hardware or software is defective, the information produced to complete a return will be defective.

Must assistance be provided to a Revenue officer inspecting computer records?

(3) Yes. A Revenue officer may require a person using data equipment or a person concerned with its operation, to give him/her reasonable assistance in the course of his/her inspection.

This ensures a computer bureau, used, for example, to process payroll, must give the Revenue officer reasonable assistance.

Section 912A Information for tax authorities in other territories

What do “foreign tax” and “liability to foreign tax” mean?

(1) Foreign tax means tax chargeable in a country with which Ireland has a tax treaty (section 826) or to which the Convention on Mutual Assistance in Tax matters Applies.

Liability to foreign tax means any current, previous or potential liability to such tax.

What information can Revenue send to foreign tax authorities?

(2) Information gathered under the following sections in relation to foreign tax, or liability to foreign tax, may be forwarded to the Revenue authorities of a country with which Ireland has a tax treaty:

(a) Power to call for production of books, information, etc. (section 900).

(b) Application to High Court: production of books, information, etc. (section 901).

(c) Information to be furnished by third party: request of an authorised officer (section 902).

(d) Application to High Court: information from third party (section 902A).

(e) Information to be furnished by financial institutions (section 906A).

(f) Application to Appeal Commissioners: information from financial institutions (section 907).

(g) Application to Appeal Commissioners: information from a third party (section 907A)

(h) Application to High Court seeking order requiring information: financial institutions (section 908).

What Irish tax law is adapted to enable information exchange with foreign tax authorities?

(3) To enable information exchange with Revenue authorities of other jurisdictions, the following legislation is adapted:

(a) Application to High Court: information from third party (section 902A).

(b) Information to be furnished by financial institutions (section 906A).

(c) Application to Appeal Commissioners: information from financial institutions (section 907).

(d) Application to Appeal Commissioners: information from a third party (section 907A)

(e) Application to High Court seeking order requiring information: financial institutions (section 908).

The adaptation operates so that references to “tax” are taken as references to “foreign tax”, and references to Irish tax law (the Acts) are taken as references to the corresponding tax law of the foreign country.

Section 912B Questioning of suspects in Garda Síochána custody in certain circumstances

What powers do authorised officers have to question suspects in Garda custody?

Revenue may question suspects in Garda custody in relation to customs offences, excise offences and RCT and VAT fraud.

Section 913 Application of income tax provisions relating to returns, etc

Do the provisions of the Income Tax Acts apply to capital gains?

(1) Yes – the income tax provisions relating to filing and inspection of statements, returns, documents, information or records apply for capital gains tax too.

What income tax provisions in particular are applied to capital gains tax?

(2) In particular, the following income tax rules apply for capital gains tax:

(a) Notice of liability to tax (section 876). A person who has not been notified by the inspector to file a statement of chargeable gains (section 877) or file a return of chargeable gains (section 879) must, if he/she is chargeable to capital gains tax for a tax year, within one year of the end of the tax year, notify the inspector that he/she is chargeable to such tax.

(b) Returns by persons chargeable (section 877). A person chargeable to capital gains tax must, if requested to do so by the inspector file, within the specified time limit, a signed written statement of chargeable gains.

(c) Persons acting for incapacitated persons and non-residents (section 878). An agent of an incapacitated or non-resident person, must, if requested to do so by the inspector for the agent’s tax district, file within the specified time limit, a signed written statement of chargeable gains.

(d) Returns of chargeable gains (section 879). Every individual, when requested to do so by the inspector, must file a capital gains tax return within the time specified, showing, for the tax year in question: all his/her chargeable gains and any other details required on the return form.

(e) Partnership returns (section 880). A precedent partner, when requested to do so by the inspector, must file a partnership tax return within the time specified, showing, for the tax year in question: all the partnership chargeable gains and any other details required on the return form.

(f) Returns etc by lessors, lessees and agents (section 888). An inspector may request information from a landlord (or former landlord), a tenant (or former tenant) regarding a lease, its term, and the rent and/or premium payable.

The inspector may also request information from a property management agent regarding properties under his/her management, and information from a government department, health board, or local authority, regarding rent payable on premises used by the department, board, or authority.

(g) Power to require production of accounts and books (section 900). If a trader or professional person does not file a statement of chargeable gains, or files an unsatisfactory statement, an authorised officer may write to the person requesting him/her to:

(i) file copies of his/her (audited) profit and loss account and balance sheet within a specified period,

(ii) make his/her books and records available for inspection within a specified period.

(h) Holder of mineral licence (Schedule 1 para 1). The holder, if requested by the inspector must, within the specified time limit (but not less than 30 days) provide details of transactions arising from licensed activities which may give rise to a capital gains tax charge.

(b) The gain must be clearly stated. The submission of a formula from which the gain may be computed is not sufficient: Horner v Madden, [1995] STC 802.

What can a notice to file returns require with regard to the acquisition of assets?

(3) A notice under any income tax provision relating to filing of statements or returns, may require a person to provide details of any assets acquired by him/her during the period specified in the notice.

Exempt assets, the disposal of which does not give rise to a chargeable gain, acquired in the period may be omitted. This applies, for example, in relation to government, semi-State and EU securities: section 607; instalment savings scheme bonuses, prize bond winnings, legal damages: section 613.

Trading stock acquired in the period may also be omitted.

What further information might be required in the statement of assets acquired?

(4) The person completing the return may also be required to provide the name and address of the person from whom the asset was acquired, and the price paid for the asset.

Must transaction details of company amalgamations or reconstructions be included in a CGT return?

(5) In general, on a company amalgamation or reconstruction, if old shares are exchanged for new shares, there is no disposal of the old shares. The new shares are treated as if they were the equivalent old shares, and they take the acquisition date and cost of the old shares (sections 584586).

Although no disposal has occurred, the transaction details must be included in the return of chargeable gains.

Must leased property be included in a capital gains tax return?

(6) A lessor, lessee or agent (section 888) is required to file a return in relation to any leased property (not just leases of premises, i.e., land and buildings).

What asset transactions must be included in a partnership tax return?

(7) A partnership return (section 880) must include details of partnership assets disposed of, and acquired, during the period to which the return relates.

How are capital gains of a spouse returned?

(8) A return of chargeable gains made by a spouse (section 879) who is not separated or divorced may be requested from him/her, or where he/she is jointly assessed with his/her spouse for a tax year, from the spouse.

Section 914 Returns by issuing houses, stockbrokers, auctioneers, etc

What other persons/bodies might be required to deliver a return of capital gains?

(1) An inspector may request a return under any of the following provisions.

This section allows an inspector wide information gathering powers. The information gathered may then be used at a later date to verify figures on returns filed by individuals and companies.

What information returns might be requested by an inspector from a share issuing house?

(2) A share issuing house, if requested by an inspector, must make a return of all public issues or placings of shares made during the period specified in the notice. The return must provide details of each person to whom the shares were issued or allotted, and the number of shares issued to each such person. In this context, shares includes units in a unit trust.

Who else might be requested by the inspector to provide information in relation to public share issues?

(3) A person who is not in the business of making public issues or placings of shares, but has done so, must, if requested by an inspector, make a similar return.

For example, where a company organises its own public share issue or placing (instead of using a securities house).

What must a stockbroker include in a return of share transactions?

(4) A stockbroker, if requested by an inspector, must make a return of all share transactions made during the period specified in the notice. For each transaction, the return must provide details of the buyer and seller, and the number of shares bought and sold, and the price paid.

What information returns may be requested from a share dealing agent?

(5) A share dealing agent who is not an official member of a stock exchange may be requested to make a similar return.

What information returns might be requested by an inspector from an auctioneer or antique dealer?

(6) An auctioneer or antique dealer, if requested by an inspector, must make a return of all transactions in movable property, for which the price paid was greater than €19,050, during the period specified in the notice.

This is used to gather information on sales of valuable paintings, furniture, jewellery etc.

Is there a time limit for information requested by the inspector?

(7) The inspector issuing the return may not ask for information regarding transactions occurring more than three years before the return issue date.

Can Revenue prescribe the format of the return?

(8) Yes. The return must be made, if Revenue require, in electronic format.

Section 915 Returns by nominee shareholders

What is the definition of shares in a return filed by nominee shareholders?

(1) Shares includes securities and loan capital.

What information must a nominee shareholder include in a return requested by the inspector?

(2) A nominee holder of shares (i.e., a person who holds shares on behalf of the real or beneficial owner) must, if requested in writing by the Revenue Commissioners or an inspector, file a return within the time specified, stating the beneficial owner’s name and address.

Section 916 Returns by party to a settlement

What information must a party to a settlement provide at the request of Revenue?

A party to a settlement, if requested in writing by the Revenue Commissioners, must provide, within the time specified (but not less than 28 days), any information required by Revenue in relation to the settlement.

Section 917 Returns relating to non-resident companies and trusts

What information returns may be requested by Revenue in respect of a non-resident company or trust?

A shareholder in a non-resident company must, if requested by the Revenue Commissioners, provide information to enable them to determine whether the company is non-resident (section 590), and whether chargeable gains (if any) accruing to the company, if it is non-resident, should be attributed to the company’s Irish resident shareholders.

A beneficiary of a trust, the trustees of which are non-resident, must, if requested by the Revenue Commissioners, provide information to enable them to determine whether the trustees are non-resident (sections 579579F), and whether chargeable gains (if any) accruing to the trust, if the trustees are non-resident, should be attributed to the trust’s Irish resident beneficiaries.

Section 917A Return of property transfers to non-resident trustees

Who is caught when property is transferred to a non-resident trust?

(2) These rules apply where a transferor transfers property by way of a non-arm’s length transaction to a non-resident trust and the trustees are neither resident nor ordinarily resident in the State at the time of the transfer.

What obligations has a person who transfers property to a non-resident trust?

(3) The person must send a statement to the appropriate inspector within three months of the date of the transfer which:

(a) identifies the trust, and

(b) specifies the transferor property, the date of the transfer, and the consideration (if any) for the transfer.

What penalty applies if a person does not file a return of property transferred to a non-resident trust?

(4) A penalty of €4,000 applies for failure send a statement mentioned in (3), or include in the statement the details required by (3).

Section 917B Return by settlor in relation to non-resident trustees

What rules apply to a settlement created on or after 11 February 1999?

(1)-(2) These rules apply to a settlement created on or after 11 February 1999, if at the time of its creation:

(a) its trustees are neither resident nor ordinarily resident in the State, or

(b) its trustees although resident and ordinarily resident in the State, are regarded as resident for tax purposes in a tax treaty country (i.e., a country with which Ireland has tax treaty arrangements: sections 826, 828).

What are the obligations of a settlor who is resident, ordinarily resident and domiciled in the State?

(3)-(4) If a settlor in relation to the settlement is domiciled and resident or ordinarily resident in the State at the time of its creation, he/she must send a statement to the appropriate inspector within three months of the date on which the settlement was created, specifying:

(a) the date on which the settlement was created,

(b) the name and address of the person making the statement, and

(c) the names and addresses of the trustees before the delivery of the statement.

What penalties apply for failure to submit the relevant statements?

(5) A penalty of €4,000 applies to you as a settlor who does not send a statement mentioned in (3), or include in the statement the details required by (3).

The legislation erroneously refers to the statement mentioned in (2).

Section 917C Return by certain trustees

To what trusts and trustees does this section apply?

(1) These rules apply where at any time (the relevant time) on or after 11 February 1999:

(a) a trust becomes non-resident, i.e., its trustees become neither resident nor ordinarily resident in the State, or

(b) its trustees although resident and ordinarily resident in the State, become resident for tax purposes in a tax treaty country (i.e., a country with which Ireland has tax treaty arrangements: sections 826, 828).

What are the obligations of a trustee who is domiciled, resident and ordinarily resident in the State?

(2) A person who is a trustee of the settlement at the time of its creation and who is domiciled and resident or ordinarily resident in the State at that time, must send a statement to the appropriate inspector within three months of the date on which the settlement was created, specifying:

(a) the date on which the settlement was created,

(b) the name and address of the person making the statement, and

(c) the names and addresses of the trustees before the delivery of the statement.

What penalty applies for failure to file a statement?

(3) A penalty of €4,000 applies to a trustee who does not send a statement mentioned in (2), or include in the statement the details required by (2).

Section 917D Interpretation (Chapter 6)

What definitions apply to electronic submissions of returns to Revenue?

(1) These provisions are designed to allow tax details to be filed electronically (i.e., over the Internet) by an approved person (section 917G) or an authorised person (section 917G(3)(b)) using an approved transmission (section 917H) which bears that person’s digital signature (as defined in the Electronic Commerce Act 2000).

The details that may be filed electronically are returns and information under the law relating to income tax, corporation tax, capital gains tax, employers’ PAYE/PRSI, VAT, capital acquisitions tax (gift tax and inheritance tax), stamp duties, and excise duties (i.e., the Acts).

What meanings are included in the “making of a return” by electronic means?

(3) In these electronic filing provisions, “the making of a return” covers any method by which a return is to be prepared and delivered, sent, furnished, delivered, presented, rendered etc. to Revenue. It also covers the giving of any information to Revenue.

Section 917E Application

When may an electronic return be filed?

A return may be filed electronically if:

(a) Revenue make an order which allows electronic filing of that particular return, and

(b) the return filing date occurs after the effective date specified in the order in relation to that return.

See Taxes (Electronic Transmission of Vat Eservices Returns and Vies Statements) (Specified Provisions and Appointed Day) Order 2008 (SI 339/2008).

Section 917EA Mandatory electronic filing and payment of tax

Can Revenue make regulations in relation to e-filing?

(1) This section allows Revenue to make regulations requiring a specified person to file a specified return byelectronic means. In effect, it allows Revenue to enforce the filing of certain returns by internet.

What rules apply in relation to e-filing?

(2) The rules regarding approved persons and digital signatures (section 917D) also apply for the purposes of these regulations.

What are the e-filing regulations?

(3) Revenue may make regulations:

(a) requiring specified persons to file a specified return electronically where Revenue have made an order allowing such returns to be filed electronically,

(b) requiring a specified tax liabilities to be paid electronically, and

(c) allowing tax to be repaid electronically.

See Tax Returns and Payments (Mandatory Electronic Filing and Payment of Tax) Regulations 2008 (SI 341/2008) which sets out mandatory electronic filing requirements for government departments.

Can Revenue exclude certain persons from the obligation to e-file?

(4) These regulations must allow for a person to be excluded from the effect of the regulations where Revenue are satisfied that the person in question could not reasonably be expected to have the capacity to file the return, or to pay the tax, electronically. The regulations must also allow a person whom Revenue have refused to exclude from the effect of the regulations to appeal such refusal to the Appeal Commissioners.

Do the e-filing regulations deal with electronic tax payments?

(5) These regulations may provide for:

(a) the electronic means by which tax may be paid or repaid,

(b) the conditions to be complied with in relation to the electronic payment or repayment of tax,

(c) the time when tax paid or repaid electronically is to be taken as having been paid or repaid,

(d) the manner of proving the time at which electronic payments (or repayment) were paid (or repaid),

(e) notifying persons that they are required to file electronically (i.e., that they are specified persons),

(f) any other incidental matters.

Can Revenue delegate their powers in relation to e-filing regulations?

(6) Revenue may delegate their functions in relation to electronic filing regulations to an authorised Revenue official.

What penalty applies where an e-filer files a paper return?

(7) A penalty of €1,520 applies where a specified person files a non-electronic return where the regulations require that the return must be filed (or the tax must be paid) electronically.

Must e-filing regulations be laid before and passed by Dáil Éireann?

(8) Regulations made under this section must be laid before and passed by Dáil Éireann.

Section 917F Electronic transmission of returns

When is an electronic return valid?

(1)-(2) A person is only regarded as having filed a return electronically if the information required by the return is filed by an electronic transmission which:

(a) is made by an approved person (section 917G) or an authorised person (section 917G(3)),

(b) is an approved transmission (section 917H),

(c) bears the person’s electronic identifier, and

(d) is acknowledged electronically as having been received (section 917J).

Taxes (Electronic Transmission of Certain Revenue Returns) (Specified Provisions and Appointed Day) Order 2000 (SI 289/2000) made 28 September 2000 the appointed day for e-filing of VAT 3s, PAYE/PRSI remittances, and Part 1 of Form P45.

The information mentioned in (1) as being required by the return includes any requirements to make a statement, include any information, accounts, statements, reports or other particulars, or make or attach any claim.

Do any of the rules of returns differ for electronic returns?

(3) The following requirements relating to returns do not apply to an electronically filed return:

(a) that the return be accompanied by a declaration by the person making the return,

(b) that the return be signed or accompanied by a certificate,

(c) that the return be in writing,

(d) that the return may be signed by an agent of the person obliged to make the return,

(e) that Revenue may prescribe the form of the return, and

(f) that Revenue may prescribe the form of the claim for exemption or for any allowance, deduction or repayment of tax.

When is an electronic return deemed filed?

(4) An electronically filed return is regarded as filed on the day on which the information contained in the return is acknowledged electronically as having been received (section 917J).

What if details are filed by an agent?

(5) Where details are filed electronically by:

(a) an approved person (section 917G(1)) on behalf of another person, or

(b) an authorised person (section 917G(3)) on behalf of another person (but not the person who authorised the authorised person),

the person filing the return must make and authenticate a hard copy of information in the return (section 917K).

How can Revenue view supporting documents?

(6) Where a return is filed electronically, the supporting documents that would normally be required to be submitted with the return are to be regarded as having been filed if the person filing the return retains the documents for inspection on request by a Revenue officer.

The supporting documents (i.e., accounts, certificate, evidence, receipts, reports, statements) must be produced for inspection to a Revenue officer within 30 days of a request.

Section 917G Approved persons

Who is an “approved person”?

(1) An approved person is a person who:

(a) has been approved by Revenue to transmit tax return details by electronic return (the transmission),

(b) meets the conditions in (3)(a) in relation to authorised persons, and

(c) meets the conditions in (3)(b) in relation to electronic filing and the use of electronic identifiers.

How can a person become an approved person?

(2) To become an approved person, a person must apply in writing (or by other approved means) to Revenue.

What conditions are attached to becoming an approved person?

(3) To become an approved person, a person must:

(a) notify Revenue, in a manner to be determined by Revenue, of each person (authorised person) who is authorised to file electronically, and

(b) ensure that procedures are in place to ensure that each authorised person uses approved software, and meets the conditions for electronic transmission and digital signatures.

Must Revenue have inform a person whether or not he/she has been accepted as an approved person?

(4) Revenue must notify a person of approval under this section, and if not approved, they must state the reason for the refusal.

Can Revenue withdraw a notice of approval as an approved person?

(5) Revenue may by written notice (or by other means decided by Revenue) withdraw an approval from a date specified in the notice.

What must be stated in a notice of withdrawal of an approved person?

(6) A notice of withdrawal of approval must state the reasons why approval has been withdrawn. An approval may only be withdrawn if an approved person (or an authorised person) does not make or authenticate hard copies of returns filed (section 917H(2)).

Can a withdrawal of approval be appealed?

(7) A person who is refused approval, or whose approval is withdrawn, may appeal to the Appeal Commissioners against the refusal or withdrawal.

What is the time limit for making an appeal?

(8) Such an appeal (see (7)) must be made initially to Revenue within 30 days of the refusal or withdrawal.

In what manner must the Appeal Commissioners hear and determine my appeal?

(9) The Appeal Commissioners must hear and determine the appeal (see (7)) as if it were an appeal against an income tax assessment.

Section 917H Approved transmissions

When is an electronic transfer of information to Revenue regarded as an approved transmission?

(1) An electronic transmission of information by an approved person is an approved transmission if it meets the conditions in (2)-(3).

What information must Revenue publish with regard to approved transmissions?

(2) Revenue must publish, and inform each approved person of, requirements relating to:

(a) the manner in which tax return information is to be filed electronically, and

(b) the use of a person’s electronic identifier.

What requirements must be fulfilled regarding electronic filing?

(3) The requirements relating to electronic filing include:

(a) the software to be used to file electronically,

(b) the conditions under which a return may be filed electronically, and

(c) the conditions under which a person may use his/her electronic identifier.

Can Revenue specify different electronic filing requirements ?

(4) Revenue may specify different electronic filing requirements for different types of return, and different categories of persons.

Section 917I Digital signatures

Amendments

Section 917I deleted by Finance Act 2001 section 235(e) from 15 February 2001. Originally inserted by Finance Act 1999 section 209.

Section 917J Acknowledgement of electronic transmissions

How must Revenue acknowledge receipt of an electronically filed tax return?

Revenue must send an electronic acknowledgement with the receipt to you as the person filing the return.

Section 917K Hard copies

When will a hard copy of electronically filed details be regarded as valid?

(1)-(2) A hard copy of electronically filed details is regarded as valid if:

(a) the procedure used to transmit the details is designed to ensure that the hard copy is an accurate copy of the electronically filed details,

(b) it is in a form approved by Revenue,

(c) it is authenticated, i.e., signed by you as the person who would have been required to make the declaration, sign the return, or provide the certificate (section 917F(3)).

Section 917L Exercise of powers

What powers have Revenue in relation to electronic returns?

(1)-(2) Revenue have the same powers and duties in relation to electronically filed returns as they have in relation to a return made by post. In this regard, Revenue includes a Revenue officer (i.e., the Collector-General, an inspector, or other Revenue officer authorised to receive a return or to require a return to be filed).

Are the rights and duties of the taxpayer any different when an electronic return is filed?

(3) The person filing the return has the same rights and duties in relation to an electronically filed return as in relation to a return made by post.

Section 917M Proceedings

What is meant by legal “proceedings”?

(1)-(2) Legal proceedings means civil and criminal proceedings, and proceedings before the Appeal Commissioners.

When will a hard copy of an electronically filed return be regarded as valid?

(3) If certified by a Revenue officer to be a true copy of the electronically filed return, a hard copy of that return must be treated for tax purposes as if:

(a) it were a return or claim made by post, and

(b) it contained any declaration, certificate or signature required by tax law on the return or claim.

When does the rule of law restricting admissibility of hearsay evidence not apply?

(4) In legal proceedings in relation to tax, unless a judge rules otherwise, the rule of law restricting admissibility of hearsay evidence does not apply to a representation contained in an electronically transmitted return if that representation relates to:

(a) the information transmitted,

(b) its date or time of transmission,

(c) the identity of the taxpayer (on whose behalf information was transmitted).

Section 917N Miscellaneous

What powers of delegation do Revenue enjoy?

Revenue may delegate any of their functions under this section to an authorised officer.

Section 918 Making of assessments under Schedules C, D, E and F

Who has the authority to make assessments under Schedules C, D, E and F?

(1) Assessments in respect of trading or professional income, investment and property income (Schedule D), employment income (Schedule E), and income from company distributions (Schedule F), are to be made by an inspector of taxes or Revenue officer.

An inspector of taxes or Revenue officer may not assess: foreign dividend income to be assessed by the Revenue Commissioners (Part 4 Chapter 2), income to be assessed by the governors/directors of the Bank of Ireland (section 853), and income to be assessed by an inspector or officer specially appointed by the Minister for Finance (section 854).

What information must be included in an assessment issued by an inspector?

(2) If you are to be assessed, the inspector must send a notice of assessment to you, stating the amount of the assessment, and the time limit within which the assessment may be appealed.

Who is authorised by Revenue to make assessments under Schedule C or D?

(3) Assessments to be made by the Revenue Commissioners under Schedule C or D may be made by a Revenue officer authorised to make such assessments.

In what circumstances is it permissible to combine Case IV assessments into one single assessment?

(4) Where several Schedule D Case IV assessments are to be made on you in relation to two or more of the following sources:

(a) treatment of premiums as rent (section 98),

(b) assignment of a lease granted at undervalue (section 99), or

(c) or sale of land with right to reconveyance (section 100),

the assessments may be combined into a single assessment.

Section 919 Assessments to corporation tax

Who is empowered to make an assessment to corporation tax?

(1) All assessments to corporation tax are to be made by an inspector of taxes.

On whom is an assessment to corporation tax made?

(2) In the case of a resident company, the assessment is to be made on the company.

In the case of a non-resident company, the assessment is to be made on the company’s agent or manager in the State.

What obligation does an inspector have to give a notice of assessment to an assessed person?

(3) The inspector must send a notice of assessment to you if you are to be assessed.

Must an inspector make an assessment where a company fails to file or files an unsatisfactory return?

(4) Where a company does not file a statement of profits, the inspector must make an assessment on the company to the best of his/her judgment.

An inspector who is not satisfied with a statement or has received information (including information from the Garda Síochána) that a statement is insufficient, must make an assessment on the company to the best of his/her judgment.

With regard to corporation tax returns, what is the meaning of neglect?

(5) Neglect means negligence or failure to provide information or make a return in relation to corporation tax. Your company is not regarded as negligent if you provide the information or make the return within a time extension granted by Revenue. Similarly, if your company had a reasonable excuse for not providing information or making a return, you are not regarded as negligent as long as you provide the information or make the return without unreasonable delay after the excuse expires.

Where an inspector discovers that profits have not been assessed, or have been underassessed, he/she must assess the undercharge to the best of his/her judgment.An inspector may not make an assessment more than 10 years after the end of the

accounting period to which it relates, except in cases of fraud or neglect.

In a case of fraud or neglect, an assessment may be made without time limit. An objection that an assessment has been made outside the 10 year time limit may only be made at the time of appeal.

Is an assessment on a company valid after the company has begun to be wound up?

(6) An assessment on a company for an accounting period after the company has begun to be wound up is valid if made before the end of that period.

Section 920 Granting of allowances and reliefs

What obligation do Revenue have to grant personal allowances and reliefs?

(1) An inspector or Revenue officer making an assessment to income tax must grant an individual any personal allowances and reliefs to which he/she is entitled for that tax year.

When is an assessment regarded as having been amended?

(2) The assessment is deemed to be amended to take account of the allowances and reliefs.

Section 921 Aggregation of assessments

What is meant by “personal reliefs” in the aggregation of assessments?

(1) Personal reliefs means the tax deductions and tax credits listed in section 458 (Table).

Can tax payable under different tax schedules be combined?

(2) In making an assessment, the inspector may combine the amounts assessed under Schedule D, E or F in order to state the tax you owe as a single sum.

Can an assessment of one source of income in a combined notice of assessment be appealed?

(3) An appeal against such a combined notice of assessment must state the assessment (Schedule D, E, or F) being appealed.

What rules apply payment of tax pending determination of an appeal against a particular source?

(4) While an appeal against an assessment that is part of combined notice of assessment (see (2)) is being determined, personal reliefs are to be given against the assessments not in dispute, and the net tax not in dispute must be paid.

How is a single sum of tax due treated when arrived at by combining several assessments?

(5) A single sum shown due on a notice of assessment, although arrived at by combining several assessments under the Schedules, is deemed to be charged under a single assessment.

See also: Inspector Manual 39.1.1.

What documentation is evidence of how a combined assessment breaks down?

(6) A certificate from the inspector is sufficient evidence to show how a combined tax assessment breaks down and how personal reliefs are apportioned under the respective Schedules.

Section 922 Assessment in absence of return

What are the rules governing the making of Schedule E assessments?

(1)-(2) If an employee fails to file a return of income, or files an unsatisfactory return, the inspector must make a Schedule E assessment to the best of his/her judgment. However, no Schedule E assessment need be made on an employee taxed under PAYE (section 997).

What if a person chargeable under Schedules E and F fails to file a return of income tax?

(3) If a pperson chargeable under Schedule D or F and does not file a statement of income, the inspector must make an assessment to the best of his/her judgment.

An inspector who is not satisfied with a statement or who has received information (including information from the Garda Síochána) that a statement is insufficient, must make an assessment on you to the best of his/her judgment.

Section 923 Function of certain assessors

Amendments

Section 923 deleted by Finance Act 2012 section 129 as respects chargeable periods (within the meaning of TCA1997 section 321(2)) which are accounting periods of a company starting on or after 1 January 2013, and in all other cases as respects the year of assessment 2013 and subsequent years of assessment.

Section 924 Additional assessments

Amendments

Section 924 deleted by Finance Act 2012 section 129 as respects chargeable periods (within the meaning of TCA1997 section 321(2)) which are accounting periods of a company starting on or after 1 January 2013, and in all other cases as respects the year of assessment 2013 and subsequent years of assessment.

Section 925 Special rules relating to assessments under Schedule E

Amendments

Section 925 deleted by Finance Act 2012 section 129 as respects chargeable periods (within the meaning of TCA1997 section 321(2)) which are accounting periods of a company starting on or after 1 January 2013, and in all other cases as respects the year of assessment 2013 and subsequent years of assessment.

Section 926 Estimation of certain amounts

Amendments

Section 926 deleted by Finance Act 2012 section 129 as respects chargeable periods (within the meaning of TCA1997 section 321(2)) which are accounting periods of a company starting on or after 1 January 2013, and in all other cases as respects the year of assessment 2013 and subsequent years of assessment.

Section 927 Rectification of excessive set-off, etc of tax credit

Amendments

Section 927 deleted by Finance Act 2012 section 129 as respects chargeable periods (within the meaning of TCA1997 section 321(2)) which are accounting periods of a company starting on or after 1 January 2013, and in all other cases as respects the year of assessment 2013 and subsequent years of assessment.

Section 928 Transmission to Collector-General of particulars of sums to be collected

Amendments

Section 928 deleted by Finance Act 2012 section 129 as respects chargeable periods (within the meaning of TCA1997 section 321(2)) which are accounting periods of a company starting on or after 1 January 2013, and in all other cases as respects the year of assessment 2013 and subsequent years of assessment.

Section 929 Double assessment

Amendments

Section 929 deleted by Finance Act 2012 section 129 as respects chargeable periods (within the meaning of TCA1997 section 321(2)) which are accounting periods of a company starting on or after 1 January 2013, and in all other cases as respects the year of assessment 2013 and subsequent years of assessment.

Section 930 Error or mistake

Amendments

Section 930 deleted by Finance Act 2003 section 17(1)(d) from 1 January 2005 (Finance Act 2003 (Commencement of Section 17) Order 2003 (SI 508/2003) para 2(d)(i).

Section 931 Making of assessments and application of income tax assessment provisions

Amendments

Section 931 deleted by Finance Act 2012 section 129 as respects chargeable periods (within the meaning of TCA1997 section 321(2)) which are accounting periods of a company starting on or after 1 January 2013, and in all other cases as respects the year of assessment 2013 and subsequent years of assessment.

Section 932 Prohibition on alteration of assessment except on appeal

Is it permitted to alter an assessment before an appeal hearing?

An assessment to income tax or corporation tax must not, unless authorised by the Tax Acts, be altered before the appeal hearing. An appealed assessment may only be altered in accordance with the appeal determination.

A penalty of €60 applies to a person who alters, or cause to be altered, an assessment that has not been appealed against.

Section 933 Appeals against assessment

Can a person aggrieved by an assessment to income tax or corporation tax appeal?

(1) A person aggrieved by an assessment to income tax or corporation tax made by an inspector or other Revenue officer, may appeal to the Appeal Commissioners within 30 days of the date of the notice of assessment by giving written notice to the inspector.

If the inspector or Revenue officer believes the person is not entitled to appeal, he/she must refuse the appeal application and inform the person in writing of the refusal.

A refusal of an appeal application may be appealed in writing to the Appeal Commissioners within 15 days of the date of the notice of the refusal.

On receiving an appeal against a refusal to admit an appeal, the Appeal Commissioners must obtain a copy of the notice of assessment and:

(a) refuse the application, and notify the appellant in writing of the grounds for refusal,

(b) allow the application, and inform the appellant and the inspector or Revenue officer accordingly, or

(c) list the application for hearing, and notify the appellant and the inspector or Revenue officer of the date and time of the hearing.

The onus is on the applellant to disprove an assessment: Haythornthwaite (2) and Sons, Ltd v Kelly, (1927) 11 TC 657.

The time limits for appeals are not unconstitutional; the appeal process must be used in preference to direct court proceedings (judicial review) by a taxpayer: Deighan v Hearne, 3 ITR 533.

See also R v Winchester Commissioners, (1922) 2 ATC 49; R v St Marylebone Commissioners, ex parte Schlesinger, (1928) 13 TC 746; Soul v Marchant and IRC, (1962) 40 TC 508; Argosam Finance Co Ltd v Oxby and IRC, (1964) 42 TC 86; R v Special Commissioners, ex parte Philippi, (1966) 44 TC 31; R v Insp of Taxes for Ashford and Others, ex parte Frost, [1973] STC 578; R v Kensington Commissioners, ex parte Wyner, (1974) 49 TC 571; R v Special Commissioners, ex parte Rogers, (1972) 48 TC 46; Pearlberg v Varty, (1972) 48 TC 14; R v Special Commissioners, ex parte Morey, (1972) 49 TC 71; Page v Daventry General Comrs and Others, [1980] STC 698; R v IRC, ex parte Caglar, [1979] STC 741; R v Special Commissioners, ex parte Inspector of Taxes, [1995] SWTI 1101; Development Inc v CIR, [1996] STC 440.

The notice of appeal must specify the grounds of appeal, but further grounds may be raised at the appeal hearing. The fact that tax is spent on building nuclear weapons was not a valid ground for appeal in Cheney v Conn, (1967) 44 TC 217.

“No case to answer” was not a valid ground of appeal in IRC v White Bros Ltd, (1956) 36 TC 587, and R v Special Commissioners (ex parte Martin), (1971) 48 TC 1.

What obligations do the Appeal Commissioners have to hear tax appeals?

(2) The Appeal Commissioners must appoint times and places for appeal hearings. The Clerk to the Appeal Commissioners must inform the inspector or Revenue officer of the times and places appointed.

The inspector then lists any unsettled appeals for hearing by the Appeal Commissioners and writes to each appellant to inform him/her of the time and date for the hearing of his/her appeal.

The inspector is not obliged to list appeals that are in the process of being settled (agreed).

If, on receipt of a written notice of from the appellant, the Appeal Commissioners are satisfied that the information sent to the inspector or Revenue officer is sufficient to enable the appeal to be determined by them at first hearing, they may direct the inspector or Revenue officer to list the appeal for hearing without delay. The inspector must then list the appeal; he/she may not treat the appeal as one that is in the process of being settled.

Can an assessment which has been appealed be amended?

(3) An assessment which has been appealed but not yet determined by the Appeal Commissioners or, in respect of which an appeal has not gone by default, may be amended:

(a) By agreement between the appellant and the inspector. The inspector must then amend the assessment to reflect the agreed liability. The tax shown in the amended assessment is then payable as if the assessment had not been appealed.

An unwritten agreement is not regarded as final until the applellant has been notified in writing by the inspector or Revenue officer of the agreement’s terms, and 21 days have elapsed since the notification without the agreement being repudiated.

(b) By withdrawal of the appeal. If the appellant decides not to proceed with an appeal he/she may formally notify the inspector or Revenue officer of the withdrawal of the appeal. The assessment is then treated as agreed in the original amount assessed.

An appeal may be made by the appellant’s agent, and may be agreed by the appellant’s agent and the inspector or Revenue officer.

(a) An agreement between the taxpayer and the inspector is treated the same as a determination by the Commissioner:Cenlon Finance Co Ltd v Ellwood, (1962) 40 TC 176; Banning v Wright, (1972) 48 TC 421; Delbourgo v Field, [1978] STC 234; Gibson v General Comrs for Stroud, [1989] STC 421; McKinney v Hagans Caravans (Manufacturing) Ltd, [1997] STC 1023.

The basis of an agreement covering one year does not necessarily apply to a later year: Tod v South Essex Motors, [1988] STC 392; Westmoreland Investments Ltd v MacNiven, [2001] STC 237.

An agreement which mistakenly deducted group relief twice may be rectified by the court: R v Insp of Taxes, ex parte Bass Holdings Ltd, Richart v Bass Holdings Ltd, [1993] STC 122.

Silence by the taxpayer following a mistaken nil assessment is not “agreement”: Schuldenfrei v Hilton, [1999] STC 821. See also Silver v Inspector of Taxes SpC 125, [1997] SWTI 725.

(b) A withdrawal of appeal by the appellant is effective unless Revenue within 30 days refuse to accept the withdrawal:Beach v Willesden General Comrs and Others, [1982] STC 157. A withdrawn appeal may be reinstated by the court:Sheppard (Trustees of the Woodland Trust) v IRC, [1992] STC 460.

Who hears an appeal against assessments to income tax or corporation tax?

(4) All appeals against assessments to income tax or corporation tax are to be heard by the Appeal Commissioners. Unless an application for rehearing is made to the Circuit Court, or a case is stated to the High Court, the Appeal Commissioners’ determination is final and conclusive.

The role of the Appeal Commissioners is to hear and determine the appeal: The State v Smidic, 1 ITR 576.

Their findings may only be overturned if no reasonable person could have come to such a finding on those facts. SeeEdwards v Bairstow and Harrison, (1955) 36 TC 207; Mulvey v Coffey, 1 ITR 618; O’Dwyer v Irish Exporters and Importers Ltd (In liquidation), 1 ITR 629; Mara v Hummingbird Ltd 2 ITR 667; McMahon v Murphy, 4 ITR 125; Revenue Commissioners v O’Loinsigh, [1994] ITR 199.

More recently, see Cassell v Crutchfield, [1997] STC 423, Rigby v Samson, [1997] STC 524, and Euro Five Ltd v Dawson, [1997] STC 538.

The Appeal Commissioners must act reasonably: R and D McKerron Ltd v IRC, [1979] STC 815; Wicker v Fraser, [1982] STC 505; Fletcher v Harvey, [1990] STC 711.

Appeals may be determined in principle: Hallamshire Industrial Finance Trust Ltd v IRC, [1979] STC 237.

Is it possible for one Appeal Commissioner to hear and determine an appeal?

(5) An appeal may be heard by one Appeal Commissioner and that Commissioner may determine the appeal (i.e., exercise the power of all of the Appeal Commissioners).

How does an assessment become final and conclusive?

(6) An assessment becomes final and conclusive as follows:

(a) If there is no appeal within the appropriate time limit.

(b) If the appellant does not attend the appeal hearing.

(c) If, at an appeal hearing, an adjournment of the hearing is not sought and the appellant:

(i) has not filed a return of income or profits, or

(ii) has filed a return of income or profits but has not: filed copies of accounts, information requested by the Appeal Commissioners, or responded to a precept issued by the Appeal Commissioners, or to questions put by the Appeal Commissioners.

In the circumstances mentioned in (i) and (ii), the Appeal Commissioners must dismiss the appeal. However, if sufficient information has been given to them, they may determine the appeal at that hearing.

The tax shown in the assessment then becomes payable as if no appeal had been made.

(d) The Appeal Commissioners may not refuse an application for adjournment made within the nine month period elapsed since the end of the tax year or accounting period to which the assessment relates, or the date the notice of assessment was given to you, whichever is earlier.

(e) See (c).

Note

(d) Adjournment requests may be entertained within the nine month period from the notice of assessment date. After that, the matter is at the discretion of the Appeal Commissioner.

When can a late appeal be made?

(7) Where a person prevented from making an appeal against a notice of assessment within the normal 30 day time limit due to absence, sickness or other reasonable cause, a late appeal may be made within 12 months of the date of the notice of assessment.

If the inspector or Revenue officer believes that the appellant is not entitled to a late appeal, he/she must refuse the appeal application, and notify the refusal in writing.

A refusal of an appeal application may be appealed in writing to the Appeal Commissioners within 15 days of the date of the notice of the refusal.

A late appeal outside the 12 month time limit may only be admitted if:

(a) a full return of income or profits has been filed for the tax year (or accounting period) in question, together with copies of accounts and any other information needed to determine the liability, and

(b) the estimated tax shown in the assessment has been paid in full.

If the inspector or Revenue officer believes the information needed to determine the liability is insufficient, or if the tax has not been paid in full, he/she must refuse the appeal application and inform the appellant in writing of the refusal.

A refusal of an appeal application may be appealed in writing to the Appeal Commissioners within 15 days of the date of the notice of the refusal. They may allow the application if:

(a) but for the expiration of the normal time limit, the late appeal would have been allowed, if made within 12 months of the date of the notice of assessment, on the grounds of absence, sickness, or other reasonable cause,

(b) at the time of the application, the tax and interest on the tax shown in the assessment is paid in full, and

(c) any information needed to determine the liability is provided to the inspector or other Revenue officer.

If there is no attendance, can an appellant prevent an assessment becoming final and conclusive?

(8) If an appellant does not attend the appeal hearing, the assessment does not become final and conclusive if:

(a) the Appeal Commissioners agree to hear a person who attends on his/her behalf,

(b) before the hearing, a written application is made to the Appeal Commissioners to have the hearing postponed, and they agree to do so,

(c) after the hearing, a written application is made without unreasonable delay to the Appeal Commissioners, and if satisfied that the appellant or his/her agent could not appear due to absence, sickness or other reasonable cause, they agree to relist the appeal.

How do enforcement proceedings affect appeals against an assessment to tax?

(9) Where the tax shown in the assessment notice is at enforcement stage (i.e., a certificate has been issued to the sheriff or county registrar to collect the tax), no appeal may be entertained until the enforcement proceedings (section 960L) have been completed. In other words, no appeal is allowed until the sheriff or county registrar certificates have been paid in full.

If, on a later appeal, tax shown in an assessment notice and paid to the sheriff or country registrar is found to have been overpaid, any excess (apart from sheriff or county registrar costs) must be repaid.

Section 934 Procedure on appeals

What rights does a Revenue official or inspector have in relation to an appeal hearing?

(1) The inspector or Revenue officer is entitled to be present at the hearing and determination of the appeal. He/she is also entitled to produce lawful evidence and give reasons in support of the assessment.

What professional persons can be heard at an appeal hearing?

(2) The appellant and Revenue are each entitled, in an appeal case, to have legal counsel (i.e., a barrister or solicitor) represent them and plead for them. The Appeal Commissioners may also hear a qualified accountant or tax consultant speak on behalf of a client. If they see fit, they may also permit any other person to represent an appellant.

An accountant suspended from practice for criminal convictions has no right of audience: Cassell v Crutchfield, [1997] STC 423.

What role do the Appeal Commissioners have when there is evidence of overcharge in an assessment?

(3) Where, on hearing the evidence (including evidence given under oath) at the appeal, it appears to the Appeal Commissioners that the taxpayer has been overcharged, they may reduce the assessment. Otherwise, they must order that the assessment is to stand good.

Commissioners may use their local knowledge: Forest Side Properties (Chingford) Ltd v Pearce, (1961) 39 TC 665.

As regards reduction on overcharge, see Barnes-Sherrocks v McIntosh, [1989] STC 674. As regards letting the assessment stand good, see MacEachern v Carr, [1996] STC 282.

What power do the Appeal Commissioners have there is an undercharge in an assessment?

(4) Where it appears to the Appeal Commissioners that a taxpayer has been undercharged, they may increase the assessment.

Can the Appeal Commissioners amend parts of assessments?

(5) Where, on an appeal against an income tax assessment or a corporation tax assessment, it appears to the Appeal Commissioners that:

(a) tax has been overcharged, they may only reduce the part of the assessment relating to income tax (or corporation tax),

(b) the assessment is correct, they may only order that the amount chargeable to income tax (or corporation tax) is to stand good,

(c) tax has been undercharged, they may only increase the part of the assessment relating to income tax (or corporation tax).

Where an appeal is determined , how is an inspector to give effect to the determination?

(6) Unless the appellant requests:

(a) a rehearing of the appeal, or

(b) that a case be stated for the opinion of the High Court,

the inspector or Revenue officer must give effect to the Appeal Commissioners’ determination by amending the assessment accordingly.

The tax shown in the amended assessment then becomes payable as if no appeal had been made.

A determination of the Appeal Commissioners may not be amended by mandamus proceedings. A further right of appeal exists to the Circuit Court (section 942) and by way of case stated to the High Court (section 941): The King (E Spain) v Special Commissioners, 1 ITC 227, [1934] IR 27.

Revenue may proceed with collection of the tax: Bairead v Carr, 4 ITR 505.

There is no obligation under section 934 on the inspector to amend the assessment where there is an appeal from the Appeal Commissioners’ decision, since to amend the assessment would give it the same force and effect as if it were “an assessment in respect of which no appeal had been given”. If it were such an assessment, section 942(6) and941(9) would be redundant.

What are the rules apply to the Appeal Commissioners on determination of an appeal?

(7) Every determination of the Appeal Commissioners must be recorded on the official form and sent to the inspector or Revenue officer within 10 days of the determination.

The form allows the Circuit Court Judge to find the necessary information quickly if a case is stated for the opinion of the High Court.

Section 935 Power to issue precepts

What will a precept issued by the Appeal Commissioners contain?

(1) The Appeal Commissioners may issue a precept ordering an appellant to file with them a schedule detailing:

(a) his/her property,

(b) the trade, profession or employment carried on,

(c) profits or gains from each source,

(d) any deductions made in arriving at those profits.

When will the Appeal Commissioners issue further precepts?

(2) The Appeal Commissioners may issue further precepts until all the information they need has been provided to them.

Can one Appeal Commissioner issue a precept?

(3) A precept may be issued by one Appeal Commissioner.

What obligation has a recipient of a precept to file the schedule requested?

(4) The recipient of a precept must file the schedule requested within the time limit stated in the precept.

Who has authority to inspect a schedule and take copies or extracts from it?

(5) An inspector or other Revenue officer may inspect a schedule and take copies of it, or extracts from it.

Section 936 Objection by inspector or other officer to schedules

Can a Revenue officer or inspector object to a schedule following their examination?

(1) An inspector or Revenue officer may, having examined a schedule (section 935), object to it by stating in writing the reason for his/her objection.

Can an objection by an inspector of taxes be appealed?

(2) The inspector must notify the appellant in writing to give him/her an opportunity to appeal against the objection.

In what manner must an inspector deliver a notice?

(3) The inspector’s notice must be sealed and addressed to the assessed person.

Can an assessment be confirmed or changed pending a hearing of an appeal?

(4) The assessment must not be confirmed or changed until the appeal against the inspector’s objection has been heard and determined.

Section 937 Confirmation and amendment of assessments

What are the Appeal Commissioners’ obligations in an appeal against the inspector’s objection to the schedule?

The Appeal Commissioners must confirm or alter the assessment in accordance with the schedule (section 935) if:

(a) they do not agree with an objection by the inspector or Revenue officer to the schedule, or

(b) at the hearing of the appeal, they are satisfied with the schedule and have no reason to believe it is insufficient.

Section 938 Questions as to assessments or schedules

Can the Appeal Commissioners question an appellant regarding schedules?

(1) If the Appeal Commissioners are dissatisfied with a schedule, they may, by precept, put questions in writing regarding its contents to the appellant who must respond to those questions within seven days after the precept has been served.

Must an appellant respond to questions on the schedule from Appeal Commissioner?

(2) The assessed person must respond to the Appeal Commissioners’ questions in writing, or present him/herself for oral examination before them. If the response is oral, the answers must be written down and read over to the appellant who may be required to verify the answers under oath.

What rules apply when a response to questions is dealt with by a clerk or agent?

(3) Where an employee or agent responds to the Appeal Commissioners’ questions on behalf of the appellant, the same rules apply. His/her answers must be written down and he/she may be required to verify those answers under oath.

Section 939 Summoning and examination of witnesses

Who may the Appeal Commissioners summon to give evidence in relation to an appeal?

(1) The Appeal Commissioners may summon any person they believe can give evidence in relation to an appeal to appear before them and be examined under oath.

An agent or employee of an assessed person is to be examined orally in the same manner as the assessed person him/herself.

What are the characteristics of an effective oath?

(2) If taken, an oath must be to the effect that the evidence the witness gives in relation to the assessment under appeal will be the truth, the whole truth, and nothing but the truth.

What penalties apply for failure to cooperate with a summons to appear before the Appeal Commissioners?

(3) A penalty of €3,000 applies for:

(a) failure to appear at the appeal hearing,

(b) refusal to take the oath at the hearing,

(c) refusal to answer lawful questions regarding the assessment under appeal,

after being summoned by the Appeal Commissioners

This penalty does not apply to an agent or employee who refuses to take the oath or refuses to answer lawful questions regarding an assessment.

Section 940 Determination of liability in cases of default

How is the case determined by the Appeal Commissioners in cases of default?

The Appeal Commissioners must settle, to the best of their judgment, the amount to be assessed where:

(a) a person has not filed a schedule (section 935) in response to a precept issued by the Appeal Commissioners,

(b) an employee or agent, on being summoned to appear before the Appeal Commissioners, does not appear,

(c) the person (or an employee or agent), has refused to answer a question put by the Appeal Commissioners,

(d) the inspector or Revenue officer has objected to a schedule (section 935) and his/her objection has not been appealed against,

(e) the inspector or Revenue officer has objected to a schedule (section 935) and his/her objection has been allowed.

Section 941 Statement of case for High Court

Can an appeal be made on legal grounds against a determination by the Appeal Commissioners?

(1) A person dissatisfied on legal grounds with the determination of an appeal may, immediately after the appeal hearing, declare that dissatisfaction to the Appeal Commissioners who heard the appeal. An inspector (or Revenue officer) can also take this action if dissatisfied on legal grounds with the determination.

Dissatisfaction need not be expressed immediately at the end of the hearing: Multiprint Label Systems Ltd v Neylon, [1984] ILRM 545. In the case of partnership, dissatisfaction may be expressed by any partner: Re Sutherland and Partners’ v Barnes, [1993] STC 399.

What is the time limit for an application to Appeal Commissioners to state a case to the High Court?

(2) The dissatisfied party must write to the Clerk of the Appeal Commissioners within 21 days asking them to state a case for the opinion of the High Court on the determination.

The 21 day time limit must be complied with if a case is to be stated for the High Court: Petch v Gurney, [1994] STC 689; IRC v McGuckian, [1994] STC 888.

What is the fee for requesting a statement of case for the High Court?

(3) The dissatisfied party must pay a fee of €25 to the Clerk of the Appeal Commissioners.

Late payment, see Anson v Hill, (1968) 47 ATC 143.

What must be contained in the case stated?

(4) The case stated must set out the facts of the case and the determination of the Appeal Commissioners. It must be transmitted to the High Court by the party requiring it within seven days of receiving it.

A case is stated for the High Court on a point of law. If there is no point of law involved, no case can be stated: The King (H Stein) v Special Commissioners, 1 ITC 71.

Unfair treatment before the Commissioners is not a subject for a case stated. It should be dealt with through judicial review: Read v Rollinson, [1982] STC 370; Brittain v Gibb, [1986] STC 418; Mellor v Gurney, [1994] STC 1025.

Minor errors in a case stated are ignored: Watts v Hart, [1982] STC 99; Consolidated Goldfields plc v IRC, [1990] STC 357. If the case stated contains a major error, it may be varied by mutual agreement: Moore v Austin, [1985] STC 673.

A case stated may not be declared a nullity: Way v Underdown, (1974) 49 TC 215; Dutta v Doig, [1979] STC 724.

Must the party requiring a case stated notify the other party?

(5) The party requiring the case stated must notify the other party in writing that the case has been stated for the opinion of the High Court and send the other party a copy of the case stated.

The signature of all Commissioners involved in a hearing is required on a case stated. A retired Appeal Commissioner may sign a case stated: O’Dwyer v Irish Exporters and Importers Ltd (In liquidation), 1 ITR 629.

The other party must be sent a copy of the case stated: A and B v Davis, 2 ITR 60.

How must the High Court deal with an application to hear a case stated?

(6) The High Court must hear and determine any question of law relating to the case. It must then reverse, affirm or amend the Appeal Commissioners’ determination and remit the matter to the Appeal Commissioners together with the court’s opinion. Alternatively, the court may make such other order, including as to costs, as it sees fit in relation to the matter.

On the hearing before the High Court, new points of law may be raised: Muir v CIR, [1966] 1 WLR 1269; 43 TC 367.

New evidence may not: Kudehinbu v Cutts, [1994] STC 560. If new evidence becomes available that would have affected the Commissioner’s decision, the case should be remitted: Brady v Group Lotus Car Companies plc and another, [1987] STC 635.

It is at the discretion of the judge whether or not to remit the case. See Brimelow v Price, (1965) 49 TC 41; Lack v Doggett, (1970) 46 TC 497; R v Brentford General Comrs, ex parte Chan, [1986] STC 65; R v General Comrs for St Marylebone, ex parte Hay, [1983] STC 346; Potts v IRC, [1982] STC 611; Jeffries v Stevens, [1982] STC 639; Belville Holdings Ltd v Revenue Commissioners, 3 ITR 340 (discussed in Obscure Tax Cases Revisited, Ciaran Ramsay, Irish Tax Review, September 1999).

The court can treat an assessment made under an incorrect section as made under the correct section: IRC v McGuckian, [1994] STC 888.

The High Court will not disturb findings of fact by the lower court: O’Srianáin v Lakeview Ltd, 3 ITR 219; Carvill v IRC, [1996] STC 126. See also notes to section 933(4). Matters not established as fact in the lower court may not be introduced in the High Court: Bradley v London Electric plc, [1996] STC 231.

It is at the discretion of the judge to award costs: Lord Mayor of Manchester v Sugden, (1903) 4 TC 595; Wilcock v Pinto and Co, (1925) 10 TC 415. Including costs of remittal hearings: Whittles v Uniholdings Ltd (No 3), [1996] STC 914.

What power does the High Court have to send back a case for amendment?

(7) The High Court may send back the case for amendment and make its judgment after the case has been amended.

Can a decision of the High Court be appealed?

(8) Yes, the High Court’s decision may be appealed to the Supreme Court.

What are the consequences of having an assessment altered by the High Court or the Supreme Court?

(9) If an assessment is altered by the High Court or the Supreme Court, then:

(a) if tax has been overpaid, the overpayment must be refunded with interest (section 865A), or

(b) if tax has been underpaid, the underpayment is treated as collectible arrears of tax.

There is no obligation under section 934 on the inspector to amend the assessment where there is an appeal from the Appeal Commissioners’ decision, since to amend the assessment would give it the same force and effect as if it were “an assessment in respect of which no appeal had been given”. If it were such an assessment, section 942 (6) and941(9) would be redundant.

If the tax liability is later revised by the High Court or Supreme Court, any tax overpaid must be repaid with interest, as decided by the court. Any tax underpaid is treated as arrears of tax to be paid by the assessed person.

The High Court may award interest on tax overpaid. The court is not obliged to apply the rate used in section 1080:Texaco (Ireland) Ltd v Murphy, 4 ITR 91.

Section 942 Appeals to Circuit Court

Can an Appeal Commissioner’s determination be appealed?

(1) A person aggrieved by a determination of the Appeal Commissioners in relation to an assessment may, within 10 days of the determination, request that the appeal be reheard by a Circuit Court Judge. The case is then reheard by the judge in whose circuit the address shown on the notice of assessment is located.

However, in the case of non-residents, estates of deceased persons, incapacitated persons, and trusts, the case is to be reheard by the judge in whose circuit the assessment was made.

The Appeal Commissioners must send the judge any statements or schedules that were sent to them in relation to the appeal.

The appeal to the higher court may be withdrawn: Hood Barrs v IRC (No 3), (1960) 39 TC 209; SharpeySchafer v Venn, (1955) 34 ATC 141; Soul v IRC, (1966) 43 TC 662; Toms v Sombreat Ltd, [1979] STI 313. But not if the matter has reached the higher court: Bradshaw v Blunden (No 2), (1960) 39 TC 73.

The appeal may proceed, even if the taxpayer dies: Smith v Williams, (1921) 8 TC 321.

Must Revenue acquaint the Circuit Court judge with the determination of the Appeal Commissioners?

(2) Before the case may be reheard by the Circuit Court judge, the inspector (or Revenue officer) must send the official form recording the Appeal Commissioners’ determination to the judge.

Must the Circuit Court judge rehear an appeal?

(3) The Circuit Court judge, exercising the same powers as the Appeal Commissioners, must rehear and determine the appeal. If no further appeal is made to the High Court, the judge’s determination is final and conclusive.

The Circuit Court judge must rehear the appeal: Bourke v Lyster and Sons Ltd, 2 ITR 374.

Circuit Court cases that have been decided may not be re-opened. In re McGahon, HC, 8 February 1982.

What professional representation is permitted at a rehearing by the Circuit Court judge?

(4) The appellant and Revenue are each entitled, in the rehearing of an appeal before the Circuit Court, to have legal counsel (a barrister or solicitor) represent them and plead for them. The Circuit Court judge may also hear a qualified accountant or tax consultant speak on behalf of a client. If he/she sees fit, he/she may also permit any other person to represent you.

What form of declaration must a Circuit Court judge make in rehearing a case?

(5) A Circuit Court judge who hears tax appeals must make the same declaration required to be taken by Appeal Commissioners.

The judge must declare that he/she will judge matters without favour, affection, or malice (Schedule 27 Part 1).

The Circuit Court judge may award costs: Inspector of Taxes v Arida Ltd, [1996] ILRM 74.

What is the effect of a judgment given by the Circuit Court?

(6) Unless a case is stated for the opinion of the High Court, the tax in the income tax or corporation tax assessment is due and payable in accordance with the judge’s determination.

Tax is payable whether or not a further appeal is made. See T and E Homes Ltd v Robinson, [1979] STC 351; Collco Dealings Ltd v IRC, (1959) 39 TC 533.

There is no obligation under section 934 on the inspector to amend the assessment where there is an appeal from the Appeal Commissioners’ decision, since to amend the assessment would give it the same force and effect as if it were “an assessment in respect of which no appeal had been given”. If it were such an assessment, section 942(6) and941(9) would be redundant (Revenue Precedent IT96-2006, 8 August 1996).

Can the appellant and the inspector reach agreement before the rehearing of an appeal?

(8) If, before the rehearing of an appeal, the appellant agrees the liability with the inspector, the inspector must amend the assessment to reflect the agreed liability. The tax shown in the amended assessment is then payable as if the assessment had not been appealed.

Must the Circuit Court hear appeals in camera?

(9) Yes.

Section 943 Extension of section 941

Can a determination by the Circuit Court judge be appealed?

(1) The rules in section 941 relating to the stating of a case by the Appeal Commissioners for the opinion of the High Court also apply where the case is stated by the Circuit Court Judge.

If either party is dissatisfied on legal grounds with the determination of an appeal by the Circuit Court Judge, he/she may, immediately after the appeal hearing, declare dissatisfaction to the judge.

The case stated must set out the facts of the case, the determination of the Appeal Commissioners, and the determination of the Circuit Court Judge.

Revenue may proceed with collection of the tax, even if dissatisfaction is expressed: Bairead v Carr, 4 ITR 505.

The High Court has decided that the word “immediately” in section 941(1) means “with all reasonable speed, considering the circumstances of the case”. Inspector Manual 40.1.6.

What time limits to apply to an application to have a case stated for the High Court?

(2) The dissatisfied party must write to the county registrar within 21 days asking him/her to state a case for the opinion of the High Court on the determination.

Circuit Court Rules 1950, Order 77 Cases Stated (as amended by SI 155/1990).

Inspector Manual 40.1.3, 40.1.4

What is the fee for requesting a statement of case for the High Court?

(3) The dissatisfied party must pay a €25 fee to the county registrar.

Section 944 Communication of decision of Appeal Commissioners

Must the Appeal Commissioners make a determination on the day of the appeal hearing?

(1) If, after hearing an appeal, the Appeal Commissioners postpone making their determination (in order to consider the arguments or to allow the appellant time to file evidence or arguments), they may later post their determination to the parties to the appeal.

Within what time limits to appeals against a determination of the Appeal Commissioners?

(2) A declaration of dissatisfaction (in order to have the a case stated for the opinion of the High Court) or a request for a rehearing by the Circuit Court Judge, must be made within 12 days of the date the determination is posted.

Section 944A Publication of determinations of Appeal Commissioners

What provisions apply to the publication of determinations of the Appeal Commissioners?

The Appeal Commissioners may arrange for the publication of their decisions. They must ensure that as far as possible, the appellant’s identity is not disclosed in published decisions.

Section 945 Appeals against assessments

Can an assessment to capital gains tax be appealed?

(1) A person aggrieved by an assessment to capital gains tax made by an inspector or other Revenue officer may appeal to the Appeal Commissioners by writing to the inspector within 30 days of the date of the notice of assessment.

What income tax rules apply to capital gains tax appeals?

(2) The following income tax appeal rules also apply to capital gains tax appeals:

(a) Appointment of time and place for appeal hearings (section 933(2)). The Appeal Commissioners must appoint times and places for appeal hearings. The Clerk to the Appeal Commissioners must inform the inspector or Revenue officer of the times and places appointed.

(b) Notification to the appellant of time and place of hearing (section 933(2)). The inspector lists any unsettled appeals for hearing by the Appeal Commissioners and writes to each appellant to inform him/her of the time and date for the hearing of his/her appeal. The inspector need not list appeals that are in the process of being settled.

(c) The determination of the appeal by agreement (section 933(3)). The inspector must amend the assessment to reflect the agreed liability. The tax shown in the amended assessment is then payable as if the assessment had not been appealed.

An unwritten agreement is not regarded as final until the appellant has been notified in writing by the inspector or Revenue officer of the agreement’s terms, and 21 days have elapsed since the notification without the agreement being repudiated by the appellant.

(d) The determination of the appeal by withdrawal of the appeal (section 933(3)). An appellant who decides not to proceed with an appeal may formally notify the inspector or Revenue officer that he/she is withdrawing his/her appeal. The assessment is then treated as agreed in the original amount assessed.

(e) The hearing, determination or dismissal of the appeal by the Appeal Commissioners (section 933(5)-(6)). All appeals are to be heard initially by the Appeal Commissioners.

The assessment becomes final and conclusive if:

(i) It is not appealed within the appropriate time limit.

(ii) The appellant does not attend the appeal hearing.

(iii) At an appeal hearing, an appellant who is not seeking an adjournment of the hearing has not filed a return of income or profits or related accounts or information.

In the circumstances mentioned in (iii), the Appeal Commissioners must dismiss the appeal, but they may determine the appeal if sufficient information is available to them.

The Appeal Commissioners may not refuse an application for adjournment made within the nine month period elapsed since the end of the tax year or accounting period to which the assessment relates, or the date of the notice was given to the appellant, whichever is earlier.

(ee) The publication of decisions made by the Appeal Commissioners (section 944A). Appeal decisions in capital gains tax matters may also be published.

(f) The determination of an appeal by default where the appellant does not attend the hearing (section 933(6)). The Appeal Commissioners must dismiss an appeal where the appellant does not attend the appeal hearing.

(g) The time limit for lodging a late appeal (section 933(7)). Where an appellant was prevented from making an appeal against a notice of assessment within the normal 30 day time limit due to absence sickness or other reasonable cause, a late appeal may be made within 12 months of the date of the notice of assessment.

(h) The rehearing of the appeal by a Circuit Court Judge (section 942). A person aggrieved by a determination of the Appeal Commissioners may, within 10 days of the determination, request that the appeal be reheard by a Circuit Court Judge. The case will then be reheard by the judge in whose circuit the address shown on the notice of assessment is located.

The statement of a case for the opinion of the High Court (section 941). If the appellant or the inspector (or Revenue officer) is dissatisfied with the determination of an appeal, he/she may, immediately after the appeal hearing declare his/her dissatisfaction to the Appeal Commissioners who heard the appeal and write to Clerk of the Appeal Commissioners within 21 days asking them to state a case for the opinion of the High Court on the determination.

(j) The appeal procedures (section 934). The appellant and Revenue are each entitled, in an appeal case, to have legal counsel (a barrister or solicitor) or a qualified accountant or tax consultant represent them and plead for them. If the taxpayer has been overcharged, the Appeal Commissioners may reduce the assessment. If the taxpayer has been undercharged, they may increase the assessment. The inspector or Revenue officer must give effect to the Appeal Commissioners’ determination by amending the assessment accordingly.

Section 946 Regulations with respect to appeals

Can the Minister for Finance make regulations in relation to capital gains tax appeals?

(1) The Minister for Finance may make regulations in relation to:

(a) The conduct of appeals against capital gains tax assessments.

(b) Entitling persons to appear on such appeals.

(c) Setting time limits within which appeals must be lodged.

(d) Matters affecting the capital gains tax liability of two or more persons (for example, the market value of an asset or an apportionment of receipts or deductions) so that each affected person has the right to have the matter reheard by the Circuit Court or have a case stated for the opinion of the High Court.

(e) Allowing an inspector (or Revenue officer) to disclose to a person:

(i) entitled to appear at an appeal hearing, the market value of an asset as determined by an assessment or decision,

(ii) whose tax liability may be affected by the market value of an asset on a particular date, or an apportionment, any decision made on in that regard.

The official secrecy rules that apply to Revenue do not apply in so far as Revenue are required to notify appellants whose appeals on a similar matter are, at the request of those appellants, to be heard jointly.

What supplemental provisions may be added to these regulations regarding appeals?

(2) These regulations may contain any supplemental provisions that Revenue deem necessary.

Must these regulations be laid before and passed by Dáil Éireann?

(3) Yes.

Section 947 Appeals against determination under sections 98 to 100

What must an inspector do if a proposed determination of an income tax or corporation tax liability affects more than one person?

(1) If an inspector’s proposed determination of income tax or corporation tax liability in relation to:

(a) treatment of premiums, etc as rent (section 98),

(b) charge on assignment of lease granted at undervalue (section 99), or

(c) charge on sale of land with right to reconveyance (section 100),

affects the tax liability of more than one person, the inspector must send a written notice to each affected person informing them of his/her determination and of their rights under this section.

Can an affected person object to a proposed determination?

(2) An affected person may then write to the inspector, objecting to the proposed determination, within 21 days of the date on which it is given.

Where making an objection against a notice within the normal time limit was prevented from due to absence, sickness or other reasonable cause, a late objection may be made within 12 months of the date of the notice of determination.

If the inspector or Revenue officer believes the taxpayer is not entitled to object (because he/she has done so outside the 12 months limit), he/she must refuse the application and notify the refusal in writing.

A refusal of an objection application may be appealed in writing to the Appeal Commissioners within 15 days of the date of the notice of the refusal. They may allow the application if, but for the expiration of the normal time limit, the late objection would have been allowed had it been made within 12 months of the date of the notice of determination, on the grounds of absence, sickness, or other reasonable cause.

What happens if none of the notified affected parties object to the determination proposed by the inspector?

(3) If each party affected by a proposed determination has been notified, and does not object, the inspector must make the determination. The determination may not later be called into question in any judicial proceedings.

However, any person affected who was not notified by the inspector of the proposed determination may appeal against the determination.

How can an objection to an assessment on an affected person be heard and determined by the Appeal Commissioners?

(4) An objection is to be heard and determined by the Appeal Commissioners in the same manner as an appeal against an income tax assessment.

Is a determination of the Appeal Commissioners or the Circuit Court judge binding?

(5) Each person affected by a determination may take part in the appeal proceedings.

The decision of the Appeal Commissioners or of the Circuit Court judge is binding on all the persons affected by a determination, even if they have not taken part in the appeal proceedings.

How are the rules of secrecy affected when it comes to appeals?

(6) The official secrecy rules that apply to Revenue do not apply in so far as the inspector is required to disclose the basis of his/her assessment to the affected parties.

Has an inspector of taxes power to require any person to provide information required to make a determination?

(7) An inspector may require any person to provide him/her with information he/she needs to decide whether to make a determination under (1).

Section 948 Appeals against amount of income tax deducted under Schedule E

Can an amount of income deducted under Schedule E be appealed?

(1)A person who is charged to income tax under Schedule E may appeal to the Appeal Commissioners against the amount of tax deducted from his/her wages or salary in a tax year.

Is there a right to appeal against a determination of the Appeal Commissioners ?

(2) The Appeal Commissioners must hear and determine such an appeal in the same manner as an appeal against an income tax assessment. The taxpayer has a right, where necessary, to have the case reheard by a Circuit Court Judge. There is also have a right to have a case stated for the opinion of the High Court on a point of law.

Section 949 Appeals against determinations of certain claims, etc

What can a taxpayer aggrieved by a Revenue determination regarding claims not covered by the right of appeal do?

(1) A person aggrieved by any determination of the Revenue Commissioners (or of an inspector or other Revenue officer) in relation to a claim for a deduction, allowance or exemption, repayment of tax, or relief of any kind for which no right of appeal exists, may appeal in writing to the Appeal Commissioners within 30 days of the determination.

How must the Appeal Commissioners hear and determine an appeal against a determination of certain claims?

(2) The Appeal Commissioners must hear and determine such an appeal in the same manner as an appeal against an income tax assessment (section 933). The taxpayer has a right, where necessary, to have the case reheard by a Circuit Court Judge. There is also have a right to have a case stated for the opinion of the High Court on a point of law.

What further rights are deemed to be included in provisions that grant a right of appeal?

(3) Provisions that grant a right of appeal, without mentioning a right to have the matter reheard by a Circuit Court Judge, are deemed to contain such a right.

What rules apply to late appeals or failure to appear at a hearing?

(4) The income tax provisions that apply to late appeals (section 933(7)) and in the case of persons who fail to appear at the appeal hearing (section 933(6), (8) and section 933(5), (9)) also apply to appeals under this section.

See Wiley (Michael) v Revenue Commissioners, 4 ITR 170.

Section 949A Interpretation

What definitions apply to this part?

An appealable matter is anything which may be appealed to the Appeal Commissioners;

Party is either the appelant or the Revenue Commissioners;

determination is a decision of the Appeal Commissioners:

Proceedings includes all events from the making of an appeal to its conclusion and the sending of a case stated to the party requesting it.

Section 949B Delegation of acts and functions of the Revenue Commissioners

Can Revenue officers act on behalf of the Revenue Commissioners?

Yes.

Section 949C Electronic means

Can electronic means be used for communications in connection with appeals?

(1)-(3) Yes. The Revenue Commissioners and the Appeal Commissioners can provide for the use of electronic means for any purpose or thing to be done under this Part.

Must electronic communication s comply with the Electronic Commerce Act 2000?

(4) Yes.

Section 949D Persons acting under authority

Can an appellant be represented by an agent?

 (1) Yes. The appellant must supply the Appeal Commissioners with the name and address of the agent and any other information the Commissioners may require.

Can an agent’s authority to act for an appellant be revoked?

(2) Yes. The appellant must notify the Appeal Commissioners in writing of the revocation.

Are the acts of an agent deemed to be the acts of the appellant?

(3) Yes.Until such time as notice of a revocation of authority is received by the Appeal Commissioners the acts of the agent in respect of an appeal are treated as those of the appellant.

Section 949E Directions

Can the Appeal Commissioners give directions in relation to appeals?

(1) The Appeal Commissioners may give directions to the parties regarding the conduct of an appeal and may amend or alter a previous direction.

What matters may be the subject of directions?

(2) The Commissioners may gives directions-

 (a) as to the type and format of documentation and information to be submitte to them or the other party

(b) consolidating two or more appeals into one where the issues are related;

(c) staying proceedings;

(d) adjourning a hearing;

(e) allowing more time for a direction to be complied with.

 Can a direction be applied for?

(3) A party may apply for a direction either in writing or orally at a hearing and must give the reason for seeking the direction.

How must a direction be given?

(4) The Commissioners may give directions orally but it should afterwards be committed to writing unless they deem that to be unnecessary.

How must the parties be notified of a direction?

(5) Notice of a direction should be given in writing to the parties and other affected persons unless the Commissioners consider that there is a good reason not to.

Can a party object to a direction?

(6) A party who believes that a direction should not have been given may apply to the Commissioners to have it set aside, suspended or amended.

Is there a time limit to object?

(7) An application must be made within 14 days after the direction was given.

Can a time limit for compliance with a direction be set?

(8) Where a direction requires compliance with its terms a date for compliance may be specified.

Can a direction specify the format of documentation to be provided?

(9) Yes.

Must a party who receives a direction comply with it?

(10) Yes.

Must a party who applies for a direction notify the other party?

(11) A copy of a written application for a direction must be given to the other party.

Section 949F Joining of additional parties to appeal

Can additional parties be joined to an appeal?

(1)-(2) Yes. Where other persons are affected by a decision or determination of a Revenue Officer they may apply to the Appeal Commissioners to be joined to the appeal and if they consider it proper the Commissioners may give a direction that those person be joined as parties to the appeal.

Section 949G Withdrawal and dismissal of appeals

Can an appeal be withdrawn?

(1) An appellant may withdraw an appeal before a determination is made by giving notice in writing to the Appeal Commissioners.

Must the other party be notified?

(2) The Appeal Commissioners must notify the other party in writing of the withdrawal.

When can an appeal be treated as dismissed?

(3) An appeal is treated as dismissed if

 (a) agreement is is reached by the parties;

(b) the Commissioners deem the appeal to be invalid;

(c) the appellant, without reasonable excuse, fails to attend the hearing.

 Can an agreement alter the decision appealed?

(4) Yes. An agreement can be that the original decision will not stand, in whole or in part.

How is an appeal dismissed for failure to comply with directions treated?

(5) Where an appeal is dismissed because the appellant failed to comply with directions of the Appeal Commissioners the Coomissioners are not required to amke a determination and the appeal is treated as never having been made.

Section 949H Flexible proceedings

What obligations are placed on the Appeal Commissioners in respect of proceedings?

(1) The Commissioners are required to be flexible in regard to proceedings and to avoid undue formality.

What other obligations are placed on them?

(2) They must provide an opportunity for the parties to settle the matter by agreement. They must deal with matters without unnecessary delay.

Section 949I Notice of appeal

How and by whom is an appeal made?

(1) Any person who wishes to appeal may do by notice in writing to the Appeal Commissioners.

What must a notice of appeal contain?

(2) The notice of appeal must specify the name of the appellant, the appellant’s PPS number or tax reference number, the matter in respect of which the appeal is made, the detailed grounds for the appeal and any other matters stipulated by the Appeal Commissioners.

What conditions must be fulfilled?

(3) If the Acts require any conditions to be fulfilled in order for an appeal to be made the notice of appeal must confirm that those conditions have been satisfied.

What must a late appeal state?

(4) The notice of a late appeal must state the reason the appellant was unable to make the appeal in the normal time allowed.

What must be appended to the notice of appeal?

(5) A copy of the notice from Revenue in respect of the matter being appealed must be included with the notice of appeal.

Can additional matters be raised during appeal proceedings?

(6) A party cannot raise any ground that was not specified in the notice of appeal unless the Appeal Commissioner is satisfied that it could not reasonable have been stated in the notice.

Section 949J Valid appeal and references in this Part to acceptance of an appeal

When is an appeal a valid appeal?

(1) An appeal shall be a valid appeal if it is made in respect of an appealable matter and if any conditions required by the Acts to be satisfied have been satisfied in advance of the appeal.

When is an appeal accepted by the Appeal Commissioners?

(2) An appeal is accepted by the Appeal Commissioners when they determine that it is a valid appeal and that there are no grounds for believing that it is not a valid appeal. If the appeal is valid the Commissioners should proceed to deal with it.

Can a determination that an appeal is valid be reversed?

(3) Yes, if facts and information become available that warrant such an action.

Is a refusal of the Appeal Commissioners to accept an appeal final?

(4) Yes.

Section 949K Notification of appeal to Revenue Commissioners

Must the Revenue Commissioners be advised of an appeal?

Yes. The Appeal Commissioners must send of copy of each notice of appeal and attachments to Revenue.

Section 949L Objection by Revenue Commissioners

Can the Revenue Commissioners object to the making of an appeal?

(1) If Revenue believe that an appeal is not a valid appeal, or consider that a full return has not been made or, in the case of a late appeal, the tax in the assessment has not been paid together with any interest due, they may send a written notice of objection to the Appeal Cmmissioners. The notice must state the reason for the objection.

Is there a time limit for Revenue to object?

(2) If Revenue do not send their notice of objection the the Appeal Commissioners within 30 days of receiving notice of the appeal the Commissioners are not required to consider Revenue’s objection in deciding whether to admit an appeal.

Must the appellant be notified of a Revenue objection?

(3) Yes. The Appeal Commissioners must notify the appellant of such an objection.

Section 949M Acceptance of an appeal

When must the Appeal Commissioners accept an appeal?

If they are satisfied that an appeal is a valid appeal and that that in the case of a late appeal the conditions required have been met the Appeal Commissioners accept an appeal.

Section 949N Refusal to accept an appeal

When can the Appeal Commissioners refuse to accept an appeal?

(1) Where the Commissioners are satisfied that an appeal is a valid appeal or the become aware that an appeal that was considered valid was not in fact valid or if they are satisfied that the appeal has no basis they must refuse to accept it.

Must the parties be advised of a refusal?

(2) The Commissioners must advise the parties in writing of their refusal and the reason for it.

Is a decision of the Appeal Commissioners to refuse to accept an appeal final?

(3) Yes, if they declare it to be final and conclusive, it is.

Can staff of the Tax Appeals Commission act on behalf of the Commissioners in refusing to accept an appeal?

(4) Yes. Authorised staff may refuse to accept an appeal on behalf of the Commissioners and the Commissioners may decalre such a refusal to be final and conclusive.

Section 949O Late appeals

Can the Appeal Commissioners accept a late appeal?

(1) Yes. Where the Commissioners are satisfied that a person prevented from making an appeal against a notice of assessment within the normal 30 day time limit due to absence, sickness or other reasonable cause, a late appeal may be made within 12 months of the date which is 30 days from date of the notice of assessment.

Can a late appeal be allowed after the 12 months period?

(2)-(3) A late appeal outside the 12 month time limit may  be admitted if:

(a) any return that was required to be delivered to Revenue has been delivered,

(b) such further information as the Commissioners may require is provided without undue delay, and

(b) the tax shown in the assessment has been paid in full along with any interest on that tax..

 Can the Appeal Commissioners make enquiries?

(4) The Commissioners may make such enquiries as they deem necessary to enable them to make a decision and may hold a hearing for that purpose.

Is the power of the Appeal Commissioners to refuse to accept an appeal affected?

(5) No.

Section 949P Effect of enforcement action for collection of tax

Can a late appeal be accepted if enforcement of collection of tax has begun?

(1) Where action to recover tax through the Courts or the Sheriff has commenced a late appeal may not be accepted until the action has been completed.

If a late appeal is admitted can the appellant recover the costs of the enforcement action?

(2) No.

Section 949Q Statement of case

What is a “statement of case”?

(1) A “statement of case” is such information as the Appeal Commissioners direct should be given to them in respect of the appeal matter.

What information may the Appeal Commissioners require?

(2) The Commissioners may seek such information as they require but the following are specifically included:

 (a) the relevant legislation;

(b) an outline of the facts;

(c) relevant case law;

(d) a list of and copies of written material to be submitted in support of the case;

(e) details of witnesses, if any;

(f) an estimate of the time required;

(g) whether a ruling without a hearing will be accepted;

(h) whether a party wants the hearing to be in private (note: unlike the old system where all appeals were in private under the new system this will only be the case when privacy is requested by one of the parties);

(i) whether either party believes the matter can be settled by agreement:

(j) any other information the Appeal Commissioners may consider necessary.

Section 949R Exchange of statement of case

Must a copy of the statement of case be given to the other party?

Yes, along with a copy of any directions given by the Appeal Commissioners under the previous section. The Commissioners must be notified that this has been done.

Section 949S Outline of arguments

Can the Appeal Commissioners require a more detailed outline of the arguments?

(1) Yes. The Commissioners may direct a party to provide them and the other party with a more detailed outline of the arguments, legislative provisions and case law to be used in arguing the case. Such information must be provided at lest 14 days before the date of the hearing.

Must such a direction be given to both parties?

(2) Yes, unless the Commissioners believe that there a good grounds for giving the direction to only one party.

Section 949T Case management conference

What is a case management conference?

(1) A case management conference is a conference that the Appeal Commissioners may direct a party to attend to review how the case is proceeding, clarify any matters raised by the parties or the Commissioners and enable the Commissioners to give any directions they consider desirable to fairly expedite the case.

Can the Appeal Commissioners determine a case following a case management conference?

(2) Yes, if the parties consent.

Can a party participate remotely?

(3) If the Appeal Commissioners allow, a party may participate in a conference by means of a suitable telecommunications link (conference call).

Section 949U Adjudication without a hearing

Can the Appeal Commissioners adjudicate on a case without a hearing?

(1) Yes. If they consider it appropriate they may adjudicate on the basis of the written material submitted, discussions with a party or any other means they deem appropriate.

Must the parties be notified?

(2) The Commissioners must notify the parties, in writing, that they intend to adjudicate without a hearing.

Can a party insist on a hearing?

(3) If a party requests a hearing within 21 days of a notification under subsection (2) the Commissioners must adjudicate by way of a hearing. However if the Commissioners do not consider a hearing to be necessary they may adjudicate without one.

Section 949V Settlement of appeal by agreement

Can an appeal be settled by agreement?

(1)-(2) Yes. If the parties reach agreement before a hearing is held the appeal is treated a withdrawn.

Must the agreement be in writing?

(3) Generally yes but if one party confirms to the other in writing that agreement was reached and the other party does not repudiate the agreement within 21 days the agreement can stand.

If agreement is reached what must Revenue do?

(4) Revenue must give effect to the agreement and notify the Appeal Commissioners accordingly.

Section 949W Staying proceedings

When can the Appeal Commissioners stay proceedings?

(1) The Commissioners may stay proceedings to allow the parties more time to settle the matter by agreement or to give the parties additional time to prepare for a hearing. They may stay proceedings to await a determination in another case with common or related facts or law or if they consider it appropriate to do so in the interests of justice.

How is an appeal stayed?

(2) The Appeal Commissioners must give a direction staying the proceedings and specify a date for the resumption of proceedings.

Section 949X Time and place for hearing

Who decides the time and place for hearing an appeal?

(1) The Appeal Commissioners appoint the time and place for hearings and must give written notice to the parties.

Can a hearing be adjourned?

(2) The Appeal Commissioners may adjourn a hearing for as long as they think fit.

Section 949Y Public hearings

Are hearings held in public?

(1) Yes, except in the circumstances set out below.

Can the Appeal Commissioners decide to hold a hearing or part of it in private?

(2) Yes. If they consider it necessary for reasons of public order or national security or to avoid harm to the public interest or to keep sensitive information confidential or to protect the privacy of an individual and his or her family or in the interests of justice.

Can an appellant apply to have a hearing in private?

(3) Where an appellant applies to the Appeal Commissioners to hold the hearing or part of it in private or has done so in the statement of case the Commissioners shall direct accordingly.

When must an application for a private hearing be made?

(4) Where the application is not made in the statement of case it must be made within 14 days of the notification of the time and place of the hearing.

Section 949Z Exclusion from hearings

Can the Appeal Commissioners exclude people from a hearing?

(1) The Commissioners may exclude a disruptive person, a person whose presence may intimidate another person, a person whose presence would defeat the purpose of the hearing or a person who is under 18.

Can witnesses be excluded from part of a hearing?

(2) Witnesses can be excluded from a hearing until their evidence is required.

How can the Appeal Commissioners effect an exclusion?

(4) They may give a written or oral direction as provided by section 949E.

Section 949AA Parties’ attendance at hearings

Must an appellant attend a hearing?

(1) Yes, unless he or she is excused by the Appeal Commissioners.

What happens if there is no attendance?

(2) If neither the appellant or his or her agent attend the hearing the appeal is treated as withdrawn.

Are there circumstances in which an appeal will not be treated as withdrawn?

(3) An appeal will not be treated as withdrawn if the appellant applies in writing and satisfies the Commissioners that the failure to attend was due to absence illness or other reasonable cause and the application is made without unreasonable delay.

Can a Revenue officer attend a hearing?

(4) Yes a Revenue officer is entitled to attend throughout a hearing and to give evidence or reasons to support the assessment or matter under appeal.

Can a Revenue officer argue for an increase in the amount of an assessment under appeal?

(5) Yes, if he or she the believes the amount assessed should be increased.

Can a person who has been made a party to an appeal attend the hearing?

(1) Only with the consent of the other parties except for that part of the hearing which affects his or her liability.

Section 949AB Parties’ representatives

Who may represent an appellant at a hearing?

(1)-(2) A solicitor, barrister, accountant, chartered tax adviser or another person that the Appeal Commissioners are satisfied that it is appropriate to hear.

Section 949AC Evidence

How may the Appeal Commissioners deal with evidence?

The Commissioners may accept evidence either orally or in writing. They may allow evidence that would not be admitted in a Court. They may exclude evidence if it was not provided in the time allowed or in the manner required by their direction. They may exclude evidence if they believe it would be unfair to admit it.

Section 949AD Oath

Can persons giving evidence be required to do so under oath?

(1) Yes.

What must the Appeal Commissioners tell a person to whom they administer an oath?

(2) They must inform the person that the penalties for perjury apply to any false evidence given under the oath.

Section 949AE Summoning and examination of witnesses

Can witnesses be summoned?

(1) Yes. The Appeal Commissioners may summon any person they believe can give evidence relevant to an appeal.

What is required when issuing a summons?

(2)(a) It must be sent at least 21 days before the hearing unless the person summoned consents to a shorter period;

 (b) It must inform the person summoned of his or her right to apply to the Appeal Commissioners to have the summons varied or set aside where there was no opportunity to object before it was issued.

(c) It must state the penalties for failure to comply with the summons.

 Can the Appeal Commissioners limit the number of witnesses?

(3) Yes. They may limit the number of witnesses a party can call.

.

Section 949AF Oral determinations

Can the Appeal Commissioners give their decisions orally?

Yes but they must subsequently commit them to writing.

Section 949AG Appeal Commissioners to have regard to same matters as Revenue Commissioners

What matters must the Appeal Commissioners consider when determining an appeal?

The Commissioners are required to consider the same matters as Revenue are obliged by the Acts to consider.

Section 949AH Mode of proceeding if appeal adjudicated on by way of a hearing

How is an appeal hearing to be conducted?

The Appeal Commissioners must determine the appeal by examining the appellant, hearing evidence of witnesses and examining written submissions.

Section 949AI Incomplete information

How can the Appeal Commissioners deal with incomplete information?

Where a party does not provide all the information required by the Commissioners they may determine the appeal according to their best judgement as an alternative to dismissing the appeal.

Section 949AJ Determinations and their notification

When must the Appeal Commissioners determine an appeal?

(1) They must do so as soon as possible after making their decision.

Can one Appeal Commissioner hear a case?

(2) Yes.

Can a case be heard by more than one Appeal Commissioner?

(3) Yes. If a case is heard by more than one Commissioner there must be three or a greater odd number of Commissioners sitting.

If the Appeal Commissioners do not reach the same decision how is the appeal determined?

(4) Where three or more Commissioners hear a case and they reach differing decisions the decision of the majority determines the appeal.

When and how must the Appeal Commissioners notify their determination?

(5) They must notify the parties in writing within 21 days of making their determination. They must advise the parties of any right of appeal against their determination.

What must the written determination contain?

(6) It must contain the determination, the Commissioners’ findings of fact, the reasons for the decision, the name of the appellant and the date of the determination.

Section 949AK Determinations in relation to assessments

What determinations may the Appeal Commissioners make in respect of assessments?

(1) The Commissioners may determine that an assessment be reduced, increased or stand.

Can a determination deal only with an increase or decrease of an assessment?

(2) Yes. Unless other matters arise a determination can be simply that an assessment is to be increased or decreased.

What happens if a claim that an assessment is out of time is upheld?

(3) If the Commissioners uphold an appeal on the grounds that an assessment is out of time the assessment is void.

What happens if a claim that an assessment is out of time is not upheld?

(4) The assessment stands but the Appeal Commissioners can make a determination on foot of other grounds of appeal.

Section 949AL Determinations other than in relation to assessments

How are determinations on matters other than assessments to be dealt with?

(1) The Appeal Commissioners may,if they consider it appropriate vary a decision or matter the subject of the appeal even if it is to the disadvantage of the appellant.

How can the Appeal Commissioners deal with claims that a matter is out of time?

(2) If the Commissioners conclude that an enquiry or action of a Revenue officer was out of time they may determine that the officer was precluded from making the enquiry or taking the action.

Section 949AM Revenue Commissioners to give effect to determinations

What must Revenue do in respect of a determination by the Appeal Commissioners?

(1) They must give effect to the determination unless it has been appealed to the High Court.

What must Revenue do in respect of a determination of an assessment?

(2) They must calculate the tax due in respect of the amount assessed.

Is a determination in respect of an assessment final and conclusive?

(3) Yes. A determination that an assessment is to be reduced, increased or to stand is final and conclusive unless it is appealed to the High Court.

What happens if the Appeal Commissioners determine that a matter is out of time?

(4) The Revenue officer is precluded from continuing the enquiry or action and the appellant does not need to do anything more.

Section 949AN Appeals raising common or related issues

Can the Appeal Commissioners take account of previous decisions?

(1) Where the Commissioners have previously ruled on common or related issues they may make a determination without a hearing.

What must the Commissioners do if they make such a determination?

(2) They must send a copy of the previous determination to the parties. If the previous proceedings were in private the identity of the previous appellant must not be revealed. They must advise the parties that they have 21 days to submit arguments that the application of the previous determination is not appropriate. If either party wishes the Commissioners to hold a hearing they must explain why they consider that necessary.

Can the Commissioners refuse a hearing?

(3) They can refuse a hearing if an application is not received within 21 days or if they are unpersuaded by the submission that the previous determination should not be applied.

Section 949AO Publication of determinations

Must determinations be published?

(1) The Appeal Commissioners must publish a report of their determinations on the internet within 90 days of the parties being notified of the decision.

What must the report contain?

(2) It must contain a copy of the determination, the date the parties were notified, a statement as to whether it is to be appealed to the High Court and any other relevant information.

Where common issues arose in more than one appeal can a single report be given?

(3) Yes but the number of such appeals must be given. Only the names of appellants whose appeals were heard in public can be given.

Must confidentiality be observed?

(4) Yes. The report must not reveal the identity of any person whose affairs were dealt with in camera.

Section 949AP Appealing against determinations

Is a decision of the ~Appeal Commissioners final and conclusive?

(1)-(2) Yes but a party who believes the decision is erroneous on point of law may appeal to the High Court and may require the Commissioners to state a case.

How is an appeal made?

(3) The aggrieved party must write to the Commissioners stating what the error is. This must be done within 21 days of notification of the determination. A copy must be sent to the other party.

Can an appeal to the High Court be made in all cases?

(4) No. If another provision of the Acts says that a determination of the Appeal Commissioners is final an conclusive then no appeal is allowed.

Section 949AQ Case stated for High Court

What must a case stated contain?

(1) The case stated must contain the relevant findings of fact, an outline of the arguments of the parties, the case law relied on, the Appeal Commissioners’ decision and the reasons for it and the point of law raised by the aggrieved party. No additional point of law may be raised by the aggrieved party after the 21 day time limit for writing to the Commissioners.

Who is to draft the case stated?

(2) The Appeal Commissioners must draft the case stated and may not delegate that responsibility to the parties.

What must the Commissioners do before signing the case stated?

(3) They must send a draft to the parties and advise the parties that they may make submissions on it within 21 days.

How must the Commissioners deal with submissions of the parties?

(4) They must consider them and if they consider it necessary modify their draft case stated.

Must a party send a copy of the submission to the other party?

(5) Yes.

When must the Commissioners sign the case stated?

(6) They must sign it as soon as practicable but not later than 3 months after receiving the notice from the aggrieved party. They must send the signed case stated to the parties.

What must the aggrieved party do?

(7) Within 14 days of receiving the signed case stated from the Commissioners the aggrieved party must send it to the High Court.

Can the High Court hear a case where the deadlines were not met?

(8) If the deadlines in subsections 6 and 7 were not met the Court may nevertheless hear the case if it determines that it would be in the interests of justice to do so.

Section 949AR Determinations of High Court

What must the High Court do in relation to an appeal?

(1) The High Court must hear the case and decide whether to reverse, affirm or amend the determination of the Appeal Commissioners or remit the case to the Appeal Commissioners with its opinion on the matter or make any other order it sees fit. The Court may also make an order as to costs.

Can the Court ask the Appeal Commissioners to amend the case stated?

(2) Yes. After it has been amended the Court may then hear the case and make t its decision.

Section 949AS Appeal to Court of Appeal

Can a decision of the High Court be appealed?

A decision of the High Court may be appealed to the Court of Appeal.

Section 949AT Revenue Commissioners to give effect to decisions of High Court, Court of Appeal and Supreme Court

What must the Revenue Commissioners do in relation to a decision of the Courts?

(1) The Revenue Commissioners must give effect toa decision of the High Court or the Court of Appeal as they would to a decison of the Appeal Commissioners. However if there is an appeal of a High Court decision to the Court of Appeal they msut await the decision of the latter Court.

Can a decision of the Court of Appeal be appealed to the Supreme Court?

(2) Yes, if the Supreme Court agrees to hear such an appeal. If it does references  in this chapter to decisions of the Court of Appeal should be read as also references to the Supreme Court.

Section 949AU Summoning and examination of witnesses

What penalties apply in relation to appeals?

(1) Any person summoned to appeal before the Appeal Commissioners, who fails to appear, refuses to swear an oath or refuses to answer lawful questions is liable to a penalty of €3,000.

Do penalties apply to employees or agents?

(2) The penalty for refusing an oath or refusing to answer questions does not apply to an employee, agent or other person who is required to keep the affairs of the appellant confidential.

What evidence of failure to appear is required?

(3) A signed statement of the Appeal Commissioners that a person was summoned to appear at a particular time and place but did not do so and that the hearing took place shall unless the contrary is shown be evidence.

What happens if a person liable to a penalty disagrees?

(4) Where a person disagrees that a penalty applies the Appeal Commissioners must said out in writing the basis for the penalty.

What happens if the person continues to disagree?

(5) If the person continues to disagree with the penalty and fails to pay it within 30 days of receiving notice of it the Appeal Commissioners may refer the matter to the District Court for a determination.

Must the Commissioners advise the person of an application to the District Court?

(6) Yes. They must give a copy of the application to the person.

Section 949AV Dismissal of an appeal

When can the Appeal Commissioners dismiss an appeal?

(1) They may dismiss an appeal where a party to the appeal fails to comply with their directions.

What must the Commissioners do before dismissing an appleal?

(2) They must advise the party in writing of their intention to do so and afford the party an opportunity to explain why the party does not agree with the proposed action and an opportunity to comply with the direction.

What further action must the Commissioners take?

(3) They must consider the explanation provided but itf they are not satisfied with it they may proceed to dismiss the appeal and that decision will be final and conclusive.

Section 950 Interpretation (Part 41)

What definitions apply to self-assessment?

(1) Self-assessment applies to every chargeable person. You are a chargeable person if you are chargeable to tax(income tax, corporation tax or capital gains tax) on your own account or on account of some other person. Self-assessment does not apply to:

(a) Employees taxed through the PAYE system. A PAYE employee who receives a small amount of investment, professional or trading income may remain outside the self-assessment system if the self-employed income is taxed by adjusting the individual’s certificate of tax credits and standard rate cut-off point.

In this regard, from 1 January 2005, an individual in receipt of trading, professional or rental income remains a chargeable person, notwithstanding that such income may be covered by losses, deductions or other reliefs.

Nevertheless, self-assessment applies to PAYE employees, and their spouses, who are owner-directors of companies (other than dormant or shelf companies, which during the three year period ending on 5 April in the tax year, had total assets of €130 cash or less, did not carry on business and did not pay any charges).

(b) Persons (for example, who are exempt from tax) excluded by the inspector from the obligation to file a self-assessment return.

(c) Persons chargeable to tax solely on annual payments or retained charges.

Under self-assessment, a chargeable person must:

(a) pay preliminary tax, and

(b) file with the appropriate inspector a self-assessment return on or before the return filing date (specified return date),

for each chargeable period, which, for an individual, means the tax year, and for a company, means the company’s accounting period.

The appropriate inspector is:

(a) the inspector who last requested a return of income,

(b) if there is no such inspector, the inspector to whom it was customary to send a return,

(c) if there is no such inspector, the Revenue-nominated inspector of returns.

The return filing date (specified return date for the chargeable period) means:

(a) In the case of an individual, 31 October in the tax year following the tax year to which the return relates.

(b) In the case of a company, the last day of the nine month period that begins on the day after the end of the accounting period to which the return relates, but not later than the 21st day of the month in which that nine month period ends.

(c) In the case of a company that has begun to be wound up, if the return date would otherwise fall later than three months after the winding up date, the date which is three months after the winding up date but not later than the 21st day of the month in which the three month period ends.

The specified provisions are the non-self-assessment return filing sections (see section 951(7)).

Example

You are an individual chargeable to income tax.

31.10.2012 is the specified return date for the tax year 2011.

Example

15.02.2012 Your accounting period ends.

15.11.2012 is the last day of the nine month period that begins on 16 February 2002, the day after the accounting period ends.

21.11.2012 is the 21st day of the month in which the nine month period ends.

21.11.2012 is the return filing date.

Example

Company accounts are made up to 30 September.

30.09.2012 Next accounts year end.

15.07.2012 Company goes into liquidation.

15.10.2012 is the date which is three months after the winding up date.

21.10.2012 is the 21st day of the month in which the three month period ends.

21.10.2012 is the return filing date.

What is the deadline for a CT return filed on ROS?

(1A) The deadline for a CT return filed on ROS (Revenue Online System) is the 23rd day of the ninth month following the end of the accounting period.

Can pre-self-assessment deadlines apply?

(2) The self-assessment rules of this Part are not overruled by any pre-self-assessment income tax, corporation tax, or capital gains tax provisions.

Does filing a self-assessment return in one capacity exempt a person from having to file in another capacity?

(3) A taxpayer who files a self-assessment return in his/her own capacity (for example, as a self-employed solicitor) does not also satisfy the obligation to file a self-assessment return in another capacity (for example, as a trustee for an incapacitated person).

The obligation to file a self-assessment return in one capacity (for example, as a self-employed solicitor) is separate and distinct from any obligation to file a self-assessment return in another capacity (for example, as a trustee for an incapacitated person).

A release from an obligation to to file a return in one capacity does not release a person from an obligation in another capacity.

Section 951 Obligation to make a return

Pay and file: Tax Briefing 47.

What obligations has a chargeable person?

(1) As a chargeable person, you must file a self-assessment return on or before the return filing date (specified return date).

If you are an individual, trustee, agent or personal representative (a chargeable person who is chargeable to income tax or capital gains tax), the self-assessment return must be sent to the Collector-General and must include all the details required by the income tax return (including, where necessary, details for the preceding tax year) and the capital gains tax return for the tax year in question:

(a) Statements of profits or gains under Schedule C, D, E, and F, in other words, a return of total income (section 877) and a statement of chargeable gains (section 913(2)).

(b) A statement detailing income from each source, and any other details required by the annual return of income form (section 879), and in all cases, a calculation of total chargeable gains and any other details required by the annual return of chargeable gains (section 913(2)).

If you are a company (a chargeable person which is chargeable to corporation tax for an accounting period), the self-assessment return must be sent to the appropriate inspector and it must include all the details required by the corporation tax return (section 884) for the accounting period in question:

(a) The company’s profits from each source of income, details of asset disposals in the accounting period, details of charges and any other details required on the return form.

(b) Distributions received from companies resident in the State, together with the details of the tax credits attaching to those distributions.

(c) Tax credits owed by the company to Revenue, following a decision by the company to use a loss against profits, instead of against franked investment income (sections 157(5), 158(4)).

(d) Annual payments made by the company from income not brought into charge to tax (section 238).

(e) A loan to a participator that is treated as an annual payment (section 438).

Can the self-assessment return provide for gift and inheritance tax?

(1A) The self-assessment return may include matters relating to gift and inheritance tax.

Is each partner obliged to file an annual tax return?

(2) Each partner is also a chargeable person in relation to his/her several share of the partnership income.

What penalties apply for failure to file a self-assessment return?

(3) A self-assessment return made to the Collector-General on partnership income and gains is deemed to have been requested by the inspector (section 877).

Penalties or sanctions that apply to failure to file a return, or failure to file a correct return, i.e.:

(a) an income tax return (sections 877, 879),

(b) a capital gains tax return (section 913),

(c) a corporation tax return (section 884),

(d) a partnership return (sections 880, 913),

apply also to failure to file, or failure to file a correct, return on a self-assessment basis by the return filing date.

What is self-assessment?

(4) Under the self-assessment system, if you are a chargeable person, you must file a return with the Collector-General without being requested (or reminded) to do so.

Can an agent file a return on behalf of a chargeable person?

(5) A self-assessment return may be prepared and filed by your agent (accountant).

Such a return is deemed to have been prepared and filed by you.

A self-assessment return prepared and filed on behalf of a chargeable person is deemed, until the contrary is proved, to have been prepared and filed with his/her authority.

Who is exempt from the obligation to file a tax return?

(6) An inspector may, by written notice, exclude you from the obligation to file a self-assessment return. The exclusion is effective for the chargeable periods specified in the notice, or until the happening of an event specified in the notice.

Persons who received a similar notice before self-assessment was introduced (for example, farmers or persons whose income was below the exemption threshold) are deemed to have received an exclusion under the self-assessment system.

However, the exclusion from the self-assessment system does not apply to chargeable gains; these must be reported on a self-assessment basis.

Can an inspector demand a return from a chargeable person?

(7) An inspector remains entitled to demand at any time:

(a) From an individual, trustee, or personal representative, a signed written statement of income and chargeable gains accruing to that person (section 877).

(b) From an agent acting for an incapacitated person or non-resident, a signed written statement of the person’s income and chargeable gains (section 878).

(c) From an individual, trustee, or personal representative, a return of income and chargeable gains, and any other details required by the income tax return form (section 879).

(d) From the precedent partner of a partnership, a return of partnership income and chargeable gains, and any other details required by the partnership return form (section 880).

(e) From a spouse whose income and chargeable gains are, or should be, included with those of his or her jointly assessed partner, a separate statement of his or her income and chargeable gains (section 881).

(f) From a company, a return of profits or gains and any other information required by the corporation tax return form (section 884).

(g) From a landlord (or former landlord), information regarding a lease, its term, and the rent and/or premium payable, and from a property management agent, information regarding properties under his management (section 888).

(h) From the partner responsible for making the tax return of a married couple who are separately assessed (section 1023(5)), a return of income and chargeable gains.

The fact that a person has filed a self-assessment return under any of these headings does not relieve the person of the obligation to file a return under the same heading in response to an inspector’s request.

The fact that a notice has been given to file a return under any of these headings does not relieve the person of the obligation to file a return under the self-assessment system.

Can one return fulfil the self-assessment obligations of a separately assessed couple?

(8) A return that you file as the assessed partner of a married couple who are separately assessed (section 1023(5)) fulfils the self-assessment return obligations of both partners.

Can I be asked to file a return before the deadline?

(9) You cannot be requested to file any return listed under (7) earlier than the self-assessment return filing date.

What evidence is needed to prove a return has not been filed?

(10) A certificate signed by a Revenue officer stating that:

(a) you are a chargeable person as respects a chargeable period,

(b) a return was not received from you before the return filing date for that chargeable period,

is evidence, until the contrary is proved, that you are a chargeable person and that no return was received from you.

Such a certificate may be tendered in evidence without proof, and is deemed, until the contrary has been proved, to have been signed by the officer.

Can self-assessment returns be sent to a single address?

(11) The Collector-General may designate an address to which self-assessment returns must be sent. That address is to be published in Irish Oifigiúil as soon as is practicable.

Is there a penalty for late filing?

(12) The penalty for failure to file a return (section 1052), as increased where appropriate in the case of a body of persons (section 1054), applies to you if you fail to file a return under this section.

Section 952 Obligation to pay preliminary tax

Amendments

Section 952 deleted by Finance Act 2012 section 129 as respects chargeable periods (within the meaning of TCA 1997, section 321(2)) which are accounting periods of a company starting on or after 1 January 2013, and in all other cases as respects the year of assessment 2013 and subsequent years of assessment.

Section 953 Notices of preliminary tax

Amendments

Section 953 deleted by Finance Act 2003 section 17(1)(d) from:

(a) 1 November 2003 as respects payments of preliminary tax made on or after that day,

(b) 1 November 2004 as respects payments of preliminary tax made before 1 November 2003, unless the return, for the chargeable period in respect of which the preliminary tax was paid, required by section 951 is lodged with the Collector-General on or before 31 October 2004.

(Finance Act 2003 (Commencement of Section 17) Order 2003 (SI 508/2003) para 2(d)(ii)).

Section 954 Making of assessments

Amendments

Section 954 deleted by Finance Act 2012 section 129 as respects chargeable periods (within the meaning of TCA 1997, section 321(2)) which are accounting periods of a company starting on or after 1 January 2013, and in all other cases as respects the year of assessment 2013 and subsequent years of assessment.

Section 955 Amendment of and time limit for assessments

Amendments

Section 955 deleted by Finance Act 2012 section 129 as respects chargeable periods (within the meaning of TCA 1997, section 321(2)) which are accounting periods of a company starting on or after 1 January 2013, and in all other cases as respects the year of assessment 2013 and subsequent years of assessment.

Section 956 Inspector’s right to make enquiries and amend assessments

Amendments

Section 956 deleted by Finance Act 2012 section 129 as respects chargeable periods (within the meaning of TCA 1997, section 321(2)) which are accounting periods of a company starting on or after 1 January 2013, and in all other cases as respects the year of assessment 2013 and subsequent years of assessment.

Section 957 Appeals

Amendments

Section 957 deleted by Finance Act 2012 section 129 as respects chargeable periods (within the meaning of TCA 1997, section 321(2)) which are accounting periods of a company starting on or after 1 January 2013, and in all other cases as respects the year of assessment 2013 and subsequent years of assessment.

Section 958 Date for payment of tax

Amendments

Section 958 deleted by Finance Act 2012 section 129 as respects chargeable periods (within the meaning of TCA 1997, section 321(2)) which are accounting periods of a company starting on or after 1 January 2013, and in all other cases as respects the year of assessment 2013 and subsequent years of assessment.

Section 959 Miscellaneous (Part 41)

Amendments

Section 959 deleted by Finance Act 2012 section 129 as respects chargeable periods (within the meaning of TCA 1997, section 321(2)) which are accounting periods of a company starting on or after 1 January 2013, and in all other cases as respects the year of assessment 2013 and subsequent years of assessment.

Section 959A Interpretation

What definitions are relevant to assessments?

This section sets out the definitions relevant to assessments. There is now a distinction made between a Revenue assessment and a self assessment.

Many reference to Inspectors of Taxes have been replaced by references to a Revenue officer.

The return filing date (specified return date for the chargeable period) means:

(a) In the case of an individual, 31 October in the tax year following the tax year to which the return relates.

(b) In the case of a company, the last day of the nine month period that begins on the day after the end of the accounting period to which the return relates, but not later than the 21st day of the month in which that nine month period ends.

(c) In the case of a company that has begun to be wound up, if the return date would otherwise fall later than three months after the winding up date, the date which is three months after the winding up date but not later than the 21st day of the month in which the three month period ends.

When returns are made electronically the 23rd day applies instead of the 21st in paragraphs (b) and (c).

The specified provisions are the non-self-assessment return filing sections (see section 951(7)).

Example

You are an individual chargeable to income tax.

31.10.2012 is the specified return date for the tax year 2011.

Example

15.02.2012 Your accounting period ends.

15.11.2012 is the last day of the nine month period that begins on 16 February 2002, the day after the accounting period ends.

21.11.2012 is the 21st day of the month in which the nine month period ends.

21.11.2012 is the return filing date.

Example

Company accounts are made up to 30 September.

30.09.2012 Next accounts year end.

15.07.2012 Company goes into liquidation.

15.10.2012 is the date which is three months after the winding up date.

21.10.2012 is the 21st day of the month in which the three month period ends.

21.10.2012 is the return filing date.

Section 959B Supplemental interpretation provisions

Who is a “chargeable person”?

(1) Self-assessment applies to every chargeable person. You are a chargeable person if you are chargeable to tax(income tax, corporation tax or capital gains tax) on your own account or on account of some other person. Self-assessment does not apply to:

(a) Employees taxed through the PAYE system. A PAYE employee who receives investment, professional or trading income not exceeding €5,000 may remain outside the self-assessment system if the self-employed income is taxed by adjusting the individual’s certificate of tax credits and standard rate cut-off point or is subject to DIRT.

In this regard, from 1 January 2005, an individual in receipt of trading, professional or rental income remains a chargeable person, notwithstanding that such income may be covered by losses, deductions or other reliefs.

Nevertheless, self-assessment applies to PAYE employees, and their spouses, who are owner-directors of companies (other than dormant or shelf companies, which during the three year period ending on 5 April in the tax year, had total assets of €130 cash or less, did not carry on business and did not pay any charges).

(b) Persons (for example, who are exempt from tax) excluded by the inspector from the obligation to file a self-assessment return.

(c) Persons chargeable to tax solely on annual payments or retained charges.

What is included in the term assessment?

(2) Assessment includes self assessment and amended self assessment.

Does filing a self-assessment return in one capacity exempt me from having to file in another capacity?

(3) The filing of a self-assessment return by you in your own capacity (for example, as a self-employed solicitor) does not also satisfy the obligation to file a self-assessment return in another capacity (for example, as a trustee for an incapacitated person).

The obligation on you to file a self-assessment return in one capacity (for example, as a self-employed solicitor) is separate and distinct from any obligation on you to file a self-assessment return in another capacity (for example, as a trustee for an incapacitated person).

A release from an obligation that, under the pre-self-assessment system, would have applied to you to file a return in more than one capacity does not release you from that obligation in another capacity.

What is included in the term “amount of tax payable”?

4) References to tax payable, tax which would be payable or tax found to be payable are covered by the definition of “amount of tax payable”.

Section 959C Making of assessments: general rules

What is a Revenue assessment?

(1)-(2) Any assessment made by a Revenue officer that is not a self assessment is a Revenue assessment.

To what does an assessment relate?

(3) An assessment is made on a person for a chargeable period and should include all tax under a particular Act for that period.

What should the assessment cover?

(4) The assessment should be on the income, profits or gains for the period and should show the amount of tax chargeable and the amount payable (after credits) having regard to any amounts already paid (preliminary tax) and should show the balance due or repayable.

Can an assessment cover more than one tax?

(5)-(6) Yes. An assessment must also include surcharges fro late returns.

Section 959D Records of assessments and generation of notices by electronic means

Must Revenue record assessments?

(1)-(2) Yes, all assessments must be recorded. They can be recorded by electronic means.

Who is deemed to make an assessment?

(3) The Revenue officer whose name appears on a notice of assessment is deemed to have made the assessment even where another Revenue officer recorded the assessment.

Section 959E Notice of assessment by Revenue officer

Must notice of an assessment be given to a taxpayer?

(1) Where either a Revenue assessment or a self assessment is made by a Revenue officer notice must be given to the taxpayer.

How must a notice of assessment be given?

(2) It can be given by written or electronic means.

Is an agent entitled to a copy of an assessment?

(3) An agent who has delivered a return must be given a copy of the assessment.

What details must be included in a notice of assessment?

(4)-(5) The assessment must show the income, profits or gains for the period and should show the amount of tax chargeable and the amount payable (after credits) having regard to any amounts already paid (preliminary tax) and should show the balance due or repayable. It must also show any surcharge, the name of the issuing Revenue officer and the time allowed for an appeal.

If tax under more than one of the Acts or another enactment is included the amount chargeable under each Act must be identified.

What else may be included in a notice of assessment?

(6) The notice may include details of the Schedule, Case or provision of the Acts under which different items are taxed and the calculation of the liability and amounts payable or repayable.

Section 959F Double assessment

What must Revenue do in the case of double assessment?

(1) If they become aware that a taxpayer has been doubly assessed they must vacate the whole or part of any assessment which is double assessment.

What action can be taken in the event of double assessed to income tax?

(2) If, through an error or mistake, an assessment to income tax is made twice for the same tax year (or to corporation tax twice for the same accounting period) for the same cause, the taxpayer may apply to the Revenue Commissioners to have the second assessment discharged. If satisfied that there has been double assessment Revenue may cancel a second assessment.

How will over paid tax be treated?

(3) Revenue may offset any over payment as a result of a double assessment against any other amount due by the taxpayer or repay it or the balance after offset.

Can the taxpayer appeal aginst a refusal by Revenue to grant relief?

(4) Yes. The taxpayer may appeal to the Appeal Commissioners who must hear the appeal as if it were an appeal against an assessment.

Who may act for the Revenue Commissioners?

(4) A revenue officer may act on behalf of the Revenue Commissioners.

Section 959G Transmission to Collector-General of particulars of sums to be collected

What details must an inspector send to the Collector-General regarding collection of tax?

(1) An inspector must send details of tax charged in assessments he/she makes to the Collector-General to enable him/her to collect the tax.

Can details of value added tax assessments also be transmitted electronically to the Collector-General?

(3) Yes.

Section 959H Amended assessment and notice of amended assessment

How are amended assessments treated?

The rules of this chapter apply to amended assessments in the same way as to assessments.

Section 959I Obligation to make a return

What obligations has a chargeable person?

(1) A chargeable person must file a self-assessment return on or before the return filing date (specified return date).

Can the self-assessment return provide for gift and inheritance tax?

(2) The self-assessment return may include matters relating to gift and inheritance tax.

What self-assessment returns must be filed?

(3) A self-assessment return made to the Collector-General on partnership income and gains is deemed to have been requested by the inspector (section 877).

This includes the following returns:

(a) an income tax return (section 879),

(b) a corporation tax return (section 884),

(c) a partnership return (section 880, ),

What is self-assessment?

(4) Under the self-assessment system a chargeable person must file a return with the Collector-General without being requested (or reminded) to do so.

Can a chargeable person be asked to file a return before the deadline?

(9) A chargeable person cannot be requested to file a return earlier than the self-assessment return filing date.

Section 959J Requirements for returns for income tax and capital gains tax purposes

What must income tax and capital gains tax returns include?

(a) all such matters and particulars as would be required to be contained in a statement delivered pursuant to a notice given to the chargeable person by the appropriate inspector under section 877, if the period specified in such notice were the year of assessment which is the chargeable period,

(b) where the chargeable person is an individual who is chargeable to income tax or capital gains tax for a chargeable period, in addition to those matters and particulars referred to in subparagraph (i), all such matters and particulars as would be required to be contained in a return for the period delivered to the appropriate inspector pursuant to a notice given to the chargeable person by the appropriate inspector under section 879, and

(c) such particulars of the preceding year as are required for the purpose of section 65(3).

Section 959K Requirements for returns for corporation tax purposes

What must corporation tax returns include?

In the case of a company (a chargeable person which is chargeable to corporation tax for an accounting period), the self-assessment return must be sent to the appropriate inspector and it must include all the details required by the corporation tax return (section 884) for the accounting period in question.

Section 959L Delivery of return by person acting under authority

Can an agent file a return on behalf of a chargeable person?

(1) A self-assessment return may be prepared and filed by the agent (accountant) of a taxpayer.

(2) Such a return is deemed to have been prepared and filed by the taxpayer.

Can an agent’s return be denied by the taxpayer?

(3) A self-assessment return prepared and filed on behalf of a chargeable person is deemed, until the contrary is proved, to have been prepared and filed with his/her authority.

Section 959M Delivery of return by precedent partner

What are the obligations of a precedent partner?

The precedent partner of a partnership is deemed to be a chargeable person in relation to the obligation to file a partnership return (Form 1 (Firms)) when required by notice to do so.

Section 959N Exclusion from obligation to deliver a return

Can a person be excused from filing a return?

(1) An inspector may, by written notice, exclude you from the obligation to file a self-assessment return.

For what period does the exclusion apply?

(2) The exclusion is effective for the chargeable periods specified in the notice, or until the happening of an event specified in the notice.

Does the exclusion apply to CGT?

(3) The exclusion from the self-assessment system does not apply to chargeable gains; these must be reported on a self-assessment basis.

Section 959O Failure to deliver a return

Can penalties be imposed for failure to deliver a return if no notice to file was given?

(1) Yes. Where there is an obligation to file a return under the sections referred to in section 959I(3) penalties may be imposed for failure to do so even if no notice to file has been given.

What evidence is needed to prove a return has not been filed?

(2) A certificate signed by a Revenue officer stating that:

(a) you are a chargeable person as respects a chargeable period,

(b) a return was not received from you before the return filing date for that chargeable period,

is evidence, until the contrary is proved, that you are a chargeable person and that no return was received from you.

Must it be proved that a Revenue officer has signed the certificate?

(3) Such a certificate may be tendered in evidence without proof, and is deemed, until the contrary has been proved, to have been signed by the officer.

What penalties apply to failure to file a return?

(4) The penalties provided for in Sections 1052 and 1054 apply.

Section 959P Expression of doubt

What is an expression of doubt?

(1) An expression of doubt is a written communication delivered by letter or electronic means which sets out the nature of the doubt, the relevant legal provision giving rise to the doubt and the amount of tax involved. Supporting documentation must be provided and the letter must be clearly identified as an expression of doubt.

When there is a doubt on what basis should the return be prepared?

(2) Where there is a doubt that could affect the taxpayer’s liability or entitlement to an allowance, deduction, relief or tax credit the taxpayer may prepare his return in accordance with his or her best interpretation of the correct application of the law and include an expression of doubt with the return.

Must the return be delivered in time?

(3) An expression of doubt may only be included if the return is delivered to the Collector-General on or before the return filing date. The documentation supporting the expression of doubt must also be delivered in time.

How should the supporting documentation be delivered?

(3A) If the return is delivered by electronic means the documentation supporting an expression of doubt must also be delivered by electronic means. The means to be used may be specified by Revenue.

Is a self assessment required with the return?

(4) Yes. See section 959R.

When must any additional tax be paid?

(5) A return accompanied by a genuine expression of doubt is deemed to be a complete return. Any additional tax due as a result of an amended assessment is payable within one month of the date of the amendment (section 959AU(2)).

What happens if the expression of doubt is not genuine?

(6) Subsection 5 does not apply if a Revenue officer believes that, in the light of published Revenue guidelines and the documentation supplied, the matter is sufficiently free from doubt as not to warrant an expression of doubt.

Subsection 5 will not apply if the officer is of the opinion that the taxpayer was seeking to evade or avoid tax.

When is additional tax payable if the doubt is not considered genuine?

(7) Where a Revenue officer does not accept an expression of doubt as genuine any additional tax is due on the normal due date.

Is there a right of appeal against a decision of a Revenue office?

(8) Yes. A taxpayer who is aggrieved by a decision of a Revenue officer that the expression of doubt is not genuine may appeal to the Appeal Commissioners (within 30 days) who must hear the appeal as if it were an appeal against a determination (section 949) .

Section 959Q Miscellaneous (Chapter 3)

How does this chapter affect the taxpayer’s reporting obligations?

(1) This chapter does not remove the obligation of the taxpayer to comply with notices under other provisions of the Acts nor does the giving of such notices remove the taxpayer’s obligation to comply with the provisions of this chapter.

Where should returns be sent?

(2) Returns should be sent to the address designated by the Collector-General and published in Iris Oifigiúil.

Section 959R Inclusion of self assessment in return

Must a chargeable person do a self assessment computation?

(1) Yes, subject to limited exceptions, a self assessment computation must be included with every return.

(2) The self assessment must be made in the return and must include such details as Revenue require.

What details are required in the self assessment?

(3) The self assessment must include –

(a) the amount of income, profits or gains of the period,

(b) the amount of tax chargeable for the period,

(c) the amount of tax payable after credits,

(d) the balance of tax payable (after preliminary tax) or the amount of any overpayment available for offset or repayment.

What other details are required?

(4)(a) If tax is due under more than one of the Tax Acts the amount of tax chargeable under each of the Acts must be shown.

(b) If under any law other than the Tax Acts an amount is to be charged to income tax the amount of tax must be included and identified.

(c) the self assessment must include any surcharge for late filing.

Can the ROS calculation be used?

(5)If the taxpayer uses the ROS calculation and pays tax accordingly then, if the ROS calculation proves to be incorrect, any additional tax due on amendment of the self assessment will be payable within one month of the amendment

The provisions regarding penalties and interest will not apply where tax was paid in accordance with the ROS calculation.

Must a copy of the calculation be retained?

(6) For the purpose of subsection 5 a copy either in electronic or print form must be retained and provided on request to a Revenue officer.

Section 959S Option for self assessment to be made by Revenue

Can a taxpayer get a self assessment from Revenue?

(1)-(2) In cases where a paper return for income tax or CGT is filed by 31 August following the relevant tax year the Revenue officer will m,ake the self assessment on behalf of the tax payer.

Is this option available to all taxpayers?

(3) No. An individual who is a specified person required to make an electronic return cannot avail of the option in subsection 5.

What happens if spouses opt for separate assessment?

(4) If spouses or civil partners opt to be separately assessed (under joint assessment rules) Revenue cannot make a self assessment for them until both have filed their returns.

Section 959T Self assessment by person acting under authority

Can an agent make a self assessment on behalf of a taxpayer?

Yes. Where an agent makes a self assessment on behalf of the taxpayer it is deemed to have been made by the taxpayer. The self assessment is deemed to have been made on behalf of the taxpayer unless the contrary is proved.

Section 959U Self assessment by Revenue officer in relation to chargeable person

What happens if the taxpayer does not self assess?

(1)-(2) If the taxpayer fails to include a self assessment with the return a Revenue officer will make an assessment and will raise an assessment notice.

How is a Revenue assessment treated?

(3) An assessment made by a Revenue office is deemed to be a self assessment by the taxpayer.

Section 959V Amendment by chargeable person of return and of self assessment in return

Can a return already submitted be amended?

(1)-(2) A taxpayer may give notice to Revenue amending a return. An amended self assessment must be submitted with the amended return.

In what circumstances can a return already submitted be amended?

(2A) A return already submitted can only be amended for the reasons stated and the notice of amendment must state which reason applies

How is notice of amendment given?

(3) A notice of amendment must be given in writing to the Revenue office that deals with the taxpayer’s affairs.

When must a notice of amendment be given by electronic means?

(4) If the original return was delivered through ROS the amendment must be notified through ROS by means of the facility in the system.

This subsection does not apply to CGT, i.e. CGT returns may still be amended in paper form.

Can an agent give notice of an amendment?

(5) Yes, provided the agent is acting on the authority of the taxpayer.

Is there a time limit for an amendment?

(6) A notice of amendment must be given within 4 years of the end of the year of assessment to which the amendment relates. If a provision of the Acts requires a claim to be made in a shorter period than 4 years then an amendment relating to such a claim must be made in that shorter period.

Are there circumstances when an amendment cannot be made?

(7) Yes. An amendment cannot be made if Revenue have commenced an audit or investigation for the year concerned.

Section 959W Making of self assessment in accordance with return

How must a self assessment be made?

(1) A self assessment must be in accordance with the particulars n the return.

How must an amendment to a self assessment be made?

(2) An amendment to a self assessment must be in accordance with the particulars in the amended return.

How must a self assessment by a Revenue officer be made?

(3) A self assessment made by a Revenue officer must be in accordance with the particulars in the taxpayer’s return.

Can Revenue make assessments?

(4) Yes. Revenue may make assessments and such an assessment displaces a self assessment of the taxpayer.

Can Revenue amend a self assessment?

(5) Yes.

Section 959X Penalty for failure to make or amend self assessment

Are there penalties for failing to make a self assessment?

(1)-(2) A person who is required to include a self assessment with a return is liable to a penalty of €250 for failure to do so.

A person who is required to include an amended self assessment with an amended return is liable to a fine of €100 for failure to do so.

Section 959Y Chargeable persons and other persons: assessment made or amended by Revenue officer

What powers does a Revenue officer have in relation to the making of assessments?

(1) a Revenue officer may at any time make an assessment of such amount as in his judgement should be charged on a person. A Revenue officer may amend a Revenue assessment or a self assessment even where tax has been paid or repaid on the assessment and even if the assessment has already been amended.

On what basis can the Revenue officer make an assessment?

(2) In making or amending an assessment a Revenue officer may accept in whole or in part the part the particulars in contained in a taxpayer’s return and may make or amend an assessment accordingly.

Can more than one amended assessment be made?

(3) Yes, if the Revenue officer considers it necessary.

How are omissions from a return dealt with?

(4) Where any amount is omitted from or not properly reflected in an assessment or the tax stated in the assessment is not correct a Revenue officer may make such amendments as are necessary to correct it.

Section 959Z Right of Revenue officer to make enquiries

What power does a Revenue officer have to make enquiries?

(1) A Revenue officer may make such enquiries as he or she thinks necessary to establish –

(a) if a person is chargeable to tax;

(b) that a person is a chargeable person for a period;

(c) that a return is correct;

(d) that the taxpayer is entitled to any allowance, deduction, relief or credit claimed.

Can a Revenue officer make enquiries about a self assessment return?

(2) An inspector’s acceptance of self-assessment return details does not prevent him/her from further investigating those details to verify them, nor does it prevent him/her from amending the assessment as necessary.

Is there a time limit for enquiries?

(3) Enquiries cannot be made later than 4 years form the end of the period in which a return has be delivered.

Are there exceptions to the 4 year time limit?

(4) The 4 year time limit for enquiries does not apply if no return has been filed or if the Revenue officer does not believe a return to be full and complete or if he or she has reasonable grounds to believe that there has been fraud or neglect on the part of the taxpayer.

What can a taxpayer who objects to an inspector’s enquiries or actions after the four year time limit has elapsed do?

(5) A taxpayer aggrieved by an inspector’s investigations, on the basis that the four year limit has expired, may appeal to the Appeal Commissioners within 30 days of the inspector beginning his/her enquiries. The Appeal Commissioners must treat the appeal as if it were an appeal against an income tax assessment.

What must Revenue do pending the outcome of the appeal?

(6) The Revenue officer’s investigations are to be suspended pending the outcome of the appeal hearing.

If the appeal is successful what happens?

(7) If the Appeal Commissioners hold that the Revenue officer was precluded from making the investigations because the four year limit had expired, the Revenue officer is prohibited from pursuing the enquiry, and you need not respond to any queries arising from the enquiry.

If the appeal is unsuccessful what happens?

(8) If the Appeal Commissioners hold that the Revenue officer was entitled to make the investigations because the four year limit had not expired, the Revenue officer may continue with the enquiry.

Section 959AA Chargeable persons: time limit on assessment made or amended by Revenue officer

What time limits apply to the making or amendment of assessments and associated payments?

(1) The tax shown as due in a tax return for a chargeable period becomes final four years after the end of the chargeable period in which the return was filed, provided the return is true and correct.

In what circumstances can an assessment be amended after 4 years?

(2) An assessment may be amended after the four year period has expired:

(a) if the self-assessment return does not contain a full and true disclosure,

(b) in accordance with a determination of the Appeal Commissioners or the higher courts,

(c) to take account of matters arising after the return was filed,

(d) to correct a computational error,

(e) to correct a factual mistake which affects the full and true disclosure.

Any resulting underpayment of tax is payable, and any resulting overpayment of tax is refundable.

Section 959AB Persons other than chargeable persons: time limit on Revenue assessment and amended assessment

What time limits apply to assessments on non-chargeable persons?

(1) An assessment cannot be made or amended after 4 years from the end of the relevant chargeable period.

If emoluments are received after the year of assessment what time limits apply?

(2) If the assesable emoluments are received after the year in which they are assessable the time limit is 4 years from the end of the year in which they are received.

To what emoluments does this section apply?

(3) This section applies to any emoluments taxable under Schedule E and to lump sum payments and Benefits in Kind, taxable expenses and perquisites.

Section 959AC Chargeable persons: Revenue assessment and amendment of assessments in absence of return, etc

When can Revenue assessments be made?

(1)-(2) A Revenue officer may make an assessment ofr an amended assessment on a chargeable person if –

(a) the taxpayer has not made a return,

(b) the Revenue officer is not satisfied with the return, or

(c) the Revenue officer has reason to believe the return is incomplete.

What must a Revenue assessment contain?

(3) No particulars other than the amount of tax payable for the year of assessment are required.

Can an assessment be amended?

(4) When the circmustances in subsection 2 apply a Revenue officer may amend a Revenue assessment or a self assessment at any time.

Section 959AD Chargeable persons and other persons: Revenue assessment and amendment of assessments where there is fraud or neglect

Can time limits be extended?

(1)-(2) Where a person has a reasonable excuse for failure to make a return or do anything required to be done a Revenue officer may allow an extension of the time limit for doing what is required.

Do time limits apply when there is fraud or neglect?

(3) No. If a Revenue officer has reasonable grounds to believe there has been fraud or neglect he may make a Revenue assessment at any time.

How are such assessments to be made?

(4)-(5) A Revenue officer may make an assessment according to his best judgement of the amount to be charged and may amend such an assessment or a self assessment as necessary.

Section 959AE Other Revenue assessments and miscellaneous matters

What other assessments may be made by a Revenue officer?

(1) Assessment may be to recover –

(a) an excessive refund on foot of an incorrect return (section 960Q)

(b) CGT or gift tax (section 977 and section 978)

(c) the 15% CGT which must be withheld from the consideration for certain disposals (section 980)

(d) CGT from a non-resident (section 1042).

When can an assessment be made?

(2) An assessment cannot be made before the return due date unless the taxpayer files a return before that date.

Can assessments be made other than in accordance with this chapter?

(3) Yes, if another provision of the Acts requires the making or amending of an assessment.

When is an assessment final and conclusive?

(4) An assessment that is final and conclusive does not cease to be so because it has or may be amended. This means that the amendment of an assessment does not affect the time when tax is payable.

Section 959AF Chargeable persons and other persons: appeal in relation to time limit on assessment made or amended by Revenue officer

Who may appeal an assessment?

(1) An assessment may be appealed by a person who considers that the assessment is out of time ([section 959AA) or who has been assessed in the absence of a return (959AC) or who has been assessed for fraud or neglect (959AD).

What happens if the appeal is successful??

(2) The assessment is void.

What happens if the appeal is unsuccessful?

(3) The assessment stands subject to any valid appeal against any aspect of the assessment on other grounds.

Section 959AG Chargeable persons: no appeal against self assessment

Can a self assessment be appealed?

No.

Section 959AH Chargeable persons: requirements to submit return and pay tax

What conditions apply to an appeal against a Revenue assessment?

(1) An appeal against a Revenue assessment cannot be made until the return has been delivered and the tax due on foot of a self assessment has been paid or, if no self assessment is included, tax on foot of the particulars in the return has been paid.

Can a Revenue officer refuse an appeal?

(2) An appeal can be refused if the return and payment are delivered within the time limit for the appeal (30 days).

What is included in tax payable?

(3) Tax payable includes any interest on late payment and any surcharge for late delivery of the return.

Does this section apply to amended assessments?

(4) Yes.

Section 959AI Chargeable persons and other persons: no appeal against agreed amounts

When is an appeal an assessment or amended assessment arising from a tax return submission not allowed?

A taxpayer cannot appeal against self-assessment return details (income, profits, gains, allowances, deductions or reliefs) that have been accepted or agreed by the inspector as the basis for an assessment or amended assessment.

Section 959AJ Chargeable persons and other persons: grounds for appeal

What details must be specified in an appeal against an assessment or amended assessment?

(1) An appeal against an assessment or an amended assessment must specify precisely the matter that is being appealed against, and the grounds of the appeal in relation to that matter.

What if a a proper appeal against an assessment or amended assessment is not made?

(2) An appeal that does not comply with (1) is invalid in relation to that matter and is deemed not to have been made.

When will the Appeal Commissioners or a Circuit Court judge allow new grounds of appeal not included in the original notice of appeal?

(6) Once an appeal is made, new grounds of appeal (not specified in the notice of appeal against the assessment) may not be introduced, unless the Appeal Commissioner or Circuit Court Judge accepts that the new grounds for appeal could not reasonably have been given when the appeal was first made.

To ensure that only genuine appeals are made regarding clearly identifiable areas of dispute, speculative appeals, which were used before the introduction of self-assessment to delay payment of tax, are not allowed.

Section 959AK Chargeable persons and other persons: appeal against amended assessment

Can an amended assessment be appealed?

The same rules apply to appeals against an assessment that has been amended by a Revenue officer as apply to an assessment. However the appeal cannot apply to any matter that was not part of the amendment.

Section 959AL Persons other than chargeable persons: other rules

What conditions apply to an appeal by a person who is not a “chargeable person”?

Pending determination of the appeal tax must be paid on the due date on the amount which is not in dispute. This tax will be subject to interest on late payment.

Section 959AM Interpretation and miscellaneous (Chapter 7)

What is meant by the “pre-preceding chargeable period”?

(1) A chargeable period’s pre-preceding chargeable period is the chargeable period before the immediately preceding chargeable period. The tax payable for the pre-preceding chargeable period is relevant to the minimum amount of preliminary tax to be paid by a person using the direct debit method (see (4) and (10) below).

If your company’s tax charge is below €200,000, you may pay preliminary tax based on your previous year’s liability (which may be nil if the company is in its first year of trading).

What happens if the accounting period is less than 6 months?

(2) If the accounting period is less than 6 months then under section 959AS(2) the final instalment would be payable before the initial instalment. In these circumstances the accounting period is not treated as a relevant accounting period. In effect a company which is not otherwise a small company is treated as a small company.

What happens if the accounting period is less than 12 months?

(3) The relevant limit is proportionately reduced.

Example

The accounting period is 1 January to 30 September. The relevant limit is €150,000.

When is a company a small company?

(4) A company is a small company if its corproation tax for the preceding accounting period was below the relevant limit.

How are the payment dates for small companies determined?

(5) The dates for payment of preliminary tax for small companies are set out in section 959AR(1).

How are payments dates for companies that are not small companies determined?

(6) The dates for payment of preliminary tax for companies that are not small companies are set out in section 959AS(2).

Does this chapter apply to all taxpayers and all tax payments?

(7)-(8) This chapter only applies to chargeable persons. The payment dates for capital gains tax are subject to sections 579(4)(b) (non-resident trusts) and 981 (payment by instalments where consideration due after time of disposal).

Section 959AN Obligation to pay preliminary tax

Who must pay preliminary tax?

(1) Every “chargeable person” is liable to pay preliminary tax.

How much preliminary tax must be paid?

(2) The amount of preliminary tax payable is the amount which in the opinion of the taxpayer will become due on foot of the assessment for a chargeable person.

What is “the amount of tax payable”?

(2A) Preliminary tax is the “amount of tax payable, i.e. the amount computed by reducing the tax chargeable by the amount of any tax credit due to the taxpayer.

How is preliminary tax treated?

(3) Preliminary tax paid and not repaid is treated as a payment on account of the tax chargeable for the period.

How are new companies treated?

(4) Where a new company is a small company the preliminary tax for its first accounting period is nil.

Section 959AO Date for payment of income tax

When is preliminary income tax due?

(1) Except where it is paid by direct debit, preliminary tax is due on or before 31 October in the tax year.

When is a balance of income tax due?

(2) Any balance due in excess of preliminary tax paid is due and payable not later than the return date, i.e. 31 October of the following year. If an assessment is made at a date later than the return date the tax is deemed to have been due on the return date.

When do I incur interest on underpayments of preliminary tax for a chargeable period?

(3) This subsection applies except where an assessment is made before the preliminary tax due date. See also subs (8A)(b).

If the due dates mentioned in (3) for any of the taxes charged in an assessment are to apply, there are three important conditions to be met:

(a) the chargeable person must have paid preliminary tax,

(b) the preliminary tax paid must be have been sufficient, i.e., it must meet certain percentage requirements, and

(c) it must have been paid on or before the due date for preliminary tax (income tax or corporation tax, as appropriate).

If any of these conditions is not met, the tax charged in the assessment for a chargeable period becomes due and payable on the preliminary tax due date for the relevant tax. This means that the date from which any interest on the tax charged in the assessment begins to run is related back to the preliminary tax due date.

As regards income tax, preliminary tax paid is insufficient, i.e., if it amounts to less than (or less than the least of):

(a) 90% of the ultimate liability for the period,

(b) 100% of the liability for the preceding period, or

(c) where the taxpayer pays by direct debit, 105% of the liability for the pre-preceding period.

In applying the 90%, 100% and 105% tests for a sufficient preliminary income tax payment, the self-employed PRSI contribution, health contribution are all treated as income tax.

Example

You are an individual who is assessed jointly with your spouse. You are liable for income tax for the tax year 2013 on your joint income.

You pay preliminary tax of €15,000 on 31 October 2013.

You duly file the joint tax return for the tax year 2013 on 12 June 2014, i.e., before the return filing date of 31 October 2014.

The assessment to income tax is €15,050 for the tax year 2013 based on the figures in the tax return.

As you have paid sufficient preliminary tax, the €50 balance may be paid on or before 31 October 2014.

What other rules apply to tax payable?

(4)(a) If the taxpayer was not a chargeable person in the preceding tax year or the pre-preceding tax year the income tax payable for those years is taken as nil (accordingly preliminary tax for the first year the taxpayer is a chargeable person can be nil).

(b) when, after 31 October in a tax year, as a result of an amended assessment or a determination of an appeal an additional amount of tax becomes due for the preceding or pre-preceding tax year the additional amount shall not be taken into account if it became due and payable one month after the amendment or determination.

(c) For the purposes of preliminary tax the tax of the preceding or pre-preceding year is to be determined without any deduction for film relief or relief for investment in corporate trades.

How are married persons and civil partners treated?

(5) Where married persons or civil partners are jointly assessed for a tax year but were not so assessed for the preceding or pre-preceding tax years then preliminary tax is to be determined as if they had been so assessed. The same rule applies if the assessable person has changed, e.g. the wife replaces her husband as the assessable person.

How are adjustments due to a change of accounting date treated?

(6)(a) Any additional tax due for a preceding tax year as a result of an adjustment in accordance with section 65(3) becomes due and payable on or before the return date.

(b) Such an additional amount is not taken into account in determining if sufficient preliminary tax was paid.

(c) Where the additional tax arises by virtue of an amended assessment it is due on the return date and not one month after the date of the amended assessment.

Section 959AP Payment of preliminary tax by direct debit

Can preliminary tax be paid by direct debit?

(1) You may authorise the Collector-General to collect preliminary tax in respect of income tax by direct debiting your bank account. You must comply with the Collector-General’s conditions to ensure that the tax can be paid through the direct debit system.

How are the direct debits collected?

(2)The direct debits are taken from the taxpayer’s bank account, on the ninth day of each month, as follows:

(a) as respects the first tax year for which the direct debit system is used, by not less than three equal instalments in the year, and

(b) as respects any subsequent tax year for which the direct debit system is used, by way of eight equal monthly instalments in the year.

Can the number or amounts of instalments be changed?

(3) The Collector-General may:

(a) vary the number of monthly instalments to be paid in a year,

(b) vary the size of the monthly instalment payment, provided one instalment has been paid.

Example

A married person, who is assessable in respect of his own and his spouse’s income for the tax year 2013, opts to pay the preliminary tax (income tax, self-employed PRSI and levies) by the direct debit method for that year.

He has operated the direct debit system for 2013, so he is now in the second year of using the direct debit system.

His liability for the joint tax for 2011, the pre-preceding year, was €10,080.

In order to meet the “105%” test, he calculates that the amount to be paid as preliminary tax under the direct debit method for the tax year 2013 is 105% x €10,080 = €10,584.

This is charged to his bank account in eight instalments of €1,789 on the ninth of each month.

What further conditions apply?

(4) The taxpayer will not be regarded as having paid preliminary tax unless the agreed payments have been made.

If the direct debits are all paid is preliminary tax paid in time?

(5) If preliminary tax is paid by direct debit it is deemed to have been paid by 31 October in the tax year.

Section 959AQ Date for payment of capital gains tax

When is CGT payable?

(1)(a) CGT on disposals in the period 1 January to 30 November is payable on or before 15 December in the tax year;

(b) CGT on disposals in December is payable on or before 31 January in the following tax year.

When is CGT assessed payable?

(2) Any tax payable on foot of a subsequent assessment is deemed to have been due and payable on the dates specified in subsection (1).

Section 959AR Date for payment of corporation tax: companies other than with relevant accounting periods

When must a small company pay preliminary tax?

(1) Preliminary tax is due on the 21st of the month preceding the last month of its accounting period or the 23rd day of that month if payment is made electronically.

It the accounting period is less than one month and one day in length the tax is payable on the last day of the accounting period if it is shorter than 21 or 23 days.

When is a balance of tax due?

(2) Any balance of tax due by a small company is payable on or before the return date. If an assessment is made at a date later than the return date the tax is deemed to have been due on the return date.

What happens if no or insufficient preliminary tax is paid?

(3) If no preliminary tax was paid by a small company or if the amount paid was less than the lower of-

(i) 90% of the tax payable for the accounting period, or

(ii) 100% of the corporation tax of the preceding accounting period,

then all tax for the year is deemed to have been due on the due date for preliminary tax.

If the company is not a small company this rule applies if the preliminary tax paid was less than 90% of the tax due for the accounting period.

The rule also applies if preliminary tax was paid late.

What happens if there are capital gains or revaluations?

(4) If the preliminary tax paid by a small company was less than 90% of the tax due because a capital gain or a revaluation had not been taken into account then, provided sufficient additional tax is paid to bring the total to 90% of the tax due, the company is treated as having met its preliminary tax obligations.

Section 959AS Date for payment of corporation tax: companies with relevant accounting periods

How do companies other than small companies pay preliminary tax?

(1) Preliminary tax is payable in two instalments – the initial instalment and the final instalment.

When are the instalments payable?

(2)(a) The initial instalment is payable not later than the 21st day of the 6th month after the commencement of the accounting period or the 23rd day if payment is made electronically.

(b) The final instalment is payable not later than the 21st day of the month preceding the month in which the accounting period ends or the 23rd day if payment is made electronically.

When is a balance of tax due?

(3) Any balance of tax due is payable on or before the return date. If an assessment is made at a date later than the return date the tax is deemed to have been due on the return date.

When is a company preliminary tax payment inadequate?

(3) A preliminary tax payment is inadequate where:

(a) the initial instalment or the final instalment is not paid,

(b) the initial instalment falls short of:

(i) 45% of the ultimate CT charge for that period, or

(ii) 50% of the CT (plus income tax) charge for the preceding period,

(c) if it is the first chargeable period, the initial instalment falls short of the ultimate CT charge for the period,

(d) the aggregate of the initial and final instalments falls short of 90% of the ultimate liability for the period, or

(e) either instalment was late.

What happens if company preliminary tax is inadequate?

(5) In such a case, the preliminary tax is deemed to be due (for the purposes of calculating interest, etc.) in two instalments:

(a) The first instalment (the initial relevant instalment) is due not later than the 21st day of the sixth month following the start of the accounting period.

(b) The second instalment (the final relevant instalment) is due not later than the 21st day of the month preceding the month in which the accounting period ends.

The initial relevant instalment is 45% of the ultimate CT charge for the period. The final relevant instalment is the balance of tax due for the period.

(6) If the initial instalment paid by a company was less than 45% of the tax due because a capital gain or a revaluation that arose after the date the initial instalment was due had not been taken into account then, provided the initial instalment and the final instalment together are not less than 90% of the tax due, the company is treated as having met its preliminary tax obligations.

(7) If the initial instalment and the final instalment paid by a company was less than 90% of the tax due because a capital gain or a revaluation arising after the due date of the final instalment had not been taken into account then, provided sufficient additional tax is paid to bring the total to 90% of the tax due, the company is treated as having met its preliminary tax obligations.

Section 959AT Date for payment of corporation tax: groups

What are the initial and final balances?

(1) They are the amounts by which a company has overpaid initial preliminary tax and final preliminary tax.

When does this section apply?

(2)The section applies when a group company, the surrendering company, has overpaid initial preliminary tax and another group company, the claimant company, has underpaid its initial preliminary tax.

Can a group company surrender excess preliminary tax to another group company?

(4)-(5) The surrendering company may jointly agree with the claimant company that it will surrender all or part of its initial balance (a relevant initial balance) to the claimant.

Once this is done, the claimant is deemed to have paid the relevant initial balance or relevant final balance, as the case may be, and that balance is no longer available to the surrendering company.

How is a payment for a surrender treated|?

(5)-(6) Any payment received for the relevant initial balance (or relevant final balance) is ignored for tax purposes and is not treated as a distribution by the claimant. The claimant’s interest charge (if any) is also reduced by taking into account any relevant initial balance, or relevant final balance, it is deemed to have paid.

Section 959AU Date for payment of tax: amended assessments

When is additional tax on amendment of an assessment due?

(1) The additional tax is due on the same date as tax on the original assessment was due unless subsection 2 applies.

When is additional tax due at a later date?

(2) If the original assessment or an earlier amended assessment was made after the taxpayer had delivered a full and complete return the additional tax due on foot of an amended assessment is due one month after the date of the amended assessment.

Section 959AV Date for payment of tax: determination of an appeal

When is addtional tax on determination of an appeal due?

(1) Additional tax is due on the same date as the tax on the original assessment.

Is there an exception to the above rule?

(2) If tax amounting to at least 90% of the tax found to be due had been paid before the making of an appeal and the tax due was a balance of income tax, capital gains tax or corporation tax the additional amount is due one month after the determination of the appeal.

Section 960 Date for payment of income tax other than under self assessment

What is the due date for payment of income tax other than under self-assessment?

(1) An assessment to income tax (other than under self-assessment) for a tax year is due and payable on or before 30 September in that tax year. If the assessment is made after 30 September in the tax year to which it relates, the tax is due and payable within one month of the date of the assessment.

This may apply, for example, in relation to Schedule E assessments on PAYE taxpayers not within the self-assessment system.

What is the due date for payment of tax underpaid as a result of an incorrect claim for relief?

(2) Where an assessment is made for tax underpaid as a result of an incorrect claim for relief, the due date for payment is:

(a) 1 July in the tax year, where the relief was given before that date in the tax year,

(b) 1 January in the next tax year, where the relief was given on or after 1 July in the tax year, and

(c) on the date the relief was given, if that date falls after the end of the tax year.

Section 961 Issue of demand notes and receipts

Amendments

Section 961 repealed by Finance (No. 2) Act 2008 section 97 and Schedule 4 para 2 as respects any tax that becomes due and payable on or after 1 March 2009.

Section 962 Recovery by sheriff or county registrar

Amendments

Section 962 repealed by Finance (No. 2) Act 2008 section 97 and Schedule 4 para 2 as respects any tax that becomes due and payable on or after 1 March 2009.

Section 963 Power of Collector-General and authorised officer to sue in Circuit Court or District Court

Amendments

Section 963 repealed by Finance (No. 2) Act 2008 section 97 and Schedule 4 para 2 as respects any tax that becomes due and payable on or after 1 March 2009.

Section 964 Continuance of pending proceedings

Amendments

Section 964 repealed by Finance (No. 2) Act 2008 section 97 and Schedule 4 para 2 as respects any tax that becomes due and payable on or after 1 March 2009.

Section 965 Evidence in proceedings in Circuit Court or District Court for recovery of income tax

Amendments

Section 965 repealed by Finance (No. 2) Act 2008 section 97 and Schedule 4 para 2 as respects any tax that becomes due and payable on or after 1 March 2009.

Section 966 High Court proceedings

Amendments

Section 966 repealed by Finance (No. 2) Act 2008 section 97 and Schedule 4 para 2 as respects any tax that becomes due and payable on or after 1 March 2009.

Section 967 Evidence of electronic transmission of particulars of income tax to be collected in proceedings for recovery of tax

Amendments

Section 967 repealed by Finance (No. 2) Act 2008 section 97 and Schedule 4 para 2 as respects any tax that becomes due and payable on or after 1 March 2009.

Section 968 Judgments for recovery of income tax

Amendments

Section 968 repealed by Finance (No. 2) Act 2008 section 97 and Schedule 4 para 2 as respects any tax that becomes due and payable on or after 1 March 2009.

Section 969 Duration of imprisonment for non-payment of income tax

Amendments

Section 969 repealed by Finance Act 1999 section 197 and Schedule 6.

Section 970 Recovery of income tax charged on profits not distrainable

Amendments

Section 970 repealed by Finance (No. 2) Act 2008 section 97 and Schedule 4 para 2 as respects any tax that becomes due and payable on or after 1 March 2009.

Section 971 Priority of income tax debts over other debts

Amendments

Section 971 repealed by Finance (No. 2) Act 2008 section 97 and Schedule 4 para 2 as respects any tax that becomes due and payable on or after 1 March 2009.

Section 972 Duty of employer as to income tax payable by employees

Amendments

Section 972 repealed by Finance (No. 2) Act 2008 section 97 and Schedule 4 para 2 as respects any tax that becomes due and payable on or after 1 March 2009.

Section 973 Collection of corporation tax

Amendments

Section 973 repealed by Finance (No. 2) Act 2008 section 97 and Schedule 4 para 2 as respects any tax that becomes due and payable on or after 1 March 2009.

Section 974 Priority for corporation tax

Amendments

Section 974 repealed by Finance (No. 2) Act 2008 section 97 and Schedule 4 para 2 as respects any tax that becomes due and payable on or after 1 March 2009.

Section 975 Application of sections 964(2), 980(8) and 981 for purposes of corporation tax

Amendments

Section 975 repealed by Finance (No. 2) Act 2008 section 97 and Schedule 4 para 2 as respects any tax that becomes due and payable on or after 1 March 2009.

Section 976 Collection of capital gains tax

Amendments

Section 976 repealed by Finance (No. 2) Act 2008 section 97 and Schedule 4 para 2 as respects any tax that becomes due and payable on or after 1 March 2009.

Section 977 Recovery of capital gains tax from shareholder

What is meant by a “capital distribution”?

(1) A capital distribution means a company distribution, including a distribution on a winding up, which is not taxed as income of the recipient (section 583).

To what does this section apply?

(2) These rules apply where an Irish resident company makes a capital distribution, other than on a reduction of capital, to a person (a beneficiary) connected with the company, and the capital distribution derives from a chargeable gain accruing to the company.

When may a beneficiary be assessed to any capital gains tax arrears of a company?

(3) A beneficiary may be assessed for any capital gains tax arrears (not paid within six months of the due date) of the company in respect of that gain.

The assessment to be made on the beneficiary in the name of the company must be made within two years of the due date on which the company should have paid the tax, and may not exceed:

(a) the beneficiary’s share of the capital distribution,

(b) his/her proportionate share of the capital gains tax.

Can a beneficiary who has been assessed under (3) recover the tax from the company?

(4) A beneficiary who pays the capital gains tax may recover the tax from the company.

Can a beneficiary have a separate personal liability?

(5) A beneficiary may have a separate liability to capital gains tax where the capital distribution is treated as a disposal of an interest in his/her shares to the company.

Section 978 Gifts: recovery of capital gains tax from donee

What are old assets and new assets?

(1) Old asset and new asset have the same meanings as they have for rollover relief (section 597).

A gift includes any transaction other than an arm’s length bargain whereby a donor transfers ownership of money or assets to a donee for less than full consideration.

A donor, in the case of an individual who has died, includes his/her personal representatives.

Can the recipient of a gift be made liable for the donor’s capital gains tax on the gift?

(2) A donee who receives a gift from a donor may be assessed for any capital gains tax arrears (not paid within 12 months of the due date) of the donor in respect of the gain arising on that gift.

The assessment to be made on the donee must be made within two years of the due date on which the tax should have been paid, and may not exceed:

(a) the chargeable gain accruing to donor,

(b) any capital gains tax remaining unpaid by the donor on that gain.

Where CGT was “rolled over” on an old asset can a donee be made liable for that CGT?

(3) If the gift is a new asset, the donee may also be assessed for unpaid capital gains tax that was “rolled over” or postponed on the disposal of the old asset which the new asset replaced.

Where the entire proceeds of a disposal are transferred by gift can the donee be made liable for CGT?

(4) Where a donor transfer the entire disposal proceeds of an asset, or a new asset, by way of gift to a donee, the entire tax charge may be made on the donee.

Where you transfer part of the disposal proceeds of an asset, or a new asset, by way of gift to a donee, the proportion of the overall tax charge appropriate to the part disposal may be made on the donee.

Can a donee who pays capital gains tax recover that tax from the donor?

(5) A donee who pays the capital gains tax may recover that tax from the donor.

When capital gains tax applies to a gift made to two or more donees, how is each person assessed and charged?

(6) Where a gift is made to two or more donees, each donee is to be assessed and charged on his/her proportionate share of the overall gift.

Section 979 Time for payment of capital gains tax assessed under sections 977(3) or 978(2) and (3)

When is CGT payable by a shareholder receiving a capital distribution and/or a donee in respect of a chargeable gain accruing to a donor?

Capital gains tax assessed is payable within two months of the notice of assessment, or three months of the end of the year in which the gain accrued, whichever is later, where the gain is charged:

(a) on a shareholder receiving a capital distribution in respect of a chargeable gain accruing to a non-resident company (section 977(3)), or

(b) on a donee in respect of a chargeable gain accruing to a donor on the gift made to the donee (section 978(2)-(3)).

Section 980 Deduction from consideration on disposal of certain assets

What is meant by “designated area” and “exploration or exploitation rights”?

(1) Exploration or exploitation rights are rights to assets generated from activities relating to exploration or exploitation of the sea bed and its natural resources either within Irish territorial waters or a designated area, i.e., a block in which the Government has granted offshore exploration rights.

To what asset disposals does a 15% withholding tax apply?

(2) This section imposes a 15% withholding tax on you where you purchase one of the following assets:

(a) land in the State,

(b) minerals in the State or mining exploration rights,

(c) exploration or exploitation rights in a designated area,

(d) shares deriving their value from (a), (b) or (c),

(e) shares acquired, on a share-for-share basis (section 584) on a reorganisation or reduction of a company’s share capital,

(f) goodwill of a trade carried on in the State.

In Bank of Ireland Finance Ltd v Revenue Commissioners, 4 ITR 217, a bank which sold a mortgaged property was not entitled to a refund of tax withheld by the purchaser of the property.

Is there an amount to which the 15% withholding tax does not apply?

(3) The 15% withholding tax does not apply where the value of assets disposed of on or after 25 March 2002 is less than €500,000 or €1,000,000 in the case of a house or apartment..

If, in order to evade the threshold, an asset is disposed of in a series of separate parts, each of which is worth below €500,000 to the same person or group of connected persons, the series of separate disposals is treated as a single disposal.

What are the implications for a purchaser of having withheld 15% tax?

(4) A purchaser who must withhold tax at 15% of the value of the payment for an asset is treated as having paid the full price to the vendor. He/she is therefore acquitted of the liability to the vendor. The vendor must allow the deduction and has no claim against the purchaser, who need only pay the agreed price less 15% withholding tax.

A purchaser need not deduct 15% withholding tax from the price if the vendor produces a tax clearance certificate: see (8) below, and (8A) in the case of a newly built house.

When must a purchaser report and pay the 15% withholding tax deducted to Revenue?

(5) The purchaser must, within 30 days of the payment, report the transaction to Revenue and pay the 15% tax withheld to the Collector-General on a self-assessment basis (see (5A)).

Is a purchaser within the self-assessment system in respect of 15% withholding tax?

(5A) The 15% tax that withheld:

(a) is payable in addition to any other capital gains tax the purchaser may owe,

(b) is due within 30 days of the date of the payment,

(c) must be self-assessed, i.e., there is no requirement for the inspector to issue an assessment.

However, the inspector remains entitled to make an assessment in cases where tax is not paid by the due date.

When can an inspector issue a notice of assessment for the 15% withholding tax?

(6) If a purchaser does not report a purchase from which 15% tax should have been deducted , the inspector may make an estimated assessment on him/her in respect of the 15% tax.

How is credit given to a vendor for 15% withholding tax that was deducted?

(7) In computing the tax arising on his/her chargeable gain on the disposal, the vendor is entitled, on making a claim, to a tax credit for the 15% withholding tax deducted (and paid) by the purchaser.

When can the inspector of taxes issue a tax clearance certificate for capital gains tax purposes?

(8) A vendor of an asset (or an agent acting on behalf of the vendor) may apply to Revenue for a tax clearance certificate. The inspector must issue the certificate to the vendor (or his/her agent) if:

(a) the vendor is resident in the State,

(b) no capital gains tax is payable on the disposal, or

(c) the vendor has paid any capital gains tax arising on the disposal of the asset (and any earlier disposals of the asset).

The inspector must also issue a copy of the certificate to the purchaser of the asset. On receipt of the certificate, the purchaser need not deduct tax from the purchase price.

An application for a tax clearance certificate made by a vendor’s agent must include the vendor’s name and address and, if the vendor is resident in the State, his/her tax reference number (section 885).

Form C650A: Tax Briefing 35.

The certificate must be issued if the conditions are satisfied: O’Ceallaigh v Financial Indemnity Co Ltd, (1983) 3 ITR 124. Withholding tax is not to be applied if the vendor is resident in the State: Pine Valley Developments Ltd and others v Revenue Commissioners, 4 ITR 543.

For newly built houses, are other certificates valid?

(8A) A purchaser of a newly built house need not deduct 15% withholding tax from the price if the vendor produces one of the following certificates:

(i) a valid current subcontractor’s certificate (section 531(11)),

(ii) a tax clearance certificate issued to the holder of an excise licence (section 1094),

(iii) a tax clearance certificate issued to a person to whom a public sector contract has been awarded (section 1095),

(iv) in the case of a vendor who does not have a certificate within (i)-(iii), a certificate issued by the Collector-General in accordance with the rules laid down in section 1095, as modified for this purpose.

Does withholding tax apply to corporation tax?

(8B) Yes.

What happens if withholding tax cannot be deducted from the consideration?

(9) Since 2 June 1995, where an asset is acquired for full consideration from which withholding tax cannot be deducted (i.e., for non-cash consideration), and the vendor does not produce a tax clearance certificate within (8) or (8A) as appropriate, the purchaser must, within seven days, notify Revenue of:

(a) the asset acquired,

(b) the market value of the consideration paid for acquiring it, and

(c) the vendor’s name and address.

Within seven days of acquiring the asset, the purchase must also pay the Collector-General, on a self-assessment basis, 15% of the market value of the consideration paid. The tax, which is in addition to any other capital gains tax payable by the purchaser, may, if not paid within seven days of the acquisition, be assessed on him/her.

The purchaser is entitled to recover any withholding tax paid in this manner from the vendor as a contract debt in any court. This right of recovery does not apply if the vendor produces a tax clearance certificate.

Where an asset is acquired by two or more persons, each acquirer is to be assessed and charged in respect of the part he/she acquired.

If the acquirer has paid over the withheld CGT to the Collector-General, and recovered that amount from the seller, the seller must be given credit.

This gives statutory effect to Revenue practice in situations where assets were paid for in non-monetary form, for example, by asset swap or purchase with shares.

Note

Non-cash consideration: shares or loan notes. This subsection was introduced to counter perceived weakness in the capital gains tax regime, following the investigation by Mr John Glackin, under the Companies Acts, of the transactions involving the former Johnson Mooney and O’Brien site at Ballsbridge.

Disposals of assets acquired at less than full consideration may be taxed on the donee under section 978.

Do the withholding tax provisions apply where a capital sum derived from an asset is treated as a disposal?

(11) Where a capital sum derived from an asset is treated as a disposal, although the person paying the capital sum does not acquire an asset, he/she is treated as having acquired assets for a consideration equal to the capital sum.

The 15% withholding tax therefore applies to the capital sum (but not where the capital sum is an insurance settlement).

Must withholding tax be deducted where NAMA or one of its subsidiaries is enforcing a debt security?

(12) No.

Does the requirement to account for withholding tax under (9) apply to NAMA or its subsidiaries?

(13) No.

Must withholding tax be deducted where the disposal is made by a 51% NAMA subsidiary?

(14) No.

Is the enforcement of a debt security by NAMA or one of its subsidiaries treated as a disposal of an asset?

(15) No.

What information relating to CAT is required on the CGT tax clearance application?

(16) If the form so requires, the person seeking a clearance certificate must provide the following information:

(a) whether the asset was acquired by gift or inheritance,

(b) the market value of the asset on the day it was acquired, and

(c) whether or not gift tax or inheritance tax was paid on the asset.

Section 981 Payment by instalments where consideration due after time of disposal

Can CGT be paid in instalments where the consideration is due after the time of disposal?

If the disposal proceeds in respect of a chargeable gain are payable by instalments over a period longer than 18 months, and hardship is caused by the fact that the gain is immediately chargeable, the tax on the gain can be paid by instalments over a period not exceeding five years.

It is not a “payment by instalments” case where, on the disposal of an asset, the vendor lends money to the purchaser whether or not the granting of the loan is a condition of the contract for sale. For example, in the case of real property, normally the vendor would acknowledge receipt of the full sale price in the conveyance whilst the mortgage deed or legal charge would recite the agreement to lend and contain an acknowledgment by the borrower of the loan. In other words there are usually two separate transactions namely a disposal for full consideration and then the grant of a loan. In such a case no part of the purchase money can be said to be payable by instalments over a period exceeding 18 months because receipt of the full purchase price is acknowledged by the vendor.

See Coren v Keighley, (1972) 48 TC 370. In cases of doubt, all relevant documents, in particular the conveyance, should be examined, to confirm that there were in fact two separate transactions.

See also: Inspector Manual 42.3.2.

Section 982 Preferential payment

Amendments

Section 982 repealed by Finance (No. 2) Act 2008 section 97 and Schedule 4 para 2 as respects any tax that becomes due and payable on or after 1 March 2009.

Section 983 Interpretation (Chapter 4)

What definitions apply to “pay as you earn” (PAYE)?

PAYE is income tax that must be deducted at source by an employer from the wages and salaries (emoluments) taxed under Schedule E which he/she pays to employees. The employer must record the tax deducted on the employee’s tax deduction card, and must pay over the tax deducted in each income tax month to the Collector-General.

Section 984 Application

Must employers deduct PAYE from emoluments paid to employees?

(1) All employers must deduct PAYE from the emoluments they pay to their employees. However, employers who have been notified by the inspector that they need not operate PAYE (on the basis that it would be impracticable) are not required to operate the system.

Impracticable: labour only workers who would be exempt from tax.

Criteria for the issue of exclusion orders

Categories of taxpayers involved: Inspector Manual 42.4.1.

What must an employer do if an inspector notifies cancellation of an exemption from operating PAYE?

(2) The inspector may by written notice to the employer cancel a notification under (1). If this happens, the employer must then apply PAYE from the date of the notice to emoluments of the employees concerned.

Section 985 Method of collection

What are the rules regarding the method of deduction and collection of PAYE?

The employer must deduct PAYE from all payments of emoluments to every employee, in accordance with the detailed rules in the PAYE regulations.

PAYE must be deducted (or, in certain circumstances, repaid) even where:

(a) no formal (Schedule E) assessment has been made on the employee in respect of the emoluments, and

(b) the emoluments relate to a tax year other than the year in which they are paid.

PAYE applies to the full emoluments actually paid in the year.

The deduction of PAYE is not unconstitutional: Kennedy v Hearne and others, 3 ITR 590.

The employer must deduct PAYE: A-G v Jeanne Antoine, (1949) 31 TC 213. The employer may not charge the employee the cost of operating PAYE: Meredith v Hazell, (1964) 42 TC 435. PAYE must be deducted from wages paid to workers on offshore rigs: Clark v Oceanic Contractors Inc, [1983] STC 35.

An agreement between an employer and an employee not to operate PAYE is illegal and unenforceable. See Miller v Karlinski, (1945) 24 ATC 483; Napier v National Business Agency Ltd, (1951) 30 ATC 180; Jaworski v National Business Agency Ltd, (1951) 30 ATC 180; Jaworski v Institution of Polish Engineers in Great Britain Ltd, (1950) 29 ATC 385.

The employer must operate PAYE on tips if there is no tronc for sharing tips: Figael Ltd v Fox, [1992] STC 83.

PAYE is not deductible from a sum paid to a director to buy back shares (as only part is taxable): IRC v Herd, [1993] STC 436.

Section 985A Application of section 985 to certain perquisites etc

Must an employer deduct PAYE from non-cash benefits?

(1) Yes. An employer must apply PAYE to:

(a) a perquisite of an employment (other than employer’s contributions to a PRSA (section 112), including the benefit arising from a preferential loan (section 122), and contributions to the employee’s health insurance (section 112A),

(b) the benefit of the private use of a car (section 121), and

(c) the benefit of the private use of a van (section 121A).

Must an employer deduct PAYE from shares awarded to an employee?

(1A) No – provided the shares are awarded before 1 January 2011 (see (1B)).

When should an employer deduct PAYE from share awards?

(1B) From 1 January 2011, all share awards issued to an employee are subject to PAYE.

How should an employer apply PAYE to non-cash benefits?

(2) PAYE must be applied to a notional payment (see (3)).

What is a notional payment?

(3) The notional payment is based in the best estimate of the income likely to be chargeable to tax, i.e., the best estimate of the notional annual value of the benefit.

Must an employer deduct PAYE relating to a notional benefit if the employee has insufficient income to meet the liability?

(4) Yes. An employer must deduct the full amount of PAYE and PRSI arising on the benefit, even if the employee has insufficient income for the deduction to be made.

Example

This might apply, for example, where an employee is given a company car but no salary. The employer must deduct PAYE based on the notional payment. In effect, the employer is responsible for the shortfall in tax.

How is a deduction of PAYE from a notional payment treated?

(4A) It is treated as an amount of PAYE deducted in respect of the employee’s liability to tax.

Can an employer withhold shares in order to pay tax owing by the employee on a share award?

(4B) Yes. If an employer pays an employee in the form of shares, or stock, and the employee does not pay the PAYE tax owing on the award of shares, the employer may withhold sufficient shares to pay the income tax owing.

What happens if an employee does not make good the PAYE deducted in relation to a benefit in kind?

(5) If the employee does not make good the tax deducted before the end of the tax year, the PAYE/PRSI paid by the employer is treated as a taxable benefit of the employee in the following tax year and is itself subject to PAYE/PRSI.

Can Revenue make regulations in relation to the deduction of PAYE from benefits in kind?

(6) Yes. Revenue are empowered to make regulations in relation to:

(a) deduction, collection and recovery of income tax from notional payments,

(b) the application of existing PAYE regulations to notional payments.

Must the regulations in relation to notional payments be passed by the Dáil?

(7) Yes. The regulations must be laid before the Dáil, and if not annulled within 21 days are deemed to have been passed.

Section 985B PAYE settlement agreements

What are “qualifying emoluments”?

(1) Qualifying emoluments are minor non-monetary emoluments that are provided at irregular intervals.

Can Revenue agree that the tax on qualifying emoluments be paid directy?

(2) Revenue may, on application to them by an employer, agree that the tax on qualifying emoluments be paid directly (see (3)-(8)).

What happens when an employer pays the tax on qualifying emoluments directly?

(3) Where an employer directly pays the tax arising on qualifying emoluments:

(a) he/she is not liable to account for tax under the PAYE system on such emoluments,

(b) the emoluments in question are ignored in computing the employee’s total income for tax purposes,

(c) the amount paid is not treated as having being deducted under the PAYE system,

(d) the employee is not treated as having paid the tax and accordingly is not entitled to receive a credit for, or repayment of, such tax, and

(e) the emoluments need not be included in your P35 return.

How is the amount of income tax arrived at in respect of a qualifying emolument?

(4) The income tax on the qualifying amoluments is to be:

(a) determined in accordance with the factors in (5)(a), and

(b) comprised of the amounts in (5)(b).

What factors are taken into account in collecting tax on qualifying emoluments?

(5) The factors to be taken into account in calculating the tax on qualifying emoluments are:

(a) the aggregate amount of such emoluments,

(b) the number of employees in receipt of such emoluments,

(c) the number of such employees chargeable at the standard rate, and the number chargeable at the both the standard and the higher rate, for the tax year in question, and

(d) any other matter agreed by the employer and Revenue to be relevant in relation to the emoluments in question.

The amounts that make up the tax on the qualifying emoluments are:

(a) the income tax on the aggregate emoluments, adjusted to take account of the number of employees chargeable to tax at the standard rate and the number chargeable at both the standard and the higher rate, and

(b) a further amount to take account of the benefit to the employee of having the tax paid on his/her behalf.

What must an employer, who wishes to pay the tax on qualifying emoluments directly, do?

(6) To pay tax arising on qualifying emoluments directly, he/she must apply to Revenue before 31 December in the tax year in question.

What are the consequences if an employer fails to remit the agreed amount on time?

(7) If the agreed amount is not paid to the Collector-General within 46 days of the end of the tax year, the agreements is treated void, and PAYE/PRSI must be accounted for on the emoluments in the normal way.

What power do Revenue have to delegate their powers in relation to PAYE settlement agreements?

(8) Revenue may delegate their powers in relation to PAYE settlement agreements to an authorised Revenue official.

Section 985C PAYE: payment by intermediary

How is an employer who pays employees through an intermediary treated?

(1) This is an anti-avoidance section. It applies where an employer uses an intermediary to pay staff. Because the staff are not “employed” by the intermediary, they could be paid gross, i.e., without deduction of PAYE. The intermediary is usually connected with the employer, or acting on his/her behalf.

If an employer uses an intermediary to pay employees, he/she is treated for PAYE purposes as having directly paid those employees the amount mentioned in (3).

What happens if the intermediary deducts PAYE from payments to the employees?

(2) The rule in (1) does not apply if the intermediary deducts PAYE from the payments to the employees.

How is a payment to an employee made by an intermediary treated for tax purposes?

(3) The payment to the employee is calculated as:

(a) in the case of a payment that is received after deduction of tax, the grossed-up amount of the payment, and

(b) in any other case, the payment made to the employee.

When is a payment regarded as having been made by an intermediary?

(4) A payment is made through an intermediary where it is made:

(a) by a person:

(i) who acts on behalf of, and at the expense of, the employer, or

(ii) who is connected with the employer, or

(b) by trustees holding property on behalf of the employee.

Section 985D PAYE: employee of non-resident employer etc

What is the definition of “work” in the context of an employee of a non-resident employer?

(1) This is an anti-avoidance section. It applies where a non-national coming to work in Ireland for a few years would be employed, for example, by a Jersey company. That company would invoice the Irish employer for the employee’s services.

Work, in this context, means performing the duties of an office or employment.

What provisions apply to employment of an employee by a non-resident employer?

(2) This section applies where:

(a) An employee works for someone (a relevant person) other than his/her employer.

(b) The employee is paid by the employer or an intermediary of his/her employer.

(c) The payer is not resident in the Republic of Ireland.

(d) PAYE is not deducted from the payments.

In what circumstances is a person deemed to be an employer?

(3) Where (2) applies, a person is deemed, for PAYE purposes, to be the employer who is an Irish person receiving the benefit of the employee’s services.

How is a payment calculated when made to an employee of a non-resident employer?

(4) The payment to the employee is calculated as:

(a) in the case of a payment that is received after deduction of tax, the grossed-up amount of the payment, and

(b) in any other case, the payment made to the employee.

Do payments to employees of non-resident employers include notional payments in respect of benefit in kind?

(5) Yes.

When is a payment of emoluments regarded as having been made through an intermediary?

(6) A payment is made through an intermediary where it is made:

(a) by a person:

(i) who acts on behalf of, and at the expense of, the employer, or

(ii) who is connected with the employer, or

(b) by trustees holding property on behalf of the employee.

Section 985E PAYE: employment not wholly exercised in State

What is an “appropriate person” in the context of employment not wholly exercised in the State?

(1) An employer who has an employee who works in the Republic of Ireland and abroad may apply to Revenue to make a direction as regards the proportion of the employee’s income that is to be subject to PAYE.

Revenue will then make a direction in relation to the employee for the tax year in question. Revenue may also, by written notice, withdraw the direction.

The employer must then follow the terms of the direction in calculating the proportion of the employee’s income that is subject to PAYE.

The appropriate person (see (3)) means the person designated by the employer to act for the employer for the purpose of this section. If no person is designated, it means the employer.

A payment made by an employer includes a payment made by a person:

(a) who acts on behalf of and at the expense of the employer, or

(b) who is connected with the employer.

What provisions apply if an employee works both in the State and abroad?

(2) This section applies where an employee works both within and outside the Republic of Ireland during the same tax year.

When can a Revenue officer give a direction determining the proportion of income tax to be treated under Schedule E or otherwise?

(3) The appropriate person may apply to a Revenue officer to make a direction determining the proportion of any payment to the employee that is to be subject to PAYE. The Revenue officer may make such a direction if he/she is satisfied that part of an employee’s income is taxable under Schedule E, and an as yet unascertainable proportion of the income may not be so taxable.

What information must be given to Revenue for the purpose of obtaining a direction?

(4) The application must include information that is available and relevant in relation to the direction.

What must be contained in a direction issued by the inspector of taxes?

(5) The direction must specify the employee and the tax year to which it relates. It must also be notified to the appropriate person, and it may be withdrawn by notice to the appropriate person from a date specified in the notice.

What date must be given in a direction in respect of a notice of withdrawal?

(6) The date specified in the notice must not be earlier than 30 days from the date of the notice of withdrawal.

How is the proportion of income payment subject to PAYE determined?

(7) The proportion of an income payment to be subjected to PAYE is to be determined in accordance with the direction.

What are the consequences if no direction has been made for an employee?

(8) If no direction has been made for an employee, that employee’s entire income is subject to PAYE.

What are the mutual rights of an employee and Revenue notwithstanding the taxation of a proportion of an employee’s income?

(9) The taxing of a proportion, or all, of an employee’s income do not affect:

(a) Revenue’s right to make an assessment on the employee in question, and

(b) the employee’s right to be repaid tax overpaid and his/her obligation to pay tax underpaid.

What is the extended meaning of the “appropriate person” in relation to the relevant person?

(10) Where the employer is non-resident, the appropriate person includes the relevant person, i.e., the person for whom the employee works in Ireland. Payments made by the employer include payments treated as made by the relevant person.

Section 985F PAYE: mobile workforce

What are the general provisions regarding PAYE and a mobile workforce?

(1) These rules apply where it appears to Revenue that:

(a) A relevant person agrees that employees of another person (the contractor) shall work for the relevant person, but not as employees,

(b) payment for the work done is made by or on behalf of the contractor, and

(c) PAYE is unlikely to be deducted from the payments.

What directions can Revenue give that PAYE be deducted on payments to a mobile workforce?

(2) In such a case, Revenue may direct that PAYE must be operated on the payments if:

(a) the contractor’s employees work for, but not as employees of, the relevant person, and

(b) the relevant person pays for the work done by the employees in the period in question.

What must be specified in a direction that PAYE be deducted in the case of a mobile workforce?

(3) The direction must specify the relevant person and the contractor to whom it relates. It must be notified to the relevant person and it may be withdrawn at any time by written notice to the relevant person.

Must Revenue ensure that the contractor receives a copy of any direction notice that relates to him/her?

(4) Yes.

What must a relevant person do under a direction from Revenue?

(5) A relevant person must operate PAYE where:

(a) Revenue have issued a direction under (2), and

(b) employees of a contractor specified in the direction work for him/her, but not as his/her employees.

Section 986 Regulations

What regulations have been made by Revenue regarding the assessment, charge and collection of employers’ PAYE?

(1) Regulations made by the Revenue Commissioners governing the assessment, charge, and collection of employers’ PAYE, may cover:

(a) Tax deduction card details (tax rates, allowances, deductions, reliefs) to be used by the employer when making the deduction.

(b) Treatment of the employer as an accountable person in respect of PAYE deducted from his/her employees.

(c) Inspection of payroll records by authorised Revenue officers.

(d) Collection and recovery of PAYE deducted from employees.

(e) Appeals in relation to matters covered by regulations.

(f) Deduction of tax at the standard rate and higher rate, as appropriate.

(g) Operation of PAYE by the employer on the employee’s income after deduction of contributions to a permanent health benefit scheme (section 471), an employee pension scheme (Part 30 Chapter 1), a self-employed pension scheme (Part 30 Chapter 2), or PRSA (Part 30 Chapter 2A).

(h) Obligation on an employer who pays emoluments above the limits (see (5)), to notify Revenue that he/she is an employer.

(i) Obligation in an employer who pays emoluments above the limits (see (5)), to keep an up-to-date register of employees.

(j) Treatment of persons as employers, as required.

(k) Collection and recovery, through the PAYE system, of tax other than income tax.

(l) Collection and recovery, from the employee, of tax which the employer has failed to deduct.

(m) Requiring an employer who pays emoluments to provide Revenue, on the prescribed form, information in relation to the payment of emoluments and the tax deducted from such emoluments.

(n) Enabling Revenue to provide an electronic system which allows employers and employees to fulfil their PAYE obligations and allows communication between Revenue, employers and employees.

(o) Requiring Revenue to notify Revenue within the time limit of particulars relating to an employee.

(p) Requiring an employer who pays emoluments in excess of the limit to register with Revenue.

The basic PAYE regulations are the Income Tax Employments Consolidated Regulations 2001 (SI 135/2001).

Do legally binding regulations affect any other right of appeal that an employee may have?

(2) Although the regulations are legally binding on employers, they do not affect any other right of appeal an employee may have.

What are an employer’s obligations in relation to tax deduction cards?

(3) An employer must prepare a tax deduction card for each employee to ensure that the tax deducted from his/her emoluments over the course of the tax year amounts to the total estimated tax he/she is required to pay for the year on those emoluments, after allowing for any under or over deductions brought forward from previous tax years.

This ensures that an employee’s tax on his/her cumulative earnings for a period up to his/her latest pay date in the tax year is the same fraction of the total year’s tax as that period is of the year. On each pay day, the employee’s tax is reviewed back to the start of the tax year.

Can figures stated for reliefs on a tax deduction card be rounded?

(4) Yes – the figures stated on a tax deduction card for reliefs may be rounded up to the nearest convenient figure. Any underallowance due to such rounding is to be carried forward to the next tax year.

To what rates of pay must an employer apply PAYE?

(5) PAYE applies to full-time employees with emoluments above:

(a) €8 per week, or

(b) €36 per month.

PAYE applies to part-time employees with emoluments above:

(a) €2 per week,

(b) €9 per month.

What are the rules apply to employees engaged for domestic duties?

(6) Since 6 June 1997, an employer of an employee engaged solely in domestic duties (including childminding) in his/her home need not operate PAYE on that employee if there is only one such employee and that employee is paid less than €40 per week.

The main aim of this amendment is to reduce the administrative burden for individuals who employ someone on domestic duties for a few hours a week and who, but for this amendment, would have to register as employers for PAYE purposes (Inspector Manual 42.4.33).

Can Revenue notify an employer where they are satisfied that there is no need to operate PAYE?

(6A) Yes.

Must regulations in relation to PAYE be laid before and passed by Dáil Éireann?

(7) Yes.

Section 987 Penalties for breach of regulations

What penalties apply for breach of PAYE regulations?

(1) a penalty of €4,000 applies for failure to:

(a) comply with PAYE regulations relating to filing of returns,

(b) pay income tax to the Collector-General,

(c) deduct PAYE as required,

(d) register with Revenue as an employer,

(e) keep and maintain a register of employees.

What penalty applies for failure to file a P35 return?

(1A) A penalty of €1,000 for each month or part of a month the return is outstanding, subject to a maximum penalty of €4,000, applies if a P35 return is not filed.

Is the secretary of a company that breaches PAYE regulations subject to a separate penalty?

(2) Where the non-compliant person mentioned in (1) or (1A) is a body of persons, a separate penalty of €3,000 applies to the secretary of the body.

In penalty proceedings, what status does a certificate signed by a Revenue officer have?

(4) In penalty proceedings, a certificate signed by a Revenue officer stating that:

(a) a return, statement, notification or certificate was not received,

(b) wage sheets or other documents were not produced for inspection,

(c) the defendant did not pay tax to the Collector-General,

(d) the defendant did not deduct PAYE from emoluments,

is evidence, until the contrary has been proved, of those facts.

In penalty proceedings, a certificate signed by a Revenue officer certifying that a return was sent to the defendant on a stated day is evidence, until the contrary has been proved, that the defendant received that return.

In penalty proceedings, a certificate signed by a Revenue officer certifying that the defendant was an employer (or a person registered for PAYE purposes as an employer) is evidence, until the contrary has been proved, of those facts.

A certificate signed by a Revenue officer may be tendered in evidence without proof, and is deemed, until the contrary has been proved, to have been signed by the Revenue official.

Section 988 Registration of certain persons as employers and requirement to send certain notifications

What powers do Revenue have to compulsorily register an employer for PAYE/ PRSI purposes?

(1) Revenue may compulsorily register an employer who is not registered for PAYE purposes, and notify him/her of the registration.

Revenue may collect estimated employers’ PAYE: Bernard and Shaw Ltd v Shaw, (1951) 30 ATC 187.

Can an employer appeal against a compulsory registration?

(2) A person who claims that he/she is not liable to be registered as an employer may appeal to the Appeal Commissioners within 14 days of receiving the compulsory registration notice. Their decision on the matter is final and conclusive.

If no appeal is made, or on appeal, the Appeal Commissioners determine against the employer, he/she to be regarded as registered as an employer for PAYE purposes.

If the Appeal Commissioners determine in the person’s favour, Revenue must delete his/her name from the register of employers.

What obligation does an employer have to make a PAYE return for an income tax month?

(3) An employer who has no PAYE liability for an income tax month must make a nil return for that month.

Revenue must be notified within 14 days of ceasing to pay emoluments.

What penalties apply to am employer who fails to file a P30 return for an income tax month?

(4) A penalty of €1,000 for each month or part of a month your return is outstanding, subject to a maximum penalty of €4,000 applies where you do not comply with (3). In the case of a body of persons, a separate €3,000 penalty applies to the secretary of the body.

The rules regarding enforcement (section 987(3)) and evidence in proceedings (section 987(4)) also apply to such penalties.

Section 989 Estimation of tax due for income tax months

Can Revenue estimate PAYE/ PRSI for an income tax month?

(1)-(2) Where Revenue believe that an employer is liable under the PAYE regulations (section 986) to pay employers’ PAYE for an income tax month and has not done so, they may estimate the tax that should have been paid and notify the employer of this estimate.

Can an employer appeal an estimate for a PAYE month?

(3) An employer who claims not to be liable to make an employers’ PAYE return for a month may appeal to the Appeal Commissioners within 14 days of receiving the PAYE estimate. Their decision on the matter is final and conclusive.

If no appeal is made, the 14 day period expires, or on appeal, the Appeal Commissioners determine against the employer, he/she must pay the estimated tax as if he/she were an employer for PAYE purposes and the tax was employers’ PAYE owed for the income tax month in question.

If the employer makes a PAYE return for the income tax month in question, the estimate is cancelled, any estimated tax paid is to be offset against the PAYE liability, and any tax overpaid is to be repaid. He/she must also pay any interest and costs.

If the collection of the PAYE estimate is at enforcement (with the county registrar or sheriff for collection, see section 960L), the estimate is not to be cancelled until the enforcement action is completed (i.e., until the tax is paid).

Where an estimated notice of assessment is paid, Revenue may, if they have reason to believe that the estimated amount was insufficient, increase the estimate and notify the taxpayer accordingly.

For what period of time can Revenue estimate PAYE?

(4) A PAYE estimate may cover two or more income tax months.

Can Revenue delegate their authority to estimate PAYE/PRSI to a nominated officer?

(5) Yes.

Section 990 Estimation of tax due for year

What can an inspector, who has reason to believe that employers’ PAYE has been underpaid, do?

(1) An inspector who has reason to believe that employers’ PAYE has been underpaid in a tax year may estimate the tax underpaid for that year, and issue an assessment notice to the employer detailing:

(a) the estimated total employers’ PAYE payable for that tax year,

(b) the tax paid for the year, and

(c) the tax underpaid.

What happens to a PAYE estimate if the actual return is filed?

(1A) This rule applies where an employer failed to file a P35 and has been sent an estimate of PAYE underpaid.

If the return is filed and any balance of tax due as shown on the return is paid within 14 days of the date of the estimate notice, the estimate notice is treated as discharged, and any tax overpaid may be repaid.

If within 14 days, the employer does not file the return and pay the tax due with interest and costs, the estimated notice of assessment stands good and the tax shown on the notice of assessment is due and payable as if it had been PAYE deducted by you.

The option to displace the estimate with the actual return together with a remittance in respect of the tax due does not apply if collection of the estimated tax is at enforcement stage, i.e., if the collection of the estimated tax is currently being handled by the sheriff or county registrar.

Where an estimated notice of assessment is paid, Revenue may, if they have reason to believe that the estimated amount was insufficient, increase the estimate and notify you accordingly.

What can an employer, who considers an estimated underpayment to be excessive, do?

(2) An employer who feels that the estimated underpayment is excessive may appeal in writing to the Appeal Commissioners within 30 days of receiving the notice, provided the P35 for the year in question has been filed.

If no appeal is made, the 30 day period expires, or on appeal, the Appeal Commissioners determine against the employer, he/she must pay the estimated tax (amended as necessary at appeal) as if it were a Schedule E assessment on him/her.

Can an estimate of PAYE underpaid by an employer cover two or more years?

(3) Yes.

Section 990A Generation of estimates by electronic, photographic or other process

What is the status of computer-generated estimates in respect of unpaid employers’ PAYE?

Computer-generated estimates in respect of unpaid employers’ PAYE (which may be monthly: section 989, or annually:section 990) are deemed to have been made, to the best of his/her opinion, by the officer or inspector (the nominated officer) whose name appears on the estimate notice.

Details of such estimates may be transmitted electronically to the Collector-General (section 928).

Section 991 Interest

What is the interest charge on late payment of employers’ PAYE?

(1) Interest is charged at the following rates for each day PAYE remains unpaid:

(a) 0.0274% from 1 July 2009,

(b) 0.0322% from 1 April 1998 to 30 June 2009,

(c) 0.0410% from 1 August 1978 to 31 March 1998,

(d) 0.0492% before 1 August 1978.

IHow is interest charged on PAYE returns during a year where an underpayment arises?

(1A) Interest is charged on employers’ PAYE that is paid later than 14 days after the end of the tax year, as follows:

(a) where the underpaid tax does not exceed 10% of the employer’s liability, from the fourteenth day after the tax year, and

(b) where the underpaid tax exceeds 10% of the employer’s liability, from:

(i) 31 October 2000, as respects the tax year 2000-01,

(ii) 31 September 2001, as respects the short tax year 2001,

(iii) 31 July 2002 as respects the calendar tax year 2002, and 31 July for future tax years.

This is designed to inhibit the practice by which employers make reduced monthly payments of PAYE and then make up the shortfall in the P35. Interest is therefore charged in such cases from one month after the midpoint in the tax year.

How is interest calculated where a monthly return is made within one month of receiving an interest demand?

(1B) If the monthly PAYE returns for a tax year are filed within one month of receiving an interest demand mentioned in (1A), the interest must be calculated by reference to the returns (and not on the basis mentioned in (1A)).

Is the same rate of interest charged on unpaid monthly and on yearly estimates of employer PAYE?

(2) Yes – interest is charged at the same rate on unpaid monthly or yearly estimates of employers’ PAYE (sections 989,990).

Section 991A Payment of tax by direct debit

Amendments

Section 991A inserted by Finance Act 2001 section 237(c) from 6 April 2001.

Where, for a year of assessment (being the year of assessment 2000-2001 or a subsequent year of assessment)―

(a) an employer has been authorised by the Collector-General in accordance with [INVALID LINK of the Income Tax (Employments) (Consolidated) Regulations 2001 (S.I. No. 559 of 2001)]1, to remit income tax for a period longer than an income tax month, and

(b) such authorisation is subject to the condition that the employer is required each month to pay an amount to the Collector-General by direct debit from the employer’s bank account,

then, the provisions of section 991 shall apply to any tax in respect of that year of assessment which is paid by the employer after the end of that year.

Amendments

1 Substituted by Finance Act 2002 section 138 and Schedule 6 para 3(s) as on and from 1 January 2002.

Section 992 Appeals against estimates under section 989 or 990

Can an employer appeal against a PAYE estimate?

The tax appeal procedures (Part 40) are available to an employer who disputes an inspector’s monthly (section 989) or yearly (section 990) estimate of PAYE owed as if the estimate were an income tax assessment.

The Appeal Commissioners must hear and determine such an appeal in the same manner as an appeal against an income tax assessment. There is a right, where necessary, to have the case reheard by a Circuit Court Judge. There is also also have a right to have a case stated for the opinion of the High Court on a point of law.

Section 993 Recovery of tax

Amendments

Section 993 repealed by Finance (No. 2) Act 2008 section 97 and Schedule 4 para 2 as respects any tax that becomes due and payable on or after 1 March 2009

Section 994 Priority in bankruptcy, etc of certain amounts

Amendments

Section 994 repealed by Finance (No. 2) Act 2008 section 97 and Schedule 4 para 2 as respects any tax that becomes due and payable on or after 1 March 2009.

Section 995 Priority in winding up of certain amounts

Amendments

Section 995 repealed by Finance (No. 2) Act 2008 section 97 and Schedule 4 para 2 as respects any tax that becomes due and payable on or after 1 March 2009.

Section 996 Treatment for tax purposes of certain unpaid remuneration

What definitions apply to the treatment of unpaid remuneration?

(1) This section relates to arrears of wages, salaries, etc accumulated over a period of accrual which:

(a) begins with the first day of the accounting period (period of account) or date the employment began, whichever is later, and

(b) ends with the last day of the accounting period (period of account) or date the employment ceased, whichever is earlier.

When is unpaid remuneration deemed to have been paid and subject to PAYE?

(2) Such unpaid remuneration, if included as a deductible expense in the accounts of a trader or professional person for a 12 month accounting period, or any other period of account, is deemed to have been paid and is subject to PAYE.

Sections 989, 990 and 991 were being circumvented by a device whereby payment of remuneration, particularly of directors’ remuneration, was being deferred by companies postponing indefinitely the voting of the remuneration: Inspector Manual 42.4.23.

When is unpaid remuneration deemed to have accrued for each period of accrual?

(3) In applying PAYE to unpaid remuneration, the unpaid remuneration for each period of accrual is taken as having been paid on the last relevant date in the period of accrual, in other words, the last day of the accounting period (period of account), or if it is earlier, the last day of the employment.

In the case of a period of account longer than 12 months, the relevant date means both the last day of that longer period and any 31 December (before 30 March 2001, any 5 April) falling within that period.

See Inspector Manual 42.4.23

When is unpaid remuneration for a 12 month accounting period not subject to PAYE?

(4) Unpaid remuneration for a 12 month accounting period is not subject to PAYE under (3) if the remuneration is paid within six months of the date on which it is deemed to have been paid.

Unpaid remuneration for a period of account longer than 12 months is not subject to PAYE if the remuneration is paid within 18 months of the first day of the period.

Section 997 Supplementary provisions (Chapter 4)

When can a Schedule E assessment be made on an employee who has paid tax under PAYE in a tax year?

(1) No Schedule E assessment is to be made on an employee for a tax year in which he/she has paid tax through the PAYE system unless:

(a) by written notice, the employee requests the inspector to make an assessment for that tax year,

(b) the emoluments paid in the year include amounts proper to another tax year,

(c) the making of such an assessment would bring income, which might otherwise not be taxed at the higher rate, into charge at the higher rate of tax.

Where a Schedule E assessment is made, the employee must be given credit for tax paid through the PAYE system.

Credit for tax paid is given to the employee for the year in which the tax is paid: Bedford v Hannon, 2 ITR 588.

The employee is not liable for PAYE the employer has failed to deduct: IRC v Herd, [1993] STC 441.In a particular case, the

Appeal Commissioners upheld the inspector’s refusal to give estimated credit (based on the figure shown in the TFA certificate) higher than the tax actually paid: 24 AC 2000.

In what circumstances will a PAYE assessment not be made for any tax year?

(1A) A Schedule E assessment may not be made for any tax year:

(a) where, an employee requests the inspector to make the assessment, unless the assessment is made:

(i) as regards 2002 and previous tax years, within five years of the end of the tax year concerned,

(ii) as regards 2003 and later tax years, within four years of the end of the tax year concerned,

(b) in other cases, within four years of the end of the tax year concerned.

Can an employee demand payment of gross wages from an employer?

(2) An employer who pays the tax deducted to Revenue and pays the net amount to an employee is treated as if he/she had paid the full gross amount to the employee, and is therefore acquitted of the debt to him/her.

What are the characteristics of a P21 balancing statement?

(3) Regulation 37 requires an inspector to send to an employee (upon whom he/she does not propose to raise an assessment) a statement showing the employee’s liability for the year and how he/she proposes to deal with any underpayment or overpayment of tax.

Such a statement, if the inspector so indicates, is to be treated as an assessment on the employee, and in the absence of an appeal, the Collector-General may proceed to recover the tax assessed.

Section 997A Credit in respect of tax deducted from emoluments of certain directors

What is a material interest in a company?

(1)-(2) This is an anti-avoidance section. It applies to a person who has a material interest in a company, i.e., if the person alone, or through connected persons, is able, directly or indirectly, to control more than 15% of the company’sordinary share capital.

How is credit given for PAYE deducted from the emoluments of a person with a material interest?

(3) No credit is given in respect of PAYE deducted from emoluments paid in (2) unless such PAYE has been remitted to the Collector-General by the employer.

What is the priority given to PAYE deducted from persons without a material interest in the company?

(4) PAYE paid by the employer is allocated in priority to employees who do not have a material interest in the company.

How is PAYE allocated between employees with a material interest?

(5) The proportion of the total emoluments which was attributed to each employee is the figure which is considered.

Is there a limit on the credit for PAYE deducted?

(6) The credit for PAYE treated as deducted from a director’s emoluments cannot exceed the tax so deducted.

Can Revenue offset overpayment of PRSI against USC and income tax?

(7) Yes. An employer’s remittances of PRSI are to be offset firstly against employee contributions, then against USC, and lastly against income tax (PAYE).

Can an employer appeal against a Revenue decision on a claim for credit for tax deducted from emoluments?

(8) Yes.

Section 998 Recovery of moneys due

Amendments

Section 998 repealed by Finance (No. 2) Act 2008 section 97 and Schedule 4 para 2 as respects any tax that becomes due and payable on or after 1 March 2009.

Section 999 Taking by Collector-General of proceedings in bankruptcy

Amendments

Section 999 repealed by Finance (No. 2) Act 2008 section 97 and Schedule 4 para 2 as respects any tax that becomes due and payable on or after 1 March 2009.

Section 1000 Priority in bankruptcy, winding up, etc for sums recovered or deducted under section 531, 989 or 990 Commentary

Amendments

Section 1000 repealed by Finance (No. 2) Act 2008 section 97 and Schedule 4 para 2 as respects any tax that becomes due and payable on or after 1 March 2009.

Section 1001 Liability to tax, etc of holder of fixed charge on book debts of company

This section reverses the effect of the Supreme Court decision in Keenan Brothers Ltd, [1985] ILRM 641, where the court ruled that a bank which held a fixed charge had a super preferential status in a liquidation, in priority to all other preferential creditors (including Revenue). The section deters such activity by removing the super preferential status of the fixed charge holder.

When will a fixed charge holder be made liable for VAT/PAYE arrears of a company?

(1)-(2) The holder of a fixed charge created on book debts of a company is liable to pay any VAT/PAYE arrears (relevant amount) owed by that company. Collection proceedings may be taken against him/her if he/she refuses to pay the company’s VAT/PAYE arrears.

When will a fixed charge holder not be made liable for VAT/PAYE arrears?

(3) To be made liable for the company’s VAT/PAYE arrears, the holder must first be notified by Revenue of the potential liability to pay those arrears.

From 2 April 2007, a holder may not be made liable on debt repayments received for any period prior to the Revenue notification if, within 21 days of the creation of the fixed charge, he/she sends the following details to Revenue:

(i) The name of the company the debts of which are subject to charge.

(ii) Its companies registration office (CRO) number.

(iii) Its tax registration number.

(iv) The date the fixed charge was created.

(v) The holder’s name and address.

What is the limit of a fixed charge holder’s liability?

(4) His/her liability is limited to the total debt repayments he/she received from the company while the fixed charge exists.

His/her liability is then further restricted to debt payments received from the company after Revenue’s notification of potential liability under this section.

Can Revenue withdraw notification served on a fixed charge holder?

(5) Yes.

Can Revenue delegate their authority in giving notice to a fixed charge holder?

(6) Yes – Revenue may delegate their authority under this section to a nominated Revenue officer.

Section 1002 Deduction from payments due to defaulters of amounts due in relation to tax

How do Revenue collect tax by issuing a notice of attachment?

(1) Revenue may collect tax owed by a taxpayer under the law relating to income tax, corporation tax, capital gains tax, value added tax, capital acquisitions tax, stamp duties, customs and excise (the Acts) by issuing a notice of attachment to you as a debtor (relevant person) who owes a debt to the taxpayer.

A debtor who receives the notice of attachment must pay any debts and additional debts owed to the taxpayer directly to Revenue during the relevant period, in other words, until the specified amount in the notice of attachment is cleared, the notice is revoked, or the debtor becomes insolvent.

This power of attachment applies to money placed on deposit, with or without interest, with a bank or holder of a banking licence (financial institution), including the taxpayer’s proportionate share of a joint account. Money placed in a joint account is deemed to be held in equal shares with other joint account holders (the other parties), unless the bank is informed to the contrary within 10 days of telling the account holders that a notice of attachment has been received in respect of the account.

The power of attachment does not apply to wages etc. owed to an employee, or to a part of a debt that is in dispute.

The Revenue power to attach debts is similar to a garnishee order used in civil proceedings.

A notice of attachmentor other notice may be delivered by electronic means.

What information must be shown in a notice of attachment issued by Revenue?

(2) Revenue may collect outstanding tax by issuing a notice of attachment to aperson (relevant person) who owes a debt to the defaulter. The notice must show the taxpayer’s name and address, and the total tax, interest and penalties (the specified amount) owed by the defaulter at the date of the notice. Revenue may issue multiple attachment notices in respect of a specified amount, but if they do, the tax specified in the notices must total to the specified amount. In other words, the tax specified in one of the multiple attachment notices may only refer to a part of the taxpayer’s arrears, and not to his/her aggregate or total arrears.

The notice must direct the person, on receiving the notice, to make a written debtor return to Revenue, within 10 days of the date shown on the notice, showing how much is owed to the defaulter, and pay the debt, up to the amount specified in the notice, directly to Revenue.

Where the relevant person is a bank, and the debt owed to the taxpayer is part of an account, held jointly with other account holders (the other parties), the bank must issue a notice to the joint account holders, deeming the deposit to be held in equal shares by them (unless evidence is produced to the contrary within 10 days), and stating:

(a) the name and address of the taxpayer,

(b) the name and address of the joint account holder to whom the notice is issued,

(c) the name and address of the bank,

(d) the specified amount.

The notice must also state that unless evidence is produced to show that the account is not held in equal shares, the taxpayer’s proportionate share of the deposit is to be paid to Revenue, up to the specified amount.

What must Revenue do before issuing a notice of attachment?

(3) The tax specified in a notice of attachment must be at least 14 days outstanding.

Before issuing the notice of attachment, Revenue must inform the taxpayer that unless the tax is paid within seven days, it may be included in a notice of attachment.

Where a notice of attachment is for an amount greater than the debt to a company, what must be done?

(4) Where a debt to the taxpayer is less than the amount specified in the notice of attachment, and the debt to the taxpayer increases after the notice is received, a return must be made, within 10 days, to Revenue informing them of the increase and the additional debt, or appropriate portion of that debt, must be paid to Revenue. This process is to continue until the specified amount shown in the notice of attachment is cleared.

What penalties apply for fraudulently or negligently delivering an incorrect debtor return?

(5) A person who delivers a fraudulently or negligently completed debtor return may be prosecuted under the criminal proceedings for Revenue offences (section 1078).

Can a debtor of a company in receipt of a notice of attachment reduce the debt owed to the taxpayer?

(6) On receiving a notice of attachment, a person may not, unless by order of a court, reduce the debt (or additional debt) owed to the taxpayer. If, having been ordered not to, he/she does reduce the debt, the debt is to be regarded as not reduced for the purposes of the notice of attachment.

What penalties apply for failure to comply with a notice of attachment?

(7) The penalty for failure to file a return (section 1052), as increased, where appropriate in the case of a body of persons (section 1054), applies to failure to file a return under this section.

In court proceedings to obtain a penalty judgment, a certificate signed by a Revenue officer certifying that according to Revenue records, no debtor return was received is evidence, until the contrary is proved, that a person did not deliver the return. Such a certificate may be tendered in evidence without proof and is deemed, until the contrary has been proved, to have been signed by the Revenue officer in question.

What powers do Revenue have to take proceedings against a debtor?

(8) If a person files the debtor return, but does not pay the debt to Revenue, Revenue may, if the attachment notice has not been revoked, take court proceedings against the person to collect the amount shown on the return.

Can a debtor be criminally prosecuted for failure to make a debtor return or pay the debt shown in a notice of attachment?

(9) No.A person who fails to make a debtor return, or pay the debt shown on the return to Revenue, may not be prosecuted under the criminal proceedings for Revenue offences (section 1078).

In what circumstances must Revenue revoke a notice of attachment?

(10) If the taxpayer pays the tax in respect of which the notice of attachment was issued, Revenue must immediately revoke the attachment notice.

If the combined amount paid by the taxpayer and the debtor is greater than the amount shown in the notice of attachment, the excess must immediately be refunded to the taxpayer.

What obligations do Revenue have to send a copy of a notice of attachment to a taxpayer?

(11) When a notice of attachment is sent to a debtor, a copy must be sent to the taxpayer.

What obligations are there to inform a taxpayer of payments made under a notice of attachment?

(12) When complying with a notice of attachment by paying a debt directly to Revenue, the debtor must inform the taxpayer of the amount paid and the reason for the payment.

On receiving a direct payment from a debtor who is complying with a notice of attachment, Revenue must notify both the debtor and the taxpayer of the receipt.

When a debtor pays the amount noted in the notice of attachment to Revenue, how must the taxpayer treat the debt?

(13) A person who, in complying with a notice of attachment, pays an amount directly to Revenue is to be treated as if the amount was paid to the taxpayer, who must allow the amount to be paid directly to Revenue.

Can a creditor sue a debtor for any part of the debt?

(14) Court proceedings may not be taken by a creditor against a debtor who is prohibited by this section from making any payment from the debt.

Are Revenue bound by the official secrecy rules as regards any information contained in a notice of attachment?

(15) No.

What persons under liquidation are precluded from receiving a notice of attachment?

(16) A notice of attachment may not be sent to an undischarged bankrupt, or a company in liquidation.

What powers of delegation do Revenue regarding notices of attachment?

(17) The Revenue Commissioners may delegate their authority under this section to a nominated Revenue officer.

Revenue attachment manual

Section 1003 Payment of tax by means of donation of heritage items

What definitions apply to payment of tax by means of donation of heritage items?

(1) A taxpayer may pay arrears of income tax (but not relevant contracts withholding tax or employers’ PAYE), corporation tax (but not advance corporation tax), capital gains tax, or capital acquisitions tax (tax owed under the Acts) by making a gift of a heritage item (relevant gift), for no consideration, to an approved body:

(a) the National Archives,

(b) the National Gallery of Ireland,

(c) the National Library of Ireland,

(d) the National Museum of Ireland,

(e) the Crawford Art Gallery Cork Limited,

(f) the Irish Museum of Modern Art,

(g) any other State-owned or State-funded body approved by the Minister for Arts, Sports and Tourism, with the consent of the Minister for Finance.

The approved body’s designated officer is the person who represents the body on the selection committee, or if the body is not represented on the selection committee, a person nominated by the Minister for Arts. The selection committee consists of:

(a) an official from the Department of Arts, Sports and Tourism (who will act as chairperson of the committee),

(b) the Chief Executive of the Heritage Council,

(c) the Director of the Arts Council,

(d) the Director of the National Archives,

(e) the Director of the National Gallery of Ireland,

(f) the Director of the National Library of Ireland,

(g) the Director of the Crawford Art Gallery Cork Limited,

(h) the Director of the National Museum of Ireland,

(i) the Director and Chief Executive of the Irish Museum of Modern Art.

The selection committee may act if one or more of the membership posts is currently vacant.

An existing committee member who cannot fulfil his/her duties due to illness, absence etc, may nominate a person to deputise for him/her on the selection committee.

The taxpayer’s arrears of tax, which may include interest and penalties, must, in the case of income tax, capital gains tax and corporation tax, relate to a relevant period. This means, in the case of income tax and capital gains tax, any tax year preceding the year in which the gift is made. In the case of corporation tax, it means an accounting period preceding the accounting period in which the gift is made.

After arrears of tax have been cleared, the value of the gift may be used to pay the taxpayer’s current liability (to tax). This means, in the case of income tax and capital gains tax, tax due for the tax year in which the gift is made. In the case of corporation tax, it means tax due for the accounting period in which the gift is made. In the case of gift tax or inheritance tax, it means tax owed for the calendar year in which the gift was made.

What is a heritage item?

(2) A heritage item is any kind of cultural item (archaeological item, archive, book, estate record, manuscript or painting), or collection of cultural items, which the selection committee, on receipt of a written application from the owner, and after consulting with such persons as they deem necessary, determine:

(a) is pre-eminent in its class, and whose export from the State would reduce Ireland’s accumulated cultural heritage, or whose import into the State would enhance Ireland’s accumulated cultural heritage,

(b) is suitable for acquisition by an approved body.

In considering an application, the selection committee must consider both the evidence of the applicant and the written evidence of both the approved body to whom the gift will be made, and the Heritage Council or Arts Council or other appropriate body.

In making a decision, the selection committee may not include the committee member who represents the approved body to which the gift is intended to be made. However the member may participate in any discussion of the applicationbefore the decision is made.

The selection committee must not make a determination in respect of a collection of items unless it is satisfied that it could make a determination in respect of at least one item comprised in the collection if such were required.

On receiving a written application, the selection committee must write to Revenue asking them to value the item in question.

The selection committee may only make determinations in respect of a heritage item if:

(a) the item’s market value is not less than €150,000 (in the case of a collection, the collection must have existed for 30 years and each item must have been part of the collection for that period), and

(b) the total market value of all heritage item approvals in that year is not greater than €6,000,000.

An item ceases to qualify as a heritage item if:

(a) it is sold or disposed of to a person other than an approved body,

(b) the item’s owner notifies the selection committee that he/she does not intend to donate it to an approved body,

(c) the item is not donated to an approved body before the end of the calendar year after the year in which the determination is made.

The selection committee, on becoming aware (within the year in which the determination is made) that (a) or (b) has happened in relation to an item for which a determination has been given, may revoke its determination.

How is the market value of heritage items determined?

(3) The market value of an item or collection of items (the property) is the price it might fetch if sold in the open market in conditions that would favour obtaining the best price for the seller.

Revenue may ascertain a property’s market value in such manner as they see fit. The property owner must allow an expert, authorised by Revenue, to inspect and value the property.

Revenue must defray any costs incurred by the expert in valuing the property.

In the case of a property acquired at auction, the market value is deemed to include the auctioneer’s fees and any non-deductible VAT on such fees.

What documentation must be issued by the designated officer of an approved body in receipt of a gift of heritage item?

(4) The designated officer of the approved body receiving the gift must give a certificate, on the Revenue approved form, to the donor of the gift, certifying that ownership of the gift has been transferred to the approved body. The designated officer must send a copy of the certificate to Revenue.

How will a donor receive credit for payment of tax?

(5) A certificate obtained by the donor in respect of a relevant gift may be given to Revenue in satisfaction of tax equal to the gift’s market value on the date the application was made to the selection committee (valuation date)

How will a tax payment of a donor by means of a certificate be set off against his/her tax liabilities?

(6) A tax payment made by means of a certificate is first set against the donor’soldest arrears of tax, then more recent arrears, and then against any current liability nominated by him/her.

How is the excess of a certificate’s value treated?

(7) Any excess of the certificate’s value after clearing the arrears of tax and current liability may be carried forward for set off against a future tax liability nominated by the donor.

Is it permissible for a donor to donate a heritage item in satisfaction of gift tax or inheritance tax?

(8) A heritage item which a donor has power to sell to pay gift tax or inheritance tax may be donated as a relevant gift in satisfaction of such tax.

Can a donor obtain a refund of tax on donation of a heritage item?

(9) Where the use of a certificate to pay tax results in an overpayment of tax, the excess may not be refunded. It may only be carried forward against future tax liabilities (see (7)).

If a certificate is used to pay tax, can interest be received on any overpayment of tax arising?

(10) No. Interest is not payable on any overpayment of tax resulting from the use of a certificate to pay tax.

Does a relevant gift used towards payment of tax qualify for any other relief under IT, CGT or CAT?

(11) A relevant gift which is used towards payment of tax does not qualify for any other relief under income tax, capital gains tax, corporation tax or capital acquisitions tax law.

What responsibilities do Revenue have to provide a list of heritage items which have qualified for this relief?

(12) The Revenue Commissioners must compile a list of heritage items which have qualified for this relief, and publish that list in their annual report to the Minister for Finance. The official secrecy rules do not apply in this regard.

The relief is, in effect, a non-refundable tax credit to the value of the donated heritage item.

See Revenue leaflet HET1, Relief for donation of heritage items.

Section 1003A Payment of tax by means of donation of heritage property

How can a payment of tax be discharged by means of donation of heritage property?

(1) A person may pay arrears of tax, i.e., income tax (other than dividend withholding tax, relevant contracts tax and employers’ PAYE), corporation tax, capital gains tax, gift tax and inheritance tax, by making a gift of heritage property(a relevant gift) to the Irish Heritage Trust (the Trust).

Arrears of tax, which may include interest and penalties, means:

(a) in the case of income tax, capital gains tax and corporation tax, tax owed for a relevant period:

(i) as regards income tax and capital gains tax, any tax year preceding the year in which the gift is made,

(ii) as regards corporation tax, any accounting period preceding the accounting period in which the gift is made,

(b) in the case of gift tax and inheritance tax, before the calendar year in which the gift is made.

After arrears of tax have been cleared, the value of the gift may be used to clear a current liability to tax. This means:

(a) in the case of income tax and capital gains tax, tax owed

(i) as regards income tax and capital gains tax, for the tax year in which the gift is made,

(ii) as regards corporation tax, for the accounting period in which the gift is made,

(b) in the case of gift tax and inheritance tax, for the calendar year in which the gift is made.

How is “heritage property” defined?

(2) A heritage property is a building or garden which the Minister for the Environment, Heritage, and Local Government (the Minister), on receipt of a written application from the owner, has determined to be:

(i) an outstanding example of the type of building or garden involved,

(ii) pre-eminent in its class,

(iii) intrinsically of significant aesthetic, architectural, historical, horticultural national or scientific interest,

(iv) suitable for acquisition by the Trust.

The term includes outbuildings, yards, gardens, the contents of the building and ancillary land needed for access and parking.

Ancillary land not owned by the donor may be donated by its owner if it is deemed necessary for access to the main property.

In considering an application, the Minister must consider your evidence.

On receiving a written application, the selection committee must write to Revenue asking them to value the property in question.

The Minister may only make a determination in respect of a heritage property if the total market value of all heritage property approvals in that year is not greater than €6,000,000 (€8,000,000 for the tax year 2008).

A property ceases to qualify as heritage property if:

(a) it is sold or disposed of to a person other than the Trust,

(b) the owner notifies the Minister that he/she does not intend to donate it to the Trust,

(c) the property is not donated to the Trust before the end of the calendar year after the year in which the determination is made.

The Minister, on becoming aware (within the year in which the determination is made) that (a) or (b) has happened in relation to a property for which a determination has been given, may revoke the determination.

How is the market value of a heritage property determined?

(3) The market value of a property is the price it might fetch if sold in the open market in conditions that would favour obtaining the best price for the seller.

Revenue may ascertain a property’s market value in such manner as they see fit. The property owner must allow an expert, authorised by Revenue, to inspect and value the property.

Revenue must defray any costs incurred by the expert in valuing the property.

What certificate must the Irish Heritage Trust issue when the ownership of a gift has been transferred?

(4) The Trust or the Commissioner of Public Works must give a certificate, on the Revenue approved form, to the donor of the gift, certifying that ownership of the gift has been transferred to the Trust. The Trust must send a copy of the certificate to Revenue.

How does a donor receive credit for tax payment by means of donation of heritage property?

(5) A certificate obtained by a donor in respect of a relevant gift may be given to Revenue in satisfaction of tax equal to 50% of the gift’s market value on the valuation date.

How is tax payment by means of a certificate set off against a donor’s tax liabilities?

(6) A tax payment made by means of a certificate is first set against the donor’s oldest arrears of tax, then more recent arrears, and then against any current liability nominated by the donor.

How is any excess of the certificate’s value treated after discharge of the donor’s liabilities?

(7) Any excess of the certificate’s value after clearing the arrears of tax and current liability may be carried forward for set off against a future tax liability nominated by you.

Can a donor donate a heritage property in order to pay for gift or inheritance tax?

(8) Heritage property, which a person has power to sell to pay gift tax or inheritance tax, may be donated as a relevant gift in satisfaction of such tax.

Can a donor obtain a refund of tax on a donation of heritage property?

(9) Where the use of a certificate to pay tax results in an overpayment of tax, the excess may not be refunded. It may only be carried forward against future tax liabilities (see (7)).

Can interest be received on any overpayment of tax from the use of a certificate?

(10) Interest is not payable on any overpayment of tax resulting from the use of a certificate to pay tax.

Can a relevant gift towards payment of tax qualify for any other tax relief under IT, CGT or CAT?

(11) A relevant gift which is used towards payment of tax does not qualify for any other relief under income tax, capital gains tax, corporation tax or capital acquisitions tax law.

What special tax relief arises in connection with the collection of paintings at Fota House?

(11A) During 1983 to 1990, a collection of paintings and furniture was on display at Fota House, County Cork. The owner would not qualify for relief on giving this collection to the State, as he does not own Fota House (the collection would need to be given with the house to qualify for relief).

To enable the gift of the collection to qualify for tax relief, the following changes are made:

(a) The limit for relief is raised, for 2008 only, to €8m (from €6m).

(b) If Fota House is acquired by the Trust, the collection will be treated as forming part of the contents of the building.

The completion date for the acquisition of the Fota collection is extended to 31 Decmember 2008.

What responsibilities do Revenue have to provide a list of heritage properties which have qualified for this relief?

(12) The Revenue Commissioners must compile a list of heritage properties which have qualified for this relief, and publish that list in their annual report to the Minister for Finance. The official secrecy rules do not apply in this regard.

Section 1004 Unremittable income

Where it is not possible to remit income, what can Revenue do to collect income tax and CT?

(1)-(3) Where an assessment to income tax or corporation tax is not paid because income included in the assessment arising outside the State (particular income) cannot be remitted by reason of legislation or executive action in the source country, Revenue may suspend collection of the part of the assessment relating to the particular income.

Can Revenue request information to verify that income cannot be remitted to the State?

(4) Yes, they may request any information necessary to verify this.

Can a taxpayer, aggrieved by a Revenue decision as to whether income is unremittable, appeal?

(5) A person who is aggrieved by a Revenue decision as to whether income is unremittable may appeal to the Appeal Commissioners within 21 days of the decision. The Appeal Commissioners must treat the appeal as if it were an appeal against an income tax assessment. There is a right, where necessary, to have the case reheard by a Circuit Court Judge. There is also have a right to have a case stated for the opinion of the High Court on a point of law.

Section 1005 Unremittable gains

When a taxpayer cannot remit a particular gain, what may Revenue do as regards collection of that tax?

(1)-(3) Where an assessment to capital gains tax is not paid because chargeable gains arising from the disposal of an asset outside the State (particular gains) cannot be remitted by reason of legislation or executive action in the source country, Revenue may suspend collection of the part of the assessment relating to the particular income.

What information can Revenue request to verify that gains cannot be remitted?

(4) Revenue may request any information necessary to verify whether or not gains can be remitted to the State.

Can a taxpayer, aggrieved by a Revenue decision on whether a particular gain is unremittable, appeal?

(5) A person who is aggrieved by a Revenue decision as to whether gains are unremittable may appeal to the Appeal Commissioners within 21 days of the decision. The Appeal Commissioners must treat the appeal as if it were an appeal against an income tax assessment. There is a right, where necessary, to have the case reheard by a Circuit Court Judge. There is also have a right to have a case stated for the opinion of the High Court on a point of law.

See Van Arkadie v Plunket, [1983] STC 54, where relief was denied.

Section 1006 Poundage and certain other fees due to sheriffs or county registrars

What fees or commission is a sheriff or county registrar entitled to charge for enforcing tax collection?

(1)-(2) In enforcing collection of unpaid income tax, corporation tax, capital gains tax, value added tax, capital acquisitions tax, or residential property tax (tax owed by a tax defaulter under the Acts), and interest on such unpaid tax, a sheriff or county registrar is entitled to fees or commission (known as poundage) calculated according to the amount collected by him/her after the execution order has been given to him/her.

Sheriffs and county registrars are entitled to poundage on all tax they collect on foot of certificates and execution orders passed to them, whether or not they seize the taxpayer’s goods in execution of the order.

Fees: Tax Briefing 33.

Section 1006A Offset between taxes

Amendments

Section 1006A repealed by Finance (No. 2) Act 2008 section 97 and Schedule 4 para 2 as respects any tax that becomes due and payable on or after 1 March 2009.

Section 1006B Appropriation of paymentsCommentary

Amendments

Section 1006B repealed by Finance (No. 2) Act 2008 section 97 and Schedule 4 para 2 as respects any tax that becomes due and payable on or after 1 March 2009.

Section 1007 Interpretation (Part 43)

What tax provisions apply to a partner’s partnership activity?

(1) Because a partnership is not a legal entity, the profits of a trade carried on by two or more persons in partnership (a partnership trade) are attributed to the partners. As long as a partnership’s relevant period continues, the partnership is treated as continuing, and each partner is taxed on the profits from his/her share of the partnership trade (several trade) arising in the basis period for a tax year (the period the profits or gains of which are used to compute the income tax liability).

A partnership’s relevant period is the period:

(a) that begins when a partnership trade commences for the first time, or all the partners carrying on a partnership trade are completely replaced,

(b) that continues so long as the partnership trade is carried on by two or more persons, and the partners are not all completely replaced.

In other words, the partnership is viewed as continuing so long as there are at least two partners, and on each change in partnership composition there is at least one common partner before and after the change.

In the case of a partnership the relevant period for which began before 6 April 1965, the relevant period is treated as having begun at the time of the last partial change in partnership composition which was treated for income tax purposes as a commencement. In other words, a partnership relevant period that straddles 6 April 1965 is treated as beginning when the latest partner joined before that date.

The precedent partner of a partnership is the partner, resident in the State, first named in the partnership agreement. If there is no partnership agreement, he/she is the partner who is named singly or with precedence over the other partners in the firm’s name. If the person named with precedence is not an acting partner, the precedent partner is the precedent acting partner.

If there is no partner resident in the State, the precedent partner is taken as the firm’s agent, factor, or manager in the State.

Partnership is “the relation that subsists between persons carrying on business in common with the view to profit” (Partnership Act 1890 section 1).

Although the partnership has no separate legal existence, the precedent partner must file a partnership tax return, so that the inspector may verify how the profit share of each partner is calculated (section 880).

Whether a partnership exists is a question of fact: R v City of London Commissioners, ex parte Gibbs, (1942) 24 TC 221.

A joint venture is not always a partnership. The following were held to be partnership receipts:

(a) Receipts under a profit sharing arrangement between a cotton broker in the US and one in the UK: Morden Rigg and Co and Eskrigge and Co v Monks, (1923) 8 TC 450.

(b) Receipts under a joint crop growing arrangement: Hall (George) and Son v Platt, (1954) 35 TC 440.

(c) Receipts of coal trade carried on a profit sharing basis between a Glasgow coal merchant and a London coal importer for the duration of a coal strike: Gardner and Bowring Hardy and Co Ltd v IRC, (1930) 15 TC 602.

(d) Receipts on land deal: Fenston v Johnstone, (1940) 23 TC 29.

(e) Receipts accruing after the “dissolution” of a partnership: Hillerns and Fowler v Murray, (1932) 17 TC 77.

The following were held not to be partnerships:

(a) A partnership in name only (for example between a trader and his children) which has not been acted on by the “partners”. See Hawker (S W) v Compton, (1922) 8 TC 306; Dickenson v Gross, (1927) 11 TC 614; IRC v Williamson, (1928) 14 TC 335; Calder v Allanson, (1935) 19 TC 293 and Alexander Bulloch and Co v IRC, [1976] STC 514. See also notes to section 798.

(b) A foreign legal entity: Dreyfus v IRC, (1929) 14 TC 560.

(c) A seller continuing to assist the purchaser: Pratt v Strick, (1932) 17 TC 459.

(d) A bad debt recovery: Reynolds and Gibson v Crompton, (1952) 33 TC 288.

A partnership agreement is not retrospective: Ayrshire Pullman Motor Services and Ritchie v IRC, (1929) 14 TC 754;Waddington v O’Callaghan, (1931) 16 TC 187; Taylor v Chalklin, (1945) 26 TC 463 and Saywell and others v Pope, [1979] STC 824.

Does a reference to a given partnership trade include a reference to any partnership which does not involve a complete change of partners?

(2) A reference to a given partnership trade includes a reference to any partnership, which does not involve a complete change of partners, by which the trade was carried on during the relevant period.

Do the tax provisions on the taxation of partnerships apply equally to trades and professions?

(3) Yes.

Section 1008 Separate assessment of partners

How long is a partnership treated as continuing?

(1) As long as a partnership’s relevant period continues, the partnership is treated as continuing, and each partner is taxed on the profits from his/her share of the partnership trade (several trade). Each partner is also allowed his/her share of the charges (annual payments) paid by the partnership.

A partner’s several trade is treated as commencing at the start of the relevant period or at the time he/she joins the partnership during the relevant period. A partner’s several trade is treated as ceasing when the relevant period ends or when he/she leaves the partnership during the relevant period.

Note

A partnership cannot claim a deduction for rent paid in respect of a premises that is owned by the individual partners in the firm. It appears the lease between the partnership and the partners has no legal standing. See Rye v Rye, [1962] AC 486 (Revenue Precedent IT95-3545, 18 October 1995).

In AB v Mulvey, (1946) 2 ITR 55, the taxpayer was able to use the cessation rules to avoid tax on profits of a partnership that only traded for a few months.

All farming carried on by a person in the State, whether solely or in partnership, is to be treated as a single trade (section 655(2)). In view of this, a partnership determination is not necessary in the case of farmers trading in partnership (Revenue Precedent IT89-2031, 7 September 1989).

This precedent relates to a joint assessment case where income was previously returned as income of one spouse, and whether the spouses’ claim that they were in partnership could be sustained. Whether a husband and wife are and have been in partnership is always a question of fact. The onus is on the claimants to show, as a point of fact, that they are and were in partnership (Revenue Precedent IT97-2506, 20 June 1997).

What determines the profit of a partner’s several trade?

(2) The profits of a partner’s several trade are his/her share of the partnership profits calculated in accordance with the profit-sharing ratio set out in the partnership agreement.

For accounting periods ending on or after 1 January 2007, unallocated partnership profits (which were previously under subs (4) assessed on the precedent partner, at the standard rate) are to be apportioned among the partners in their agreed profit-sharing ratio. If no such ratio exists, the apportionment is to be made on the basis of the ratio used for the latest accounts, or failing that, in equal shares.

Where the year or period (period of computation) for the partner’s several trade is part of the period of computation of the partnership trade, the basis of assessment rules (section 65) and rules for apportionment of profits (section 107) apply in computing the profits of the partner’s several trade.

The partnership assessment is apportioned in the profit sharing ratio for the tax year, not the profit sharing ratio for the basis period: Gaunt v IRC, (1913) 7 TC 219; Rutherford v IRC, (1926) 10 TC 683; Lewis v IRC, (1933) 18 TC 174. See also Stevens v Britten, (1954) 33 ATC 399; Conway v Wingate, (1952) 31 ATC 148.

A “salary” paid to a partner is simply a first charge on the partnership profits. If there are three partners, and one is allowed a salary of €20,000 a year, that partner is given the €20,000 before the remaining profit is divided among the partners. The salary, being an allocation of partnership profit, is not deductible in calculating that profit: Stekel v Ellice, [1973] 1 All ER 465.

Interest payable on partner’s capital is similarly regarded as a first charge on profits to the partner receiving the interest.

An arm’s length rent paid by a partnership to a partner is a valid expense and not an appropriation of profit: Heastie v Veitch and Co, (1933) 18 TC 305.

In Hadlee v New Zealand CIR, [1993] STC 294, a partner who assigned part of his share of partnership profits to a trust benefiting his wife and children was held assessable on the assigned income.

How are the profits or losses of the overall partnership trade determined?

(3) The profits or losses of the overall partnership trade are to be determined by the inspector as if the trade began at the start of the relevant period, ceased at the end of the relevant period, and had been carried on throughout the relevant period by a notional partnership entity.

Although in general, a partnership relevant period that straddles 6 April 1965 is treated as beginning when the latest partner joined before that date (section 1007(1)), in calculating the profits of a partner’s several trade, the relevant period is deemed to have begun when the trade first began.

Is the income of a sleeping partner regarded as earned income from the partnership?

(5) Income of a sleeping partner is not regarded as earned income (section 3(2)). The division of the overall partnership’s income among the individual partners’ several trades does not alter this.

A non-resident partner is chargeable to Irish tax on income and profits from Irish sources, and on foreign source income in respect of a trade, profession or employment exercised on the State.

The income attributable to partnership net profits is assessed in the same ratio as the individual’s holding in the partnership. Each partner’s share of the partnership’s net profits or losses is treated as if it were the profits or losses of a separate trade carried on by that partner. In determining the partnership’s net profits or losses, any expenses incurred for the purposes of the partnership may be allowed as a deduction against gross profits. Irish citizens are entitled to a proportion of personal allowances (section 1032) (Revenue Precedent RT 341/96, 16 October 1996).

Section 1009 Partnerships involving companies

How is a partner company taxed on income from its share of the partnership trade?

(1)-(2) For corporation tax purposes, while a partnership’s relevant period continues, a partner that is a company is taxed on the income (profits excluding chargeable gains) from its share of the partnership trade (several trade). Each partner company is also allowed its share of the charges (annual payments) paid by the partnership.

The profits of a partner company’s several trade are its share of the partnership profits calculated in accordance with the profit-sharing ratio set out in the partnership agreement for the income tax year in which the profits arise.

The profits or losses of the overall partnership trade are to be determined by the inspector as if the trade began at the start of the relevant period, ceased at the end of the relevant period, and had been carried on throughout the relevant period by a notional partnership entity.

How is a partner company’s profit share for a tax year apportioned?

(3) Because partnership profits are initially allocated to a tax year, but company profits are made up for an accounting period, a partner company’s profit share for a tax year is to be time-apportioned to the parts of its accounting periods falling within that tax year.

How is a partner’s company appropriate share of an overall partnership joint allowance time-apportioned?

(4)-(5) Similarly, a partner company’s appropriate share of an overall partnership joint allowance (the relevant amount) is to be time-apportioned to, and treated as a deductible trading expense of, the parts of its accounting periods falling within the tax year.

The company’s appropriate share of an overall partnership joint balancing charge must also be time-apportioned to, and treated as a trading receipt of, the parts of its accounting periods falling within the tax year.

A joint allowance (section 1010(2)) for a tax year does not include capital allowances brought forward from a previous tax year. Such allowances are not to be treated as a trading expense of a company partner.

Section 1010 Capital allowances and balancing charges in partnership cases

How can a partner claim capital allowances and be subject to a balancing charge?

(1) A partner who is taxed on the profits from his/her share of the partnership trade (several trade) may claim capital allowances and be subject to a balancing charge in the same way as a sole trader.

What are the rules governing each partner’s share of capital allowances?

(2) A partner is also allowed his/her appropriate share of the capital allowance (joint allowance) that would have been given had the partnership trade begun at the start of the relevant period, ceased at the end of the relevant period, and been carried on throughout the relevant period jointly by the partners (or their predecessors).

A joint allowance for a tax year does not include capital allowances brought forward from a previous tax year (see (8)).

How is a partner’s share of an overall partnership balancing charge allocated?

(3) A partner is also subject to his/her appropriate share of an overall partnership balancing charge.

When is a changes in the ownership of a partnership trade treated as a permanent cessation?

(4) A change of ownership of a partnership trade (where all the partners are completely replaced) is a permanent cessation for tax purposes. The successor partnership is treated as having commenced the trade on the succession date.

Balancing adjustments to be made on the predecessor partnership in relation to property taken over by the successor partnership are to be based on the property’s open market price.

When is a relevant period deemed to have begun?

(5) Although in general, a partnership relevant period that straddles 6 April 1965 is treated as beginning when the latest partner joined before that date (section 1007(1)), in allocating capital allowances and balancing charges to a partner’s several trade, the relevant period is deemed to have begun when the trade first began.

Who determines the joint allowances and charges of the overall partnership trade for each tax year?

(6) The joint allowances and joint charges of the overall partnership trade for each tax year are to be determined by the inspector. The inspector, on becoming aware of any additional relevant information, may revise his/her determination, and make necessary additional assessments or repayments of tax.

How is an appropriate share on an overall partnership joint allowance calculated?

(7) A partner’s appropriate share of an overall partnership joint allowance is calculated according to the profit-sharing ratios pertaining for each different trading period falling within the tax year.

Example

X, Y and Z are in partnership sharing profits in the ratio: X Y Z
1/2 1/4 1/4
Y retires on 1 July 2010
(halfway through 2010)
Thereafter partnership profits are shared: 2/3 1/3

The €3,000 capital allowances 2010 (basis period 31 December 2010) are split:

X Y Z
€1,500 for first half of 2010 750 (1/2) 375 (1/4) 375 (1/4)
€1,500 for second half of 2010 1,000(2/3) 500 (1/3)
1,750 375 875

All the partners concerned, including the personal representatives of a deceased partner, are entitled to make written representations within 24 months of the end of the tax year to which the allowances relate, that this apportionment method would cause hardship. If Revenue accept the representations, they may apply a revised apportionment method and make any necessary additional assessments on, or repayments of tax to, on the various partners.

What is meant by capital allowances brought forward?

(8) A capital allowance brought forward means a capital allowance of a partner’s several trade for a tax year which, because it has not been used (for example, because the partner has made insufficient profits in his several trade to absorb the loss) stands to be carried forward to the next tax year.

Such unused capital allowances may not be used against future profits of the partner’s several trade. Instead, they must be carried forward to be apportioned as a joint allowance in the next tax year.

Who claims the joint allowance on behalf of the individual partners?

(9) When making the partnership return (section 880), the precedent partner claims the joint allowance on behalf of the individual partners. Each partner is then entitled to his/her appropriate share of the joint allowance.

Section 1011 Provision as to charges under section 757

How is a seller of patent rights for a capital sum taxed?

(1) A seller of patent rights for a capital sum is taxed under Schedule D Case IV on the proceeds (section 757). He/she is charged on one-sixth of the proceeds in the chargeable period in which the sum was received, and one-sixth of the proceeds in each of the five succeeding chargeable periods (assuming each such period is 12 months long).

In a partnership each partner is charged with his/her appropriate share of the joint charge.

How is a partner’s appropriate share of an overall partnership joint charge calculated?

(2) A partner’s appropriate share of an overall partnership joint charge is calculated according to the profit-sharing ratios pertaining for each different trading period falling within the tax year.

The partners concerned may make written representations that this apportionment method would cause hardship. If Revenue accept the representations, they may apply a revised apportionment method (section 1010(7)).

Section 1012 Modification of provisions as to appeals

How is the inspector’s determination of the profits or losses or joint charges treated?

(1) The profits or losses, and joint allowances or charges, of the a partnership trade can be determined by the inspector as if the trade had been carried on by a notional partnership entity (sections 1008(3), 1010(6)). The inspector’s notification of his/her determination must be in writing to the precedent partner and is treated as an assessment.

The tax appeal procedures (Part 40) are available to a partner who disputes an inspector’s determination. The Appeal Commissioners must hear and determine the appeal in the same manner as an appeal against an income tax assessment. There is a right, where necessary, to have the case reheard by a Circuit Court Judge. There is also have a right to have a case stated for the opinion of the High Court on a point of law.

What is the effect of an inspector’s determination becoming final and conclusive?

(2) An inspector’s determination that has become final and conclusive on appeal is binding on all the partners concerned. A partner cannot dispute an assessment in respect of the profits of hos/her several trade on the grounds that he/she does not agree the overall partnership profit or loss.

When and how can partners dispute the basis of a time apportionment calculation of their tax liabilities?

(3) Partners whose tax liabilities are affected by time-apportionment may dispute the basis of calculation where:

(a) because the period of computation for the partner’s several trade is part of the period of computation of the partnership trade, the profits of a partner’s several trade are calculated in accordance with the profit-sharing ratio (section 1008(2)), or

(b) a partner’s appropriate share of an overall partnership joint allowance is calculated according to the profit-sharing ratios pertaining for each different trading period falling within the tax year (section 1010(7)).

Such disputes are to be determined by the Appeal Commissioners in the same manner as an appeal against an income tax assessment. Each interested party is entitled to appear before and be heard by the Appeal Commissioners.

Section 1013 Limited partnerships

How is a “limited partner” defined?

(1)-(2) In relation to a trade, a limited partner means any of the following:

(a) A limited partner in a limited partnership registered under the Limited Partnership Act 1907.

(b) A general partner in a partnership who cannot participate in the management of the trade, but whose liabilities are effectively limited because they will be reimbursed by some other person.

(c) A person carrying on a trade jointly with others who cannot participate in the management of the trade, but whose liabilities in respect of debts of the trade are limited.

(d) A passive partner (i.e., a general partner who is not an active partner) in a partnership. In this regard, an active partner means a partner who works for more than half of his time in the day-to-day management of the partnership trade. Note: a passive partner in a general partnership is not treated as a “limited partner” in certain very restricted circumstances (see (2C) below).

(e) A passive partner in a foreign registered partnership.

(f) A part-time (non-full-time) partnership governed by foreign law.

This anti-avoidance provision ensures that the total relief interest for interest paid, loss relief and relief for excess capital allowances (the aggregate amount under the specified provisions) apportionable under the partnership rules to a limited partner:

(a) who is an individual, in relation to a tax year (relevant year of assessment),

(b) which is a company, in relation to an accounting period (relevant accounting period),

ending on or after 22 May 1985 (the specified date), cannot exceed the limited partner’s contribution to the trade as at the end of the tax year or accounting period in which the loss is sustained or the allowance is made (the relevant time).

From 1 January 2005, these restrictions extend to foreign registered partnerships and passive partners in foreign trades.

As regards contributions made before 24 April 1992, allowances within the limited partner’s contribution could be set against non-trading income, and in the case of a company, surrendered by way of group relief.

For contributions after that date, allowances within the limited partner’s contribution may only be set against income from the limited partnership trade.

For 1999-2000 and later tax years, in the case of a limited partner who is a passive partner (see above) only allowances within that partner’s contribution may be set against income from the limited partnership trade.

This restriction already applied from 1997-98 in relation to partnerships carrying on the following trading activities:

(a) producing, distributing or holding films or videotapes,

(b) exploring for, or exploiting, oil or gas.

Example

The legislation was introduced to counter the following type of arrangements:

A and B each have total income of €40,000, taxed under PAYE as directors of X Ltd (hotel trading company). A and B own the entire ordinary share capital of X Ltd.

X Ltd has turnover of €800,000 and profits (after salaries) of €70,000.

C is a barrister with total income of €500,000 taxed under Schedule D Case II.

A and B want to expand their business and open another hotel, but they have not got the capital (€1m is needed) to buy or refurbish a hotel. The annual allowances (section 268(2)) available on the hotel are: €150,000 for years 1 – 6, and €100,000 in year 7.

The following scheme is devised: A, B, C and X Ltd form a partnership.

The hotel building will be put in the names of A and B who can borrow €250,000 each from the commercial lending department of a building society over 15 years. A and B will rent the hotel building to Y Ltd, and each will obtain €25,000 in rent per annum. A and B are each entitled to interest relief on the borrowings (section 248), and as the interest payable will amount to almost €25,000 a year each, they will only pay tax on the “profit” rent after interest, which will be quite small for the first five years.

X Ltd will invest €100,000 and will own the entire share capital of Y Ltd.

C has ready cash and will invest €400,000 in Y Ltd. In return, C will get all the capital allowances on the hotel (worth €1m over 7 years).

Therefore, the partnership agreement records:

A and B X Ltd C
Investment to be made €500,000 €100,000 €400,000
Profits and losses will be shared:
For the first seven years nil nil 100%
Thereafter nil 100% nil

A and B are not interested in the hotel capital allowances because they are getting their investment back from the company by ways of rent. After seven years they have access to the profits of the company through X Ltd.

C is interested in immediate relief against his tax liability and gains access to capital allowances of €150,000 per year for seven years.

Note

1. Since 2 December 1997, investments by lessors of, and passive investors in:

(a) industrial buildings are subject to an annual €31,750 limit against other income (section 409A),

(b) hotels (with the exception of hotels in qualifying counties which are not in seaside resorts), do not qualify for set off against other income (section 409B).

As C is a passive investor, his/her relief is limited to €31,750 per annum.

2. If C were married, he/she could make a tax-free gift of €400,000 to his/her spouse D, who could then take up a full-time employment with Y Ltd. If the spouse replaced C as an active partner in the partnership agreement, he/she could make the €400,000 investment and the allowances would be due to C and D as a jointly assessed married couple (section 1017).

The capital allowances and loss reliefs that are restricted (the specified provisions) are:

(a) in the case of an individual:

(i) relief for certain bridging loans (section 245),

(ii) interest payments by companies and to non-residents (section 246),

(iii) relief to companies on loans applied in acquiring interest in other companies (section 247),

(iv) relief to individuals on loans applied in acquiring interest in companies (section 248),

(v) rules relating to recovery of capital and replacement loans (section 249),

(vi) extension of relief under section 248 to certain individuals in relation to loans applied in acquiring interest in certain companies (section 250),

(vii) restriction of relief to individuals on loans applied in acquiring shares in companies where a claim for “BES relief” or “film relief” is made in respect of amount subscribed for shares (section 251),

(viii) restriction on relief to individuals on loans applied in acquiring interest in companies which become quoted companies (section 252),

(ix) relief to individuals on loans applied in acquiring interest in partnerships (section 253),

(x) interest on borrowings to replace capital withdrawn in certain circumstances from a business (section 254),

(xi) arrangements for payment of interest less tax or of fixed net amount (section 255),

(xii) income tax: manner of granting, and effect of, allowances made by way of discharge or repayment of tax (section 305),

(xiii) right to repayment of tax by reference to losses (section 381), and

(b) in the case of a company:

(i) allowance of charges on income (section 243),

(ii) corporation tax: option to set any excess Schedule D Case V capital allowance against any other (non-letting) income for that year (section 308(4)),

(iii) relief for trading losses other than terminal losses (section 396(2)),

(iv) losses, etc which may be surrendered by way of group relief (section 420(2), (6)).

What capital allowances or losses are not restricted for a passive partner involved in video tape or gas or oil activities from 1997-98?

(2A) The restriction of capital allowances and loss relief from 1997-98 for a passive partner involved in videotape or oil or gas activities (see notes to (2)) does not apply to:

(a) interest paid on or before 27 February 1998,

(b) a capital allowance based on expenditure incurred on or before 27 February 1998,

(c) a loss incurred in the period from 6 April 1997 (or if later, the commencement date of the trade) to 27 February 1998.

What capital allowances and losses are not restricted for a passive partner involved in a general partnership?

(2B) The restriction of capital allowances and loss relief from 1999-2000 for a passive partner involved in a general partnership (see notes to (2)) does not apply to:

(a) interest paid on or before 29 February 2000,

(b) a capital allowance based on expenditure incurred on or before 29 February 2000,

(c) a loss incurred in the period from 6 April 1999 (or if later, the commencement date of the trade) to 29 February 2000.

What types of investment by a passive partner are not caught by the general partnership restriction provisions?

(2C) The following types of investment by a passive partner (specified individual) are not caught by the “general partnership” restrictions mentioned in (2) applicable to interest paid, loss relief, and relief for excess capital allowances:

(a) Where the partnership trade consists of leasing machinery or plant to a company undertaking a renewable energy project (section 486B), and the lease contract was agreed before 1 March 2001.

(b) Where a partner is entitled to a capital allowance in respect of a registered sea fishing boat for the white fish fleet (section 284(3A)), but this escape clause does not apply as regards:

(i) interest paid on a loan taken out on or after 4 September 2000,

(ii) an allowance to be made for capital expenditure incurred on or after 4 September 2000, or

(iii) a trade loss sustained in 2002 or later calendar tax years (to the extent that the loss was not created by a capital allowance on a white fish boat).

(c) Where the partnership is or was entitled to a double rent allowance (specified deduction) in respect of a premises it occupies for its trade, and

(i) a person became a partner in the partnership before 29 February 2000,

(ii) made a contribution to the partnership before that date, and

(iii) the lease giving rise to the double rent allowance was given to, or obtained by, the partnership before that date.

This exception does not apply from a tax year in which the double rent allowance becomes not due (for example, because the lessor and the lessee have become “connected”).

In the case of a double rent allowance for a premises in a seaside resort area (section 354(3)), this exception does not apply as respects:

(i) interest paid by the individual on or after 1 January 2005,

(ii) a capital allowance for 2005 or later calendar tax years,

(iii) a loss sustained in 2005 or later calendar tax years.

(d) To the extent that the interest, losses or capital allowances relate to excepted expenditure, i.e., capital expenditure already caught by:

(i) the annual €31,750 limit applicable to lessors of, or passive investors in industrial buildings (section 409A), which does not qualify for transitional relief (section 409A(5)),

(ii) the abolition of the right to set-off excess capital allowances applicable to lessors of, or passive investors in hotels (section 409B), (note that this abolition did not apply to “quality” hotels in counties Cavan, Donegal, Leitrim, Mayo, Monaghan, Roscommon, Sligo (other than hotels in a seaside resort area).

Example

The scheme in the Example to (1)-(2) may work in relation to a direct investment by C if the hotel is in counties Cavan, Donegal, Leitrim, Mayo, Monaghan, Roscommon, Sligo (but not a seaside resort area).

How is a contribution to a partnership trade calculated?

(3) A partner’s contribution to a trade is the aggregate of:

(a) any capital he/she contributed and has not withdrawn (either directly or indirectly through a connected person) other than by way of reimbursement for legitimate expenses,

(b) any profits to which he/she is entitled and has not withdrawn.

A partner is treated as having withdrawn his/her contribution if:

(a) he/she receives consideration equivalent to his/her contribution (or the value of your contribution) for selling his/her interest or part of his/her interest in the partnership,

(b) the partnership, or a person connected with the partnership, repays a loan equivalent to his/her contribution (or the value of his/her contribution) to the partnership,

(c) he/she receives an amount equivalent to his/her contribution (or the value of his/her contribution) for assigning a debt due to him/her from the partnership, or from a person connected with the partnership.

This counteracts the decision in Reed v Young, [1986] STC 285, 59 TC 196, where it was held that a limited partner could claim to be allowed an amount in excess of his contribution to the trade. See also MacCarthaigh v Daly, 3 ITR 253.

In what circumstances is a general partner regarded as a limited partner?

(4) Where on or after 11 April 1994 a general partner contributes to a partnership and there is an agreement, arrangement or understanding whereby:

(a) hje/she must cease to be a partner before receiving back hios/her contribution to the partnership, or

(b) a limit is placed on his/her indebtedness to any creditor, or his/her assets cannot be taken in payment of a debt owed,

he/she is treated as a limited partner, i.e., a partner who cannot participate in the management but is entitled to have his/her liabilities for debts incurred by the trade limited, or paid by some other person.

What restrictions are imposed on a limited partner’s contribution on or after 24 April 1992?

(5) Contributions on or after 24 April 1992 are restricted to the limited partner’s contribution and are further restricted in that they may only be set against the limited partner’s income from the limited partnership trade (not total income).

This 1992 restriction only applies to set-offs which would not have been disallowed under the original 1986 legislation because they are within the “topped up” contribution of the limited partner. In other words, on or after 24 April 1992, a limited partner may top up his original contribution, but his set-off is confined to his trading income (not total income).

Where the limited partnership is involved in the management and letting of holiday cottages, the effective date for confining the set-off of the limited partner’s losses is extended to 1 September 1992. In such cases, the construction contract must have been signed, and the construction work must have begun, before 24 April 1992. The construction work must have been completed before 6 April 1993.

Section 1014 Tax treatment of profits, losses and capital gains arising from activities of a European Economic Interest Grouping (EEIG)

What is a European Economic Interest Grouping (EEIG)?

(1) A European Economic Interest Grouping (EEIG) is not a company or partnership. It is a transnational business entity, registered under European law, composed of business entities in one or more EU States who join together for common business purposes.

What is the tax status of an EEIG?

(2) The EEIG is not chargeable to income tax, corporation tax or capital gains tax, and the EEIG is not entitled to loss relief under any of those taxes. Instead, in the same way as the profits or losses of a partnership are attributed to the individual partners’ several trades (section 1008), the EEIG’s profits or losses are attributed to the various partner entities within the EEIG.

What partnership rules do not apply to EEIGs?

(3) All the partnership rules in this Part apply to EEIGs, except the following:

(a) the rules which allow a company partner’s profits or losses for an income tax year to be reallocated to an accounting period (section 1009),

(b) the rules which ensure that a capital allowance brought forward may not be used against the partner’s several trade, but must be apportioned as a joint allowance of all the partners (section 1010(8)),

(c) the restriction on set-off of capital allowances and losses of limited partnerships (section 1013).

EEIG capital gains are also attributed to the partner entities (section 30) and the EEIG must make a “partnership” return in respect of such gains (section 913(7)).

How are the partnership rules applied to an EEIG?

(4) In applying the partnership rules of this Part to an EEIG:

(a) the EEIG contract is treated as the partnership agreement,

(b) each EEIG member is treated as a partner,

(c) the EEIG is treated as the precedent acting partner.

Section 1015 Interpretation (Chapter 1)

Married couples can opt to be treated for tax purposes as follows:

(a) joint assessment on the husband (section 1017) or wife (section 1019) or separate assessment (section 1023), or

(b) single assessment (section 1016).

Under joint assessment, one spouse is responsible for filing the income tax return and is assessed on the combined income of the couple. The rate bands used in calculating the couple’s tax are twice the rate bands used for a single person. Joint assessment on the husband (section 1017) is automatic unless the couple opts otherwise.

Under separate assessment (section 1023), both spouses file their own tax returns. A married couple assessed under separate assessment pay the same net amount of tax that they would have paid under joint assessment: the only difference is in the allocation of the allowances and rate bands between the partners.

Under single assessment (section 1016), both spouses are taxed as single persons.

Separated and divorced persons who have not remarried may opt for the advantages of joint and separate assessment (section 1026).

The legislation underlying sections 1015-1018 and 1022-1024 (Income Tax Act 1967 sections 192-198) was substituted by Finance Act 1980 following a Supreme Court judgment that the existing provisions were unconstitutional as they discriminated against married couples: Murphy v Attorney General, [1994] ITR 53.

Revenue sought to preserve the regime that had pertained before the Supreme Court judgment in respect of unfinalised assessments for tax years before 1979-80 (Finance Act 1980 section 21). This was rejected in Muckley v Ireland, 3 ITR 188. Couples whose assessments had not been finalised at the time of the judgment could benefit from the new (fairer) regime.

What is the definition of “inspector” in relation to a notice from a spouse?

(1) The inspector, in relation to a notice given by a spouse, means any inspector who might reasonably be considered by the spouse to be the inspector to whom the notice should be sent, or who declares him/herself ready to accept the notice.

How is a spouse treated for tax purposes?

(2) To be assessed jointly (section 1017), a married couple must be living together “as man and wife”. Thus, a married couple who had chosen, prior to their marriage, to live apart were treated as single persons in Donovan v Crofts, 1 ITR 115. See also Eadie v IRC, (1924) 9 TC 1. Similarly, a married man was held not entitled to a married person’s allowance, and married couple rate bands, where his wife was resident and taxable in the UK: Fennessy v McConnellogue, HC 24 February 1995.

However, if the spouses are obliged to live apart as a result of one spouse’s official duties being carried on elsewhere, the couple may qualify for joint assessment: Ua Clothasaigh v McCartan, 2 ITR 75.

The UK courts have held:

(a) A claimant who sought a divorce in 1982 and was granted it in 1987, was not entitled to the UK married person’s allowance for the years 1982-1987, although living under the same roof as his wife for those years. The parties to the marriage lived as separate households and “more or less ignored each other”: Holmes v Mitchell, [1991] STC 25.

(b) A common law wife is not a wife for the purposes of the UK married couple’s allowance: Rignell v Andrews, [1990] STC 410,

(c) A man with two wives may only claim one married couple’s allowance: Nabi v Heaton, [1983] STC 344.

How is a wife’s income calculated for income tax purposes?

(3) A wife’s income includes all income that would be included in computing her total income.

A reference to an election for single (section 1016) or joint (section 1017) assessment includes a deemed election for such assessment. Any reference to a spouse who is jointly assessed (section 1017) includes a reference to a spouse who is separately assessed (section 1023).

For example, income which a wife has settled on her child is regarded as the wife’s income (section 795). In such cases, although the income is to be regarded as the wife’s income and not the income of any other person, if the wife is jointly assessed, it may be treated as the husband’s income.

How may a tax notice be served on a married couple?

(4) Any notice concerning the taxation of a married couple may be served by post.

Section 1016 Assessment as single persons

How is income of a husband and wife assessed for tax purposes?

(1) Unless they elect otherwise, a husband and wife living together are to be assessed as single persons as if they were not married.

In a particular case, the husband of a legally separated couple wanted single assessment although a High Court order required him to pay his wife’s tax bill. The Appeal Commissioners rejected Revenue’s assertion that Revenue were obliged to refuse the husband’s application, and allowed single assessment. If the husband did not comply with the court order, it was a matter for the courts (not a tax appeal): 14 AC 2000.

What is the effect of a married couple electing for joint assessment?

(2) A husband and wife who have elected (section 1018) for joint assessment for a tax year are not to be assessed as single persons for that tax year.

Example

You and your spouse had the following income for the tax year 2011:

You Your spouse
Salary from employment 53,000 29,000
You had the following tax credits:
Basic personal tax credit (section 461) 1,650 1,650
Employee tax credit (section 472) 1,650 1,650

Under single assessment, each of you is assessed as follows:

You Your spouse
Total income 53,000 29,000
Tax
(up to) €36,400 at 20% 7,280 5,800
Balance at 41% 6,806
14,086
Less tax credits:
Basic personal tax credit (section 461) 1,650 1,650
Employee tax credit (section 472) 1,650 1,650
Tax 10,786 2,500
The total tax payable is 13,286

Section 1017 Assessment of husband in respect of income of both spouses

Taxation of Married Couples – Cases Involving Non-Residence: Tax Briefing Issue 67 – 2007

Who is assessed when a married couple elects to be jointly assessed for a tax year?

(1) Where a married couple elect to be jointly assessed for a tax year, the husband is assessed to tax in respect of their combined total income for that tax year.

Whether the wife has any income for a tax year, and if so, how much is chargeable, is to be decided by reference to hercircumstances and not those of her husband.

Where joint assessment operates to treat a wife’s income as that of her husband, the husband (not the wife, her trustees, guardian or personal representatives) is assessed to tax on that income.

Although the couple are jointly assessed, their respective incomes should be separately determined for each source before being combined: Mulvey v Kieran, 1 ITR 563.

The husband is the chargeable person on behalf of the couple: Gilligan v Criminal Assets Bureau, HC, 26 February 1997.

What allowances can a husband jointly assessed with his spouse claim?

(2) A husband who is assessed to tax in respect of the couple’s combined total income for a tax year may claim his wife’s allowances when calculating the tax on their joint income.

Example

Continuing with the example to section 1016, under joint assessment, you and your spouse would be assessed as follows for the tax year 2010:

Total income 82,000
Tax
€72,800 at 20% 14,560
€9,200 at 41% 3,772
18,332
Less tax credits:
Basic personal tax credit (section 461) 3,660
Employee tax credits (section 472) 3,660 7,320
The total tax payable is 11,012

Non-resident spouse: Inspector Manual 44.1.9.

Section 1018 Election for assessment under section 1017

When can a married couple elect for joint assessment?

(1) A married couple living together may at any time in a tax year jointly elect in writing for joint assessment for that tax year.

Note

Special rules (see section 1020) apply for the tax year of marriage.

Revenue leaflet IT 2: Taxation of married persons contains the assessable spouse election form.

Common law spouses may not elect to be assessed as a married couple (Revenue Precedent RT 87/97, 28 July 1997).

The spouse (for example, a UK national) of a diplomat attached to the UK Embassy is entitled to the married allowance and double rate bands if she takes up employment in her own right with a private company in Ireland. This assumes that both spouses are resident in Ireland for tax purposes and they elect to be assessed on the basis of joint assessment (Revenue Precedent RT/449/95, 1 May 1996).

If one spouse is non-resident, an election for joint assessment cannot have effect as the resident spouse cannot be assessed on the income of the non-resident spouse. Therefore, the resident spouse is incapable of electing for joint assessment (Revenue Precedent IT95 1592, 25 July 1995).

How long does an election for joint assessment remain in force?

(2) Once an election is made it remains in force for that tax year and later tax years.

Can an election for joint assessment for a tax year be cancelled?

(3) An election for joint assessment for a tax year may be cancelled if either spouse withdraws the joint assessment election before the end of that tax year. They are then taxed as single persons for that tax year and later tax years.

Can a married couple be jointly assessed in the absence of an election?

(4) Yes. A married couple is deemed to have elected for joint assessment unless either of them, before the end of the tax year, notifies the inspector that he/she wishes to be taxed as a single person. Both are then taxed as single persons for that tax year and later tax years until the notification to be assessed as single persons is withdrawn.

Section 1019 Assessment of wife in respect of income of both spouses

What is meant by a married couple’s “basis year”?

(1) A married couple’s basis year is their tax year of marriage, or the earliest tax year before that year for which the total income details of both spouses were available to the inspector when they first elected (or were deemed to have elected) for joint assessment

How can a wife elect to become the assessable spouse?

(2) A married couple living together who are jointly assessed for a tax year may jointly elect in writing before 1 April in that tax year that the wife instead of the husband be the assessable person in respect of the couple’s total income for that tax year.

Where the tax year of marriage is 1993-94 or a later tax year, the wife may also be treated as the assessable person in respect of the couple’s total income if:

(a) the couple have not elected, but are deemed to have elected, for joint assessment for a tax year,

(b) the couple have not elected that the wife be the assessable person for that tax year, and

(c) the inspector considers that the wife’s total income for the basis year was greater than her husband’s income for that year.

This legislation was introduced to address concerns raised by the Second Commission for the Status of Women:

(a) the fact that the husband was the person responsible for filing a tax return under joint assessment (even where the wife earned all of the family income),

(b) the fact that the husband dealt with all correspondence with the tax office and was the named person on all tax repayment cheques issued by the tax office,

(c) the fact that many women found difficulty retaining their maiden name when dealing with Revenue.

This section allows the married couple to choose which partner is the assessable person and is responsible for filing the tax return etc. Any tax repayment is paid to both partners in proportion to their respective incomes and not to the assessable person (section 1021).

The section allows the Revenue computer to select the higher earning spouse of a jointly assessed couple as the assessable person.

What income is assessed if a wife is the assessable person for a tax year?

(3) Where a wife is regarded as the assessable person for a tax year, she is assessed to tax in respect of the couple’s combined total income for that tax year.

Whether her husband has any income for a tax year, and if so, how much is chargeable, is to be decided by reference to his circumstances and not hers.

Where joint assessment operates to treat a husband’s income as that of his wife, the wife (not the husband, his trustees, guardian or personal representatives) is assessed to tax on that income.

A wife who is assessed to tax in respect of the couple’s combined total income for a tax year may claim her husband’s allowances when calculating the tax.

How long will a wife be assessed on the couple’s joint income?

(4) Where a wife is assessed to tax in respect of the couple’s combined total income for a tax year, in the absence of an election for joint assessment (section 1018(1)), single assessment (section 1018(4)) or separate assessment (section 1023), she is to continue to be so assessed for later tax years. This applies even if her husband’s total income exceeds her total income in a later tax year.

Where a wife is the assessable person, and either spouse withdraws an application for single assessment (section 1018(4)) or separate assessment (section 1023), and no voluntary election is then made that her husband be the jointly assessable person (section 1018(1)), she is to remain the assessable person for joint assessment in respect of the couple’s combined total income for the tax year the election is withdrawn and later tax years.

In other words, the status quo continues.

How can an election for a wife to be the assessable spouse be withdrawn?

(5) An election by both spouses that the wife be the assessable person for joint assessment purposes applies for the tax year in which it is made and for later tax years. If the election is withdrawn by written notice before 1 April in a tax year it has no effect for that tax year or later tax years.

How is the default tax treatment of a married couple reversed where a wife is the assessable spouse?

(6) This section reverses the “default” tax treatment for married couples. To make it properly effective, because many income tax provisions refer to a “husband” or “man”, those references must be read, in the context of treating the wife as the assessable person, as applying to the “wife” or “woman”.

Section 1020 Special provisions relating to year of marriage

What is an income tax month in relation to the year of marriage?

(1) An income tax month means:

(a) before 6 December 2001, a month beginning on the 6th day of one month and ending on the 5th day of the following month,

(b) the period from 6 December 2001 to 31 December 2001, and

(c) from 1 January 2002, a calendar month.

How is a married couple treated for tax purposes in their first year of marriage?

(2) In the tax year of their marriage they may not elect, or be deemed to have elected, for joint assessment. They are therefore taxed as single persons.

Can a married couple have their tax liabilities in the year of marriage reviewed?

(3) They can jointly elect, in writing, to have their joint tax liability reviewed on the basis of joint assessment. Where the joint assessment basis results in less tax being payable than the single assessment basis, the excess of tax payable on the single assessment basis over the tax payable on the joint assessment basis is to be repaid.

However, the excess (A) is scaled back in accordance with the number of income tax months (B) in the tax year for which they were married. In this regard, a part of an income tax month is treated as a whole month.

Note

If the assessable spouse dies in the year of marriage no review will be due under section 1020(3) but the non-assessable spouse should be given married allowance (but single rate bands) in accordance with section 461(Inspector Manual 44.1.5).

How will any tax overpayment arising be allocated between them?

(4) Any resulting overpayment of tax, calculated as A x (B/12) is to be repaid to each of them in proportion to the tax paid by each of them in the year of marriage.

How and when can a couple claim a year of marriage relief?

(5) A claim for this relief must be made jointly in writing to the inspector after the end of the tax year in which the marriage took place.

How are claims for personal allowances and reliefs applied to a year of marriage relief claim?

(6) The general provisions regarding claiming of personal allowances and reliefs apply to the year of marriage relief. This means that:

(a) the relief cannot reduce tax retained on annual payments made (section 459(1)),

(b) the relief is given by reducing or discharging your income tax assessment (section 459(2)),

(c) if your personal allowances exceed your income for the tax year, any tax overpaid must be repaid (section 460),

(d) the allowance is claimed by including the necessary details on the income tax return form (section 459(3)-(4) andSchedule 28 para 8).

Section 1021 Repayment of tax in case of certain husbands and wives

What rules apply to tax repayments to jointly assessed couples?

(1) These rules apply where a married couple is jointly assessed to tax for a tax year, and they are not separately assessed for that year.

How is a tax repayment calculated between spouses who are jointly assessed?

(2) Where a tax repayment of €25 or more arises for a tax year, it must be repaid to each spouse in proportion to the net amount of tax deducted or paid in respect of their total income.

What can an inspector of taxes do when he/she is satisfied that a repayment is attributable to one spouse only?

(3) If the inspector is satisfied that the repayment is largely caused by a tax allowance or relief that would have been given exclusively to one spouse had they been taxed under separate assessment (sections 1023, 1024), the inspector may allocate the repayment to the couple on a basis which he/she considers just and reasonable.

Section 1022 Special provisions relating to tax on wife’s income

What happens if a married person’s income tax assessment remains unpaid?

(1) These rules apply where an income tax assessment on a spouse (or his/her trustee, guardian, or personal representatives) for a tax year remains unpaid 28 days after it became due.

Revenue may issue a demand notice to the other spouse (or the spouse’s trustee, guardian, or personal representatives), in respect of the lower of:

(a) the tax that would have been payable by the other spouse had separate assessment (section 1023) applied for that tax year, or

(b) the unpaid tax.

How is a demand notice issued to the other spouse to be regarded for collection and appeal proceedings?

(2) The demand notice issued by Revenue to the other spouse is regarded for the purposes of:

(a) collection and enforcement proceedings,

(b) priority in bankruptcy proceedings,

(c) appeal proceedings,

as if it were a separate assessment on the other spouse (or the spouse’s trustees, etc) made on the day of the notice by the “authority” who made the original (as yet unpaid) assessment on the assessable spouse.

How is the assessable spouse affected by a demand notice issued to his/her spouse on the amount charged in the original assessment?

(3) Once a demand notice under (1) is given to the other spouse, tax up to the amount stated in the demand notice ceases to be payable by the assessable under the original assessment. The tax now charged to the other spouse is treated as if it had never been charged to the assessable spouse.

What happens if, on appeal or by order of the High Court, the demand notice issued to the other is reduced?

(4) Where the amount shown in a demand notice issued to the other spouse is reduced on appeal, or by the High Court, if the original assessment was excessive, the notice is to be amended and any tax overpaid by that spouse is to be repaid. However, the reduction in tax on the demand notice issued to that spouse is to be recovered by an equivalent increase in the original assessment on the assessable spouse.

What powers do Revenue have in giving a demand notice to the other spouse?

(5) In giving the demand notice to the other spouse, Revenue may use, and produce in evidence, any returns, documents or information legally obtained by Revenue officials in connection with any other tax or duty for which they are responsible (section 872).

When can a spouse disclaim responsibility for the other spouse’s part of their jointly assessed income?

(6) Where a spouse dies, the survivor (or his/her executors or administrators) may, within two months of the date of grant of probate or letters of administration, by written notice to the inspector and to the deceased spouse’s personal representatives, disclaim responsibility for the deceased spouse’s part of your jointly assessed tax liability for any tax year for which they were jointly assessed (section 1017).

Example

Mr and Mrs Z had the following income for the year ended 31 December 2010:

Total Mr Z Mrs Z
Schedule D Case I 82,000 53,000 29,000

They had the following allowances and reliefs:

Basic personal tax credit (section 461) 1,830 1,830

Under single assessment, each partner is assessed as follows:

Total Mr Z Mrs Z
Total income 82,000 53,000 29,000
Tax:
€36,400 at 20% 7,280 5,800
Balance at 41% 6,806
14,086
Less tax credits:
Basic personal tax credit (section 461) 1,830 1,830
Net 16,226 12,256 3,970

Under joint assessment, Mr Z would be assessed as follows for the tax year 2010:

Total income 82,000
Tax
€72,800 (i.e., 45,400 27,400) at 20% 14,560
€9,200 at 41% 3,772
10,788
Less tax credits:
Basic personal tax credit (section 461) 3,660
The total tax payable is 7,128

If Mrs Z dies in 2010, Mr Z can disclaim (€3,970/€16,226) x €7,128 = €1,744.

Mr Z’s assessment notice will be revised to show a tax liability of €5,384, and a notice of assessment is sent to Mrs Z’s executors or administrators (see (8) below) showing tax due of €1,744.

What information must be shown in a disclaimer notice?

(7) The notice must state the name and address of the deceased spouse’s personal representatives.

What remedy is available in order to recover an unpaid part of the tax disclaimed?

(8) Any unpaid part of the tax disclaimed by the individual is to be recovered from the personal representatives of the individual’s spouse.

Any under assessment of tax on the individual’s spouse is to be recovered by assessment on the spouse’s personal representatives as if separate assessment had applied for the tax year in which the undercharge arose.

What powers of delegation do Revenue have in relation to this section?

(9) Revenue may delegate any of their functions under this section to an authorised officer.

Section 1023 Application for separate assessments

What is meant by “personal reliefs”?

(1) Personal reliefs means the income tax allowances and deductions listed in section 458, but not:

(a) the additional standard rated allowance for widowed persons (section 461A),

(b) the additional standard rated allowance for single and widowed parents (section 462B), or

(c) the special additional standard rated allowance for widowed parents in the three tax years following the year of bereavement (section 463).

What is the effect on a married couple’s joint income tax liablility if one spouse elects to be separately assessed?

(2) If both are already jointly assessed (section 1017) for a tax year, one may elect for separate assessment for that tax year. Although they are both assessed as if they were single persons, and each of them obtains the same deductions as if they were single, any tax saving achieved through joint assessment (double rate bands) is preserved. The unused part of the less-taxed partner’s rate bands can be used by the other more highly taxed partner.

Personal reliefs are allocated to the partners according to the rules listed in section 1024.

Can a married couple elect to be separately assessed at any time in a tax year?

(3) An application for separate assessment for a tax year, must be made within the six month period preceding 1 April in the year for which separate assessment is sought.

However, where the tax year is the year of marriage, an election for separate assessment may be made before 1 April in the next tax year.

For how long does an election for separate assessment continue to have effect?

(4) An election separate assessment continues in force until it is withdrawn by notice in writing given before 1 April in a tax year.

If a married couple opts for separate assessment, how must they file tax returns?

(5) Where they have opted for separate assessment, either spouse may make the return of total income of both spouses. If Revenue are not satisfied with the joint return, they may require either of them to complete a separate return of total income.

Can Revenue request that each file a separate tax return?

(6) Revenue may at any time require either spouse to make a return of total income.

Section 1024 Method of apportioning reliefs and charging tax in cases of separate assessments

When a married couple opt for separate assessment, how are their personal reliefs allocated?

(1)-(2) Where a married couple has opted for separate assessment, their personal reliefs are allocated between them as follows:

(i) Relief for interest paid on certain home loans (section 244), the various owner-occupier allowances (section 372AR) and ,372AAB are allocated in proportion in which they incurred the expenditure.

(ii) Married persons tax credit (section 461), age tax credit (section 464), incapacitated child tax credit (section 465), and the blind persons tax credit (section 468), are allocated in the proportions of half and half.

(iii) Incapacitated child tax credit (section 465), and dependent relative tax credit (section 466) are allocated according to who maintains the child or dependent relative.

(iv) Employed person taking care of incapacitated individual (section 467) is allocated in the proportion in which they incurred the expenditure.

(v) Relief for health expenses (section 469) is allocated in the proportion in which they incurred the expenditure.

(vi) Relief for insurance against expenses of illness (section 470), and allowance for rent paid by certain tenants (section 473) are allocated in the proportion in which they incurred the expenditure.

(vii) Relief for contributions to permanent health benefit schemes (section 471) are allocated in the proportion in which they incurred the expenditure.

(viii) Employee tax credit (section 472), relief for the long-term unemployed (section 472A), and the seafarer allowance (section 472B) are allocated according to the spouse who is in PAYE employment and therefore entitled to the relief.

(viiia) Relief for trade union subscriptions (section 472C – ceases to apply from tax year 2011) is allocated according to who is entitled to the relief.

(ix) Relief for college fees (section 473A), training course fees (section 476), service charges (section 477), alarm systems for the elderly (section 478), new shares purchased on issue by employees (section 479) are allocated In the proportion in which they incurred the expenditure.

(x) Film relief (section 481) is allocated In the proportion in which they made the film investment.

(xa) Relief for gifts to approved bodies (section 848A) is allocated in the proportion in which they made the gift.

(xi) EIIS relief (Part 16) is allocated in the proportion in which they made the EIIS investment.

(xii) Old owner-occupier relief (Schedule 32 para 12) and designated area significant buildings relief (Schedule 32para 20) are allocated in the proportion in which they incurred the expenditure.

Income tax exemption (sections 187, 188) is split among married partners in proportion to the tax that would be payable by each partner if the exemption did not apply.

Separate assessment is applied by giving each spouse the standard rate band (section 15 (Table Part 1)) of a single person, the balance being charged at the higher rate.

What happens one spouse cannot fully utilise the reliefs available to him/her?

(3) Where spouse has tax reliefs in excess of the tax chargeable on his/her income, the excess may be transferred to the other spouse, and used to reduce the other spouse’s taxable income.

What happens if either one spouse does not fully absorb his/her individual standard rate band?

(4) Where the income of the lesser-earning spouse does not fully absorb the standard rate band, the standard rate band of the higher earning spouse is increased, up to a maximum (section 15), by the unused part (the appropriate part) of the standard rate band of the lesser earning spouse.

Section 1025 Maintenance in case of separated spouses

What is meant by a “maintenance agreement” in the context of separated spouses?

(1) A maintenance arrangement means a legally enforceable court order, deed of separation, trust, covenant, agreement or arrangement made in consequence of:

(a) the dissolution or annulment of a marriage,

(b) the separation of the parties to the marriage, in such circumstances that the separation is likely to be permanent.

A child includes a child who entitles the person having the custody of the child to claim incapacitated child allowance under section 465 (for example, a guardian or person acting in the place of the parents).

How are maintenance payments for a separated spouse and a child of the marriage characterised?

(2) These rules apply to legally enforceable periodical payments made under a maintenance arrangement between former marriage partners who are now living apart. The maintenance payments must be for the benefit of one of the parties to, or a child of, the marriage.

A maintenance arrangement made before 8 June 1983 does not come under these rules, unless replaced with a new agreement or varied, and both parties to the marriage jointly elect in writing to the inspector that they wish these rules to apply to the new or varied agreement.

A maintenance payment which is not for the benefit of a third party is deemed to be for the benefit of the other party to the marriage. This applies whether or not the payment is conditional on the other spouse maintaining a child of the marriage. Payments made directly by the maintaining spouse on behalf of the maintained spouse are not regarded as for the benefit of a third party. For example, a direct payment by a husband for rent is treated as for the benefit of the wife (not the landlord).

A maintenance payment directed to be made for the use and benefit (or the maintenance, support or education) of a child of the payer is deemed to be for the benefit of the child (and not the wife or spouse looking after the child). It is therefore regarded as income of the payer (see section 795).

How will a maintenance payment to a separated spouse be treated for tax purposes?

(3) Maintenance payments to a former spouse are to be made gross, without deduction of tax.

The recipient of the payment is taxed on the income under Schedule D Case IV.

When calculating his/her total income for a tax year, the payer is entitled to deduct the total maintenance payments made to the former spouse in that year.

A provision in a deed of separation for part of retirement gratuity (lump sum) to be paid to a separated spouse is not an annual payment (section 237). Therefore, the spouse receiving the payment will not be assessable on it, and the spouse making the payment will not be entitled to a deduction (Revenue Precedent IT97-1518, 10 April 1997)

How will a maintenance payment to a separated for the benefit of a child be treated for tax purposes?

(4) A maintenance payment made for the benefit of a child of the payer is to be made gross, without deduction of tax.

The payment is not regarded as the child’s income. It is regarded as income of the payer (section 795).

When calculating his total income for a tax year, the payer is not entitled to deduct the total maintenance payments made in respect of the child in that year.

In Billingham v John, [1998] STC 120, the court held that a payment for maintenance of a child was the income of the ex-spouse (not the child).

How is tax relief on maintenance payments made to a former spouse claimed?

(5) A claim for a deduction from total income in respect of maintenance payments made to a former spouse must be made in writing to the inspector.

The general provisions regarding claiming of personal allowances and reliefs apply to a deduction from total income (in respect of maintenance payments made to a former spouse). This means that:

(a) the relief cannot reduce tax retained on annual payments made (section 459(1)),

(b) relief is given by reducing or discharging the person’s income tax assessment (section 459(2)),

(c) if the claimant’s personal allowances exceed his income for the tax year, any tax overpaid must be repaid (section 460),

(d) the deduction is claimed by including the necessary details on the income tax return form (section 459(3)-(4) andSchedule 28 para 8).

Section 1026 Separated and divorced persons: adaptation of provisions relating to married persons

When can a separated couple elect to be jointly assessed?

(1) Parties to a marriage which has not been dissolved or annulled may, as in the case of married couples, elect to be jointly assessed for tax purposes (section 1018). A maintenance payment under section 1025 must have been made in the tax year, and both parties must be resident in the State.

How do the joint assessment rules apply to separated couples?

(2) The election for joint assessment applies as if the couple were still married (section 1018(1)). When computing total income of the spouses, maintenance payments (section 1025) between the separated spouses are ignored, and tax is calculated as if the spouses had made an election for separate assessment (section 1023).

When can a divorced couple elect for joint assessment?

(3) Separated spouses whose marriage has been dissolved under Irish divorce law, or foreign divorce which is recognised in the State, may elect for joint assessment if:

(a) maintenance payments are made from one spouse to another,

(b) both spouses are resident in the State, and

(c) neither has remarried.

Section 1027 Payments pursuant to certain orders under Judicial Separation and Family Law Reform Act, 1989, Family Law Act, 1995, and Family Law (Divorce) Act, 1996, to be made without deduction of income tax

Can income tax be deducted from maintenance payments awarded under a court order?

No. Maintenance payments made under a court order in relation to judicial separation or divorce proceedings are to be made gross, without deduction of income tax.

Section 1028 Married persons

How are the capital gains of a married woman, living with her husband, to be charged?

(1) Where a married couple are living together during a tax year, the husband is assessed to tax in respect of their combined total chargeable gains for that tax year or for the part of the year they lived together. The additional tax charge on the husband in respect of the wife’s gains must not be greater than the tax charge that would have been made on the wife had she been separately assessed on those gains.

Can a spouse apply to be separately assessed on his/her chargeable gains for a tax year?

(2) Either spouse may apply, on or before 1 April in the following tax year, to be separately assessed on chargeable gains accruing in a tax year. The separate assessment continues for later tax years until it is withdrawn by either spouse. To be valid, a notice of withdrawal must be made on or before 1 April in the tax year following the tax year for which the withdrawal is made.

Application is made on form CG1(S) (Inspector Manual 44.2.3)

When can one spouse use the other’s allowable CGT losses against his/her gains in a tax year?

(3) Where spouses are living together, during a tax year, the allowable losses of one may be set against the other’s chargeable gains. This includes losses forward that may have arisen before the date of marriage. Either may choose, on or before 1 April in the following tax year, that this rule should not apply.

Example

Date of marriage: 1 July 2010

Gains and losses accruing Husband Wife
1 January 2010 to 30 June 2010
Net chargeable gains 3,800 1,200
Net allowable losses (1,500)
1 July 2010 to 31 December 2010
Net chargeable gains 25
Net gains 3,800
Net losses (275)

Set-off

The wife’s net losses for the tax year 2010 are set off against the husband’s gains, the husband being assessed for the year on net gains of €985 being €3,525 (i.e., €3,800 – 275) less the €2,540 (i.e., 2 x €1,270) annual exemptions (section 601).

Election not to set off

The husband is assessable on gains of €1,260 (€3,800 less €2,540 annual exemptions) for the tax year 2010 and the wife’s net losses of €275 are carried forward to set against her future gains.

Example

Date of death of wife: 1 July 2010

Gains and losses accruing: Husband Wife
1 January 2010 to 30 June 2010
Net chargeable gains 1,750 150
Net allowable losses (100) (2,000)
1 July 2010 to 31 December 2010
Net chargeable gains 150
Net gains 1,800
Net losses (1,850)

No gains accrued to the wife before the tax year 2010, so section 573(3) (terminal loss relief for chargeable gains) does not apply.

Set off

The wife’s net losses cover the husbands net gains accruing both before and after 1 July 2010. No relief is available in respect of the balance (€1,850 less €1,800 = €50) of the wife’s net losses, which cannot be set off against any gains accruing to the widower in 2011 and subsequent years, because in those years there is no “married woman living with her husband” and section 1028(3) does not therefore apply.

Election not to set off

If an election was made in such circumstances, the husband would be assessable on net gains of €1,800 less annual exemptions €2,540 = Nil.

Example

Effective date of separation: 1 July 2010

Gains and losses accruing Husband Wife
1 January 2010 to 30 June 2010
Net chargeable gains 2,550 150
1 July 2010 to 31 December 2010
Net allowable losses (100) (3,000)
Net chargeable gains 150 100
Net gains (losses) 2,600 (2,750)

Set-off

The wife’s net losses cover the husband’s net gains accruing both before and after 1 July 2010. The balance of the wife’s net losses (€2,750 less €2,600 = €150) is carried forward to set against her future gains.

Election not to set off

The husband is assessable on net gains of €60 (€2,600 less annual exemptions of €2,540 for the tax year 2010 and the wife’s net losses of €2,750 are carried forward to set against her future gains.

Source: Inspector Manual 44.2.22 (modified and updated)

Where a spouse chooses that the set-off of losses against gains of the other spouse is not to apply, any unused losses are carried forward against the first spouse’s gains for future tax years.

What rules apply to the disposal of an asset between spouses who are living together in a tax year?

(5) A disposal of an asset (other than trading stock) from between spouses is treated as having been made for a consideration which gives rise to no gain/no loss.

Note

Applies to a transfer by a resident to a non-resident spouse: Gubay v Kington, [1984] STC 99.

A disposal of share by one spouse to a designated broker for an SPIA (section 838) held in the name of the other spouse is not regarded as a disposal to that other spouse. The disposal gives rise to a chargeable gain or allowable loss by reference to the market value of the shares (Revenue Precedent IT96-2000, 15 March 1996).

Do the deemed market value rules apply to disposals between spouses?

(6) The no gain/no loss rule applies to disposals between spouses even where such disposals would otherwise have been treated as having been made at market value.

When do the no gain/no loss rules with regard to the transfer of assets between spouses not apply?

(6A) This is an anti-avoidance provision. The relief in (5) does not apply if the receiving spouse is non-Irish resident (and is resident and taxable in treaty country) at the time when the asset is disposed of.

What is considered to be the date of acquisition when an asset acquired from a spouse is disposed of?

(7) Where one spouse disposes of an asset acquired from the spouse, the asset is treated as having been acquired when the other spouse acquired it.

Must Revenue be notified of an application for joint or separate treatment?

(8) Yes. An application, or withdrawal of an application, for joint or separate treatment must be made on the official Revenue form.

Section 1029 Application of section 1022 for purposes of capital gains tax

What rules apply when a CGT assessment on a husband remains unpaid 28 days after it is due?

Where a capital gains tax assessment on a married man (or his trustee, guardian, or personal representatives) for a tax year remains unpaid 28 days after it became due, Revenue may issue a demand notice to his wife (or her trustee, guardian, or personal representatives), in respect of the tax that would have been payable by her had separate assessment (section 1023) applied for that tax year, or the unpaid tax, whichever is lesser.

The demand notice issued by Revenue to the married woman is regarded for the purposes of:

(a) collection and enforcement proceedings,

(b) priority in bankruptcy proceedings,

(c) appeal proceedings,

as if it were a separate assessment on the wife (on her trustees etc) made on the day of the notice by the “authority” who made the original (as yet unpaid) assessment on the husband.

Once the demand notice mentioned is given to the wife, tax up to the amount stated in the demand notice ceases to be payable by the husband under the original assessment. The tax now charged to the wife is treated as if it had never been charged to the husband.

Where the amount shown in a demand notice issued to the wife is reduced on appeal, or by the High Court, if the original assessment was excessive the notice is to be amended and any tax overpaid by the wife is to be repaid. However, the reduction in tax on the demand notice issued to the wife is to be recovered by an equivalent increase in the original assessment on the husband.

In giving the demand notice to the wife, Revenue may use, and produce in evidence, any returns, documents or information legally obtained by Revenue officials in connection with any other tax or duty for which they are responsible (section 872).

Where the wife dies, the husband (or his executors or administrators) may, within two months of the date of grant of probate or letters of administration, by written notice to the inspector and to his deceased wife’s personal representatives, disclaim responsibility for her part of their jointly assessed tax liability for any tax year for which they were jointly assessed (section 1017).

Section 1030 Separated spouses: transfers of assets

What is the CGT treatment of a transfer of assets between legally separated spouses?

(1)-(2) A transfer of an asset, other than trading stock, from one spouse to his/her legally separated spouse is treated as having been made for a consideration which gives rise to no gain/no loss, if the disposal is made following:

(a) a court order under the Family Law Act 1995 Part II, on or after a decree of judicial separation,

(b) a court order under the Judicial Separation and Family Law Reform Act 1989 Part II, on or after a decree of judicial separation,

(c) a deed of separation,

(d) a relief order under the Family Law Act 1995 following a marriage break-up or legal separation,

(e) an equivalent “foreign” court order following a “foreign” marriage break-up or legal separation which is recognised as valid under Irish law.

When do the no gain/no loss rules for the transfer of assets between separated spouses not apply?

(2A) This is an anti-avoidance provision. The relief in (2) does not apply if the receiving spouse is non-Irish resident (and resident and taxable in treaty country) at the time when he/she disposes of the asset.

If one separated spouse disposes of an asset acquired from the other what is deemed to be the acquisition date?

(3)-(4) Where one disposes of an asset acquired from the spouse, the asset is treated as having been acquired when the other spouse acquired it.

Section 1031 Divorced persons: transfers of assets

What is the CGT treatment of a disposal of assets between divorced spouses?

(1)-(2) A disposal of an asset, other than trading stock, between divorced spouses is treated as having been made for a consideration which gives rise to no gain/no loss.

When do the no gain/no loss provisions with regard to the transfer of assets between divorced spouses not apply?

(2A) This is an anti-avoidance provision. The relief in (2) does not apply if the receiving spouse is non-Irish resident (and resident and taxable in treaty country) at the time when he/she disposes of the asset.

If one divorced spouse disposes of an asset acquired from the other, what is considered to be the date of acquisition?

(3)-(4) Where one spouse disposes of an asset acquired from the other, the asset is treated as having been acquired when the other spouse acquired it.

Section 1031A Interpretation (Chapter 1)

Sections 1031A1031R which correspond to sections 10151031 give the same reliefs to civil partners as already apply in the case of married couples.

Civil partners can opt to be treated for tax purposes as follows:

(a) joint assessment on a nominated civil partner (section 1031C) or separate assessment (section 1031H), or

(b) single assessment (section 1031B).

Under joint assessment, one civil partner is responsible for filing the income tax return and is assessed on the combined income of the couple. The rate bands used in calculating the couple’s tax are twice the rate bands used for a single person.

Under separate assessment (section 1031H), both civil partners file their own tax returns. Civil partners assessed under separate assessment pay the same net amount of tax that they would have paid under joint assessment: the only difference is in the allocation of the allowances and rate bands between the partners.

Under single assessment (section 1031B), both spouses are taxed as single persons.

People who have dissolved or annulled their civil partnership and have not been involved in a subsequent civil partnership may opt for the advantages of joint and separate assessment (section 1031K).

What definitions apply to the tax treatment of civil partners?

(1) The inspector, in relation to a notice given by a civil partner, means any inspector who might reasonably be considered by a civil partner to be the inspector to whom the notice should be sent, or who declares him/herself ready to accept the notice.

When are civil partners treated as living together for tax purposes?

(2) To be assessed jointly (section 1031C), civil partners must be living together. Civil partners cannot be considered to live together if they in fact live separately and are unlikely to reconcile.

How is a civil partner’s income calculated for the purposes of income tax?

(3) A civil partner’s income includes all income that would be included in computing his/her total income.

A reference to an election for single (section 1031B) or joint (section 1031C) assessment includes a deemed electionfor such assessment. Any reference to a civil partner who is jointly assessed (section 1031C) includes a reference to a civil partner who is separately assessed (section 1031H).

For example, income which a civil partner has settled on his/her child is regarded as that civil partner’s income (section 795). In such cases, although the income is to be regarded as the civil partner’s income and not the income of any other person, if the civil partner is jointly assessed, it may be treated as the other civil partner’s income.

How may a tax notice be served on civil partners?

(4) Any notice concerning the taxation of civil partners may be served by post.

Section 1031B Assessment as single persons

How is income of civil partners assessed for tax purposes?

(1) Unless they elect otherwise, civil partners living together are to be assessed as single persons as if they were not civil partners.

What is the effect if civil partners elect for joint assessment?

(2) Civil partners who have elected (section 1031D) for joint assessment for a tax year are not to be assessed as single persons for that tax year.

Section 1031C Assessment of nominated civil partner in respect of income of both civil partners

Who is assessed when civil partners elect to be jointly assessed for a tax year?

(1) Where civil partners elect to be jointly assessed for a tax year, one of the partners must be nominated to be assessed to tax in respect of the couple’s combined total income for that tax year.

Whether the other partner has any income for a tax year, and if so, how much is chargeable, is to be decided by reference to their own circumstances and not those of the nominated civil partner.

Where joint assessment operates to treat the other civil partner’s income as that of the nominated partner, thenominated civil partner (not the other civil partner or his/her trustees, guardian or personal representatives) is assessed to tax on that income.

Although the civil partners are jointly assessed, their respective incomes should be separately determined for each source before being combined.

What allowances can the nominated partner claim on their joint income?

(2) The nominated partner who is assessed to tax in respect of the couple’s combined total income for a tax year may claim the other partner’s allowances when calculating the tax on your joint income.

Section 1031D Election for assessment under section 1031C

When can civil partners elect for joint assessment?

(1) Civil partners living together may at any time in a tax year jointly elect in writing for joint assessment for that tax year.

The partners can choose which person is to be treated as the nominated partner. Where no election is made Revenue will select one partner.

Note

Special rules (see section 1031E) apply for the tax year of the civil partnership.

The spouse (for example, a UK national) of a diplomat attached to the UK Embassy is entitled to the married allowance and double rate bands if she takes up employment in her own right with a private company in Ireland. This assumes that both spouses are resident in Ireland for tax purposes and they elect to be assessed on the basis of joint assessment (Revenue Precedent RT/449/95, 1 May 1996).

If one spouse is non-resident, an election for joint assessment cannot have effect as the resident spouse cannot be assessed on the income of the non-resident spouse. Therefore, the resident spouse is incapable of electing for joint assessment (Revenue Precedent IT95 1592, 25 July 1995).

How long will civil partners’ election for joint assessment remain in force?

(2) An election it remains in force for the tax year of the election and later tax years.

Can an election for joint assessment be cancelled?

(3) An election for joint assessment for a tax year may be cancelled if either partner withdraws the joint assessment election before the end of that tax year. They are then taxed as single persons for that tax year and later tax years.

Can civil partners be jointly assessed in the absence of an election?

(4) Yes. Civil partners are deemed to have elected for joint assessment unless either of them, before the end of the tax year, notifies the inspector that he/she wishes to be taxed as a single person. They are both then taxed as single persons for that tax year and later tax years until the notification to be assessed as single persons is withdrawn.

Section 1031E Special provisions relating to year of registration of civil partnership

What definitions apply to the year of registration of a civil partnership?

(1) An income tax month means a calendar month.

The year of registration means the year of assessment in which the civil partnership was registered.

How are civil partners treated for tax purposes in their year of registration?

(2) In the tax year of the registration of a civil partnership, the partners may not elect, or be deemed to have elected, for joint assessment. They are therefore taxed as single persons.

Can civil partners have their tax liabilities reviewed for the year of registration?

(3) The partners can jointly elect, in writing, to have their joint tax liability reviewed on the basis of joint assessment. Where the joint assessment basis results in less tax being payable than the single assessment basis, the excess of tax payable on the single assessment basis over the tax payable on the joint assessment basis is to be repaid.

However, the excess (A) is scaled back in accordance with the number of income tax months (B) in the tax year for which the partnership was registered. This is achieved by multiplying the excess tax (A) by (B/12). In this regard, a part of an income tax month is treated as a whole month.

How will any tax overpayment arising be allocated?

(4) Any resulting overpayment of tax, calculated as A x (B/12) is to be repaid to each partner in proportion to the tax paid by each of them in the year of registration of the civil partnership.

How and when can year of registration relief be claimed?

(5) A claim for this relief must be made jointly in writing to the inspector after the end of the tax year in which your registration took place.

How are personal allowances and reliefs applied to a year of registration relief claim?

(6) The general provisions regarding claiming of personal allowances and reliefs apply to the year of registration relief. This means that:

(a) the relief cannot reduce tax retained on annual payments made (section 459(1)),

(b) the relief is given by reducing or discharging a parther’s income tax assessment (section 459(2)),

(c) if a partner’s personal allowances exceed his/her income for the tax year, any tax overpaid must be repaid (section 460),

(d) the allowance is claimed by including the necessary details on the income tax return form (section 459(3)-(4) andSchedule 28 para 8).

Section 1031F Repayment of tax in case of certain civil partners

What rules apply in the case of tax repayments to jointly assessed couples?

(1) These rules apply to civil partners jointly assessed to tax for a tax year, and who are not separately assessed for that year.

How is a tax repayment allocated between partners who are jointly assessed?

(2) Where a tax repayment of €25 or more arises for a tax year, it must be repaid to each of them in proportion to the net amount of tax deducted or paid in respect of their respective total incomes.

What can an inspector of taxes do when a repayment is largely attributable to one partner only?

(3) If the inspector is satisfied that the repayment is largely caused by a tax allowance or relief that would have been given exclusively to one of the partners had they been taxed under separate assessment (sections 1031H, 1031I), the inspector may allocate the repayment to the couple on a basis which he/she considers just and reasonable.

Section 1031G Special provisions relating to tax on individual’s civil partner’s income

What happens if a civil partner’s income tax assessment remains unpaid?

(1) These rules apply where an income tax assessment on a partner (or his/her trustee, guardian, or personal representatives) for a tax year remains unpaid 28 days after it became due.

Revenue may issue a demand notice to the other partner (or the other partner’s trustee, guardian, or personal representatives), in respect of the lower of:

(a) the tax that would have been payable by the other partner had separate assessment (section 1031H) applied for that tax year, or

(b) the unpaid tax.

How is a demand notice issued to the other civil partner treated for collection and appeal proceedings?

(2) The demand notice issued by Revenue to the other civil partner is regarded for the purposes of:

(a) collection and enforcement proceedings,

(b) priority in bankruptcy proceedings,

(c) appeal proceedings,

as if it were a separate assessment on the other civil partner (or the civil partner’s trustees, etc) made on the day of the notice by the “authority” who made the original (as yet unpaid) assessment on the defaulting partner.

How is the assessable partner affected by a demand notice issued to his/her civil partner on the amount charged to him/her?

(3) Once a demand notice under (1) is given to the other civil partner, tax up to the amount stated in the demand notice ceases to be payable by the assessable under the original assessment. The tax now charged to the other civil partner is treated as if it had never been charged to the assessable partner.

What happens if the demand notice issued to the other civil partner is reduced?

(4) Where the amount shown in a demand notice issued to the other civil partner is reduced on appeal, or by the High Court, because the original assessment was excessive, the notice is amended and any tax overpaid by the other civil partner is repaid. However, the reduction in tax on the demand notice issued to the other civil partner is to be recovered by an equivalent increase in the original assessment on the assessable partner.

What power has Revenue in giving a demand notice to the other civil partner?

(5) In giving the demand notice to the other civil partner, Revenue may use, and produce in evidence, any returns, documents or information legally obtained by Revenue officials in connection with any other tax or duty for which they are responsible (section 872).

When can a civil partner disclaim responsibility for the other partner’s part of their jointly assessed income?

(6) Where a civil partner dies, the surviving partner (or his/her executors or administrators) may, within two months of the date of grant of probate or letters of administration, by written notice to the inspector and to the deceased civil partner’s personal representatives, disclaim responsibility for his/her part of their jointly assessed tax liability for any tax year for which they were jointly assessed (section 1031C).

What information must be shown in a disclaimer notice?

(7) The notice must state the name and address of the deceased civil partner’s personal representatives.

What remedy is available in order to recover an unpaid part of the tax disclaimed?

(8) Any unpaid part of the tax disclaimed by the individual is to be recovered from the personal representatives of the individual’s civil partner.

Any under assessment of tax on the individual’s civil partner is to be recovered by assessment on the civil partner’s personal representatives as if separate assessment had applied for the tax year in which the undercharge arose.

What powers of delegation do Revenue have in relation to this section?

(9) Revenue may delegate any of their functions under this section to an authorised officer.

Section 1031H Application for separate assessments

What is meant by “personal reliefs”?

(1) Personal reliefs means the income tax allowances and deductions listed in section 458, but not:

(a) the additional standard rated allowance for widowed persons (section 461A),

(b) the additional standard rated allowance for single and widowed parents (section 462B), or

(c) the special additional standard rated allowance for widowed parents in the three tax years following the year of bereavement (section 463).

What is the effect on their joint income tax liablility if one civil partner elects to be separately assessed?

(2) If they are already jointly assessed (section 1031C) for a tax year, one may elect for separate assessment for that tax year. Although they are both assessed as if they were single persons, and each of them obtains the same deductions as if single, any tax saving achieved through joint assessment (double rate bands) is preserved. The unused part of the less-taxed partner’s rate bands can be used by the other more highly taxed partner.

Personal reliefs are allocated to the partners according to the rules listed in section 1031I.

Can civil partners elect to be separately assessed at any time in a tax year?

(3) Where civil partners wish to opt for separate assessment for a tax year, they must do so within the six month period preceding 1 April in the year for which separate assessment is sought.

However, where the tax year is the year of registration of the partnership, they may elect for separate assessment before 1 April in the next tax year

For how long does an election for separate assessment continue?

(4) An election for separate assessment continues in force unless the notice is withdrawn before 1 April in a tax year.

If civil partners opt for separate assessment, what are the rules for filing of tax returns?

(5) Where they have opted for separate assessment, either of them may make the return of total income of both partners. If Revenue are not satisfied with the joint return, they may require the other partner to complete a separate return of total income.

Can Revenue request that both file a separate tax return?

(6) Revenue may at any time require either partner to make a return of total income.

Section 1031I Method of apportioning reliefs and charging tax in case of separate assessments

When civil partners opt for separate assessment, how are personal reliefs allocated between them?

(1)-(2) Where civil partners have opted for separate assessment, the personal reliefs are allocated to the two of them as follows:

(i) Relief for interest paid on certain home loans (section 244), the various owner-occupier allowances (section 372AR)and 372AAB] are allocated in proportion in which they incurred the expenditure.

(ii) Basic personal tax credit (section 461), age tax credit (section 464), incapacitated child tax credit (section 465), and the blind persons tax credit (section 468), are allocated in the proportions of half and half.

(iii) Incapacitated child tax credit (section 465), and dependent relative tax credit (section 466) are allocated according to who maintains the child or dependent relative.

(iv) Employed person taking care of incapacitated individual (section 467) is allocated in the proportion in which they incurred the expenditure.

(v) Relief for health expenses (section 469) is allocated in the proportion in which they incurred the expenditure.

(vi) Relief for insurance against expenses of illness (section 470), and allowance for rent paid by certain tenants (section 473) are allocated in the proportion in which they incurred the expenditure.

(vii) Relief for contributions to permanent health benefit schemes (section 471) are allocated in the proportion in which they incurred the expenditure.

(viii) Employee tax credit (section 472), relief for the long-term unemployed (section 472A), and the seafarer allowance (section 472B) are allocated according to the partner who is in PAYE employment and therefore entitled to the relief.

(viiia) Relief for trade union subscriptions (section 472C – ceases to have effect from tax year 2011) is allocated according to who is entitled to the relief.

(ix) Relief for college fees (section 473A), training course fees (section 476), service charges (section 477), alarm systems for the elderly (section 478), new shares purchased on issue by employees (section 479) are allocated In the proportion in which they incurred the expenditure.

(x) Film relief (section 481) is allocated In the proportion in which they made the film investment.

(xa) Relief for gifts to approved bodies (section 848A) is allocated in the proportion in which they made the gift.

(xi) EIIS relief (Part 16) is allocated in the proportion in which they made the EIIS investment.

(xii) Old owner-occupier relief (Schedule 32 para 12) and designated area significant buildings relief (Schedule 32para 20) are allocated in the proportion in which they incurred the expenditure.

Income tax exemption (sections 187, 188) is split among civil partners in proportion to the tax that would be payable by each partner if the exemption did not apply.

Separate assessment is applied by giving each partner the standard rate band (section 15 (Table Part 1)) of a single person, the balance being charged at the higher rate.

What happens if one civil partner cannot fully utilise the reliefs available to both?

(3) Where one partner has tax reliefs in excess of the tax chargeable on his/her income, the excess may be transferred to the other partner, and used to reduce the other partner’s taxable income.

What happens if either one civil partner cannot fully absorb his/her individual standard rate band?

(4) Where the income of the lesser-earning partner does not fully absorb the standard rate band, the standard rate band of the higher earning partner is increased, up to a maximum (section 15), by the unused part (the appropriate part) of the standard rate band of the lesser earning partner.

Section 1031J Maintenance of civil partners living apart

What is a “maintenance agreement” in the context of civil partners living apart?

(1) A maintenance arrangement means:

(a) a legally enforceable court order or deed of separation (i.e., one made under the Civil Partnership and Certain Rights and Obligations of Cohabitants Act 2010 Part 5 or Part 12),

(b) a trust, covenant, agreement or arrangement made in consequence of:

(i) the dissolution or annulment of a civil partnership,

(ii) the separation of the parties to the civil partnership, in such circumstances that the separation is likely to be permanent.

To what children does this section apply?

(1A) A child includes an incapacitated child for whom the civil partner received a tax credit.

Is a payment to an ex-civil partner deemed to be made for the benefit of that person?

(2) A maintenance payment made to an ex-civil partner is deemed to be made for the benefit of the ex-partner. In other words, the default situations is that a maintenance payment is deemed to be for the benefit of the ex-partner as opposed to any children of the relationship.

A maintenance payment for the benefit of a child is deemed to be for the benefit of the child and not the ex-civil partner.

How is maintenance paid to an ex-civil partner treated for tax purposes?

(3) Maintenance payments to a former civil partner are to be made gross, without deduction of tax.

The recipient of the payment is taxed on the income under Schedule D Case IV.

When calculating his/her total income for a tax year, the payer is entitled to deduct the total maintenance payments made to the former partner in that year.

How is maintenance for a child treated?

(3A) The ex-civil partner making the payment cannot deduct tax from the payment. The payment does not reduce his or her total income. The paying ex-civil partner will be entitled to an incapacitated child tax credit. The receiving ex-civil partner will not be entitled to the credit.

How do the paying civil partner get tax relief on maintenance payments?

(4) A claim for a deduction from total income in respect of maintenance payments made to a former civil partner must be made in writing to the inspector.

The general provisions regarding claiming of personal allowances and reliefs apply to a deduction from total income (in respect of maintenance payments made to a former civil partner). This means that:

(a) the relief cannot reduce tax retained on annual payments made (section 459(1)),

(b) relief is given by reducing or discharging the person’s income tax assessment (section 459(2)),

(c) the deduction is claimed by including the necessary details on the income tax return form (section 459(3)-(4) andSchedule 28 para 8).

Section 1031K Dissolution of annulment of civil partnerships: adaptation of provisions relating to civil partners

When can a separated couple elect to be jointly assessed?

(1) Parties to a civil partnership which has not been dissolved or annulled may, as in the case of married couples, elect to be jointly assessed for tax purposes (section 1031D). A maintenance payment under section 1031J must have been made in the tax year, and both parties must be resident in the State.

How do the joint assessment rules apply where a civil partnership is dissolved or annulled?

(2) The election for joint assessment applies as if the couple were still in civil partnership (section 1031D(1)). When computing total income of the partners, maintenance payments (section 1031J) between the separated partners are ignored, and tax is calculated as if they had made an election for separate assessment (section 1031H).

In what circumstances can civil partners who annul their partnership elect for joint assessment?

(3) Separated civil partners whose partnership has been dissolved under the Civil Partnership and Certain Rights and Obligations of Cohabitants Act 2010 may elect for joint assessment if:

(a) maintenance payments are made from one partner to another,

(b) both partners are resident in the State, and

(c) neither has married or entered into a new civil partnership.

Section 1031L Interpretation (Chapter 2)

This legislation deals with capital gains tax provisions for civil partners.

Section 1031M Civil partners

How are the capital gains of civil partners charged?

(1)-(2) Where civil partners are living together during a tax year, the nominated civil partner is assessed to tax in respect of their combined total chargeable gains for that tax year or for the part of the year they lived together. The additional tax charge on the nominated civil partner in respect of the other partner’s gains must not be greater than the tax charge that would have been made on the other partner had he/she been separately assessed on those gains.

When can a civil partner apply to be separately assessed on chargeable gains?

(3) Either civil partner may apply, on or before 1 April in the following tax year, to be separately assessed on chargeable gains accruing in a tax year. The separate assessment continues for later tax years until it is withdrawn by either partner. To be valid, a notice of withdrawal must be made on or before 1 April in the tax year following the tax year for which the withdrawal is made.

When can one civil partner use the other’s allowable CGT losses against his/her gains in a tax year?

(4) Where civil partners are living together, during a tax year, the allowable losses of one may be set against the other’s partner’s chargeable gains. Either may choose, on or before 1 April in the following tax year, that this rule should not apply.

Where the losses of one partner are not set-off against gains of the other partner, any unused losses are carried forward against the first partner’s gains for future tax years.

What rules apply to the disposal of an asset between civil partners who are living together in a tax year?

(5) A disposal of an asset (other than trading stock) between civil partners is treated as having been made for a consideration which gives rise to no gain/no loss.

Do the deemed market value rules apply to disposals between civil partners?

(6) The no gain/no loss rule applies to disposals between civil partners even where such disposals would otherwise have been treated as having been made at market value.

When does the no gain/no loss rule not apply to the transfer of assets between civil partners?

(7) This is an anti-avoidance provision. The relief in (5) does not apply if the receiving partner is non-Irish resident (and resident in treaty country) at the time when the asset is disposed of.

What is considered to be the date of acquisition when an asset acquired from a civil partner is disposed of?

(8) When an asset acquired from a civil partner is disposed of, the asset is treated as having been acquired when that partner acquired it.

Must an application for joint or separate treatment benotified to Revenue?

(9) Yes. An application, or withdrawal of an application, for joint or separate treatment must be made on the official Revenue form.

Section 1031N Application of section 1031G for purposes of capital gains tax

What rules apply when a CGT assessment on a civil partner remains unpaid 28 days after it is due?

Where a capital gains tax assessment on a civil partner (or his/her trustee, guardian, or personal representatives) for a tax year remains unpaid 28 days after it became due, Revenue may issue a demand notice to the other partner (or trustee, guardian, or personal representatives), in respect of the tax that would have been payable by him/her had separate assessment (section 1031H) applied for that tax year, or the unpaid tax, whichever is lesser.

The demand notice issued by Revenue to the other civil partner is regarded for the purposes of:

(a) collection and enforcement proceedings,

(b) priority in bankruptcy proceedings,

(c) appeal proceedings,

as if it were a separate assessment on the other civil partner (or his/her trustees etc.) made on the day of the notice by the “authority” who made the original (as yet unpaid) CGT assessment on the first civil partner.

Once the demand notice mentioned is given to the other civil partner, tax up to the amount stated in the demand notice ceases to be payable by the first civil partner under the original assessment. The tax now charged to the other civil partner is treated as if it had never been charged to the first civil partner.

Where the amount shown in a demand notice issued to the other civil partner is reduced on appeal, or by the High Court, if the original assessment was excessive, the notice is to be amended and any tax overpaid by the other civil partner is to be repaid. However, the reduction in tax on the demand notice issued to the other civil partner is to be recovered by an equivalent increase in the original assessment on the first civil partner.

In giving the demand notice to the other civil partner, Revenue may use, and produce in evidence, any returns, documents or information legally obtained by Revenue officials in connection with any other tax or duty for which they are responsible (section 872).

Where the other civil partner dies, the first civil partner (or his/her executors or administrators) may, within two months of the date of grant of probate or letters of administration, by written notice to the inspector and to his/her deceased partner’s personal representatives, disclaim responsibility for his/her part of their jointly assessed tax liability for any tax year for which they were jointly assessed (section 1031C).

Section 1031O Transfers of assets where civil partnership dissolved

What is the CGT treatment of a disposal of assets between former civil partners (where the partnership has been dissolved)?

(1) A disposal of an asset, other than trading stock, between former civil partners is treated as having been made for a consideration which gives rise to no gain/no loss.

When do the no gain/no loss provisions not apply to the transfer of assets between former civil partners?

(2) This is an anti-avoidance provision. The relief in (1) does not apply if the receiving person is non-Irish resident (and resident in treaty country) at the time when he/she disposes of the asset.

What is considered to be the date of acquisition when an asset acquired from a former civil partner is disposed of?

(3)-(4) When an asset acquired from a former civil partner is disposed of, the asset is treated as having been acquired when the former partner acquired it.

Section 1031P Interpretation (Chapter 1)

This legislation makes provisions for the tax treatment of cohabitants.

Section 1031Q Maintenance where relationship between cohabitants ends

How will a maintenance payment to a separated cohabitant be treated for tax purposes?

(1)-(3) Maintenance payments to a former cohabitant are to be made gross, without deduction of tax.

The recipient of the payment is taxed on the income under Schedule D Case IV.

When calculating his/her total income for a tax year, the payer is entitled to deduct the total maintenance payments made to the former cohabitant in that year.

A provision in a deed of separation for part of retirement gratuity (lump sum) to be paid to a separated cohabitant is not an annual payment (section 237). Therefore, the person receiving the payment will not be assessable on it, and the person making the payment will not be entitled to a deduction (Revenue Precedent IT97-1518, 10 April 1997).

A maintenance payment made for the benefit of a child of the payer is to be made gross, without deduction of tax.

The payment is not regarded as the child’s income. It is regarded as income of the payer (section 795).

When calculating his/her total income for a tax year, the payer is not entitled to deduct the total maintenance payments made in respect of the child in that year.

In Billingham v John, [1998] STC 120, the court held that a payment for maintenance of a child was the income of the ex-spouse (not the child).

How is tax relief on maintenance payments to a former cohabitant applied for?

(4) A claim for a deduction from total income in respect of maintenance payments made to a former cohabitant must be made in writing to the inspector.

The general provisions regarding claiming of personal allowances and reliefs apply to a deduction from total income (in respect of maintenance payments made to a former cohabitant). This means that:

(a) the relief cannot reduce tax retained on annual payments made (section 459(1)),

(b) relief is given by reducing or discharging the person’s income tax assessment (section 459(2)),

(c) if the claimant’s personal allowances exceed his/her income for the tax year, any tax overpaid must be repaid (section 460),

(d) the deduction is claimed by including the necessary details on the income tax return form (section 459(3)-(4) andSchedule 28 para 8).

Section 1031R Transfers of assets where relationship between cohabitants ends

What is the CGT treatment of a disposal of assets between former cohabitants (where the relationship has ended)?

(1) A disposal of an asset, other than trading stock, between former cohabitant is treated as having been made for a consideration which gives rise to no gain/no loss.

When does the no gain/no loss provision not apply to the transfer of assets between former cohabitants?

(2) This is an anti-avoidance provision. The relief in (1) does not apply if the receiving person is non-Irish resident (and resident in treaty country) at the time when he/she disposes of the asset.

When an asset acquired from a former cohabitant is disposed of, what is considered to be the date of acquisition?

(3)-(4) Where an asset acquired from a former cohabitant is disposed of, the asset is treated as having been acquired when the former cohabitant acquired it.

Section 1032 Restrictions on certain reliefs

For the rules determining whether an indiviudal is regarded as resident in the State for tax purposes, see sections 818-825A.

As regards joint assessment for married couples, one of which is non-resident, see section 1017.

Can a non-resident get personal allowances or credits on Irish source income?

(1) No. (See section 458.)

Example

You are a resident of Malaysia who earned consultancy fee income of €20,000 in Ireland in the tax year 2009. You are taxed on the full total income of €20,000.

You are not allowed a basic personal tax credit (section 461) when calculating your tax liability.

Are there exceptions to the foregoing rule?

(2) The personal allowances, reliefs and tax credits are allowed, in accordance with the proportion of the non-resident’s Irish income to his/her total worldwide income, if he/she is:

(a) an Irish citizen (living abroad),

(b) a former Irish resident who is now living abroad for health reasons, and

(c) a citizen or national of another European Union Member State, or possibly a resident alien from certain other countries,

(d) an individual who, before 5 April 1935, was: a British subject, employee, ex-employee of the British Crown (or a widow of such), or resident in the Isle of Man or the Channel Islands.

Example

You are a French citizen who earned consultancy fee income of €20,000 in Ireland in the tax year 2009 and also had French income of €20,000.

Your Irish income, therefore, amounts to half of your worldwide income of €40,000.

You are entitled to a tax credit of €915, i.e., half the usual basic personal tax credit (section 461) of €1,830, when calculating your Irish liability.

In computing relief under section 1032(2)-(3), the amount of any pension or similar benefit to which section 200 applies should not be included in total income (Inspector Manual 45.1.5).

Note

(c) No order has been in force under the Aliens Act 1935 section 10 since 1962 (Inspector Manual 45.1.1).

(d) In 1935 citizens of British Commonwealth countries were British subjects, therefore, those who were citizens of Australia, Canada, India, Newfoundland, New Zealand or South Africa before 1935 qualify for relief (Source: Revenue International Claims Manual).

See also: Inspector Manual 45.1.2.

How are personal allowance, reliefs, and credits for a non-resident calculated?

(3) Where a resident of another EU State earns three quarters or more of his/her worldwide income in Ireland, the allowances need not be apportioned; he/she can claim full personal allowances, reliefs and tax credits.

Example

You are a French citizen who earned consultancy fee income of €30,000 in Ireland in the tax year 2009, and total French income of €10,000.

Your Irish income therefore amounts to 75% of your worldwide income of €40,000. You are entitled to a tax credit of €1,830, i.e., the full basic personal tax credit (section 461) when calculating your Irish liability.

Tax advantages available to resident employees (but not available to non-resident employees from other member States) constitute unjust discrimination and are contrary to Article 48 of the EEC Treaty: Finanzamt Köln-Alstadt v Schumaker, [1995] STC 306.

Section 1033 Entitlement to tax credit in respect of distributions

Amendments

Section 1033 repealed by Finance Act 1999 section 28(3) as respects distributions made on or after 6 April 1999.

Section 1034 Assessment

Can an Irish agent of a non-resident be assessed in respect of the non-resident’s profits?

An Irish branch or agent of a non-resident is assessed to tax in respect of profits receivable on behalf of a non-resident even where he/she has not received those profits.

For a non-resident partnership, the precedent partner is assessed to tax. If there is no precedent partner, the partnership activities are taxed through the partnership’s branch, agent or manager (in the State).

The fact that a non-resident merchant solicits orders within the State does not necessarily mean that he/she is trading “within” the State.

Profits of a trade carried on partly in the State are chargeable under Schedule D Case I: Ogilvie v Kitton, (1908) 5 TC 538; Spiers v Mackinnon, (1929) 14 TC 386; San Paulo (Brazilian) Railway Company Ltd v Carter (1895) 3 TC 407;Denver Hotel Co Ltd v Andrews (1895) 3 TC 356; Grove v Elliots and Parkinson (1896) 3 TC 481; London Bank of Mexico v Apthorpe (1891) 3 TC 143.

In American Foreign Insurance Association v Davis, (1950) 32 TC 1, the profits of an unincorporated association made up of 15 US insurance companies carrying on insurance business through a premises in London in the names of two members were held assessable under Case I.

In practice, for a trade to be carried on “within” the State, the contracts must be concluded (for example, through an authorised manager or agent) in the State: Grainger and Son v Gough, 3 TC 462; Maclaine and Co v Eccott, 10 TC 481. More fundamentally, if the “operations take place” and the “profits in substance arise” within the State, the non-resident is taxed on those profits: Smidth and Co v Greenwood, 8 TC 193. Thus, if the non-resident maintains a stock of goods in the State from which he/she fulfils orders, this indicates that he/she is trading “within” the State. SeeErichsen v Last, (1881) 1 TC 351, 4 TC 422; Tischler v Apthorpe (1885) 2 TC 89; Werle and Co v Colquhoun, (1888) 2 TC 402; Sulley v Attorney General (1860) 2 TC 149; Firestone Tyre and Rubber Co Ltd (as agent for Firestone Co of USA) v Lewellin, (1957) 37 TC 111.

Profits of a trade carried on wholly outside the State are chargeable under Schedule D Case III: Colquhoun v Brooks(1889) 2 TC 490; but only on the remittance basis (section 71) if control lies outside the State: Trustees of Ferguson deceased v Donovan, (1927) 1 ITR 183.

In the case of a non-resident who carries on a trade partly within the State and partly abroad, tax is only charged on the part of the trade carried on in the State: Pommery and Greno v Apthorpe (1886) 2 TC 189.

Section 1035 Profits from agencies, etc

How is a non-resident who carries on a trade or profession within the State assessed and charged to tax?

A non-resident who carries on a trade or profession within the State is assessed and charged to tax through the branch, agent or manager in the State. The tax is assessed on the “profits arising” through or from the local branch, agent, or manager.

This rule is subject to the rules in section 1035A.

This ensures that the non-resident is only subject to Irish tax in respect of his Irish branch (and not his worldwide) operations.

Section 1035A Relieving provision to section 1035

An independent financial agent could theoretically (section 1035) be held liable to income tax in respect of the profits of a non-resident client. That section provides that a non-resident who carries on a trade or profession within the State may be assessed and charged to tax on the “profits arising” through or from his branch, agent, or manager in the State.

This section removes that possibility where the agent is subject to proper financial regulation.

What definitions are relevant in the context of authorised financial agents?

(1) A financial trade means a trade carried on in the State by a non-resident through an authorised agent, i.e.:

(a) an investment business firm or a stock exchange member frm (authorised member firm) that has been authorised by the Central Bank under the Investment Intermediaries Act 1995, or the equivalent competent authority of another EU State, or

(b) an EU-authorised credit institution which provides investment business services.

This section does not apply in the case of a UCITS formed under the law of another EU State which has a management company authorised under Irish law.

What characterises the independence of an authorised agent from a non-resident client?

(2) An authorised agent through whom a non-resident carries on a financial trade in the State is regarded as independentand therefore not assessable to tax in respect of the non-resident’s Irish income if he/she:

(a) does not otherwise act on behalf of the non-resident,

(b) acts independently on behalf of the non-resident,

(c) is carrying on his/her ordinary business in acting on the non-resident’s behalf, and

(d) meets the requirements in (4).

An authorised agent is not regarded as independent unless the legal, financial and commercial characteristics of the relationship indicate that it is an “arm’s length” relationship.

A person’s beneficial entitlement to the profits or gains of a trade exercised in the State by a non-resident include existing or potential beneficial entitlement to:

(a) any interest in property representing all or part of the profits or gains, or

(b) any interest or rights that person has in relation to the non-resident.

What profits or gains of a non-resident are not liable to Irish tax in the State?

(3) A non-resident is not liable to Irish tax in respect of profits or gains of a financial trade exercised in the State through an independent authorised agent.

When is a financial trade carried on in the State by an agent of a non-resident client independent?

(4) To be regarded as “independent”, a financial trade carried on by an agent in the State must meet the following conditions:

(a) the profit entitlement of the authorised agent, and other resident persons connected with him/her, must not exceed 20% of the local profits, or

(b) Revenue are satisfied that it is the authorised agent’s intention that his/her profit entitlement, with that of other resident persons connected with him/her, will not exceed 20% of the local profits and any breach of this condition will be temporary.

What powers of delegation do Revenue have under this section?

(5) Revenue may delegate their powers under this section to an authorised Revenue officer.

Section 1036 Control over residents

When can Revenue tax a resident as if he/she were the non-resident’s agent?

If a non-resident is not an Irish citizen and arranges that a resident with whom he/she closely connected is to buy goods or services from the non-resident at artificially high prices (with a consequent reduction in tax on your profits), the scheme will be void.

Revenue may tax the resident person as if he/she the non-resident’s agent in the State.

Section 1037 Charge on percentage of turnover

What can an inspector do where he/she cannot ascertain the profits of a non-resident trade?

(1) Where the inspector cannot ascertain the true profits of a non-resident trading through a resident in the State, he/she may assess the non-resident on the basis of a percentage of the turnover of the business done through the resident. The resident is responsible for filing the return of profits on behalf of the non-resident.

How will the inspector determine the percentage turnover of a business?

(2) The inspector is to determine the percentage, having regard to the nature of the business.

Can the resident or non-resident appeal a determination by the inspector?

(3) The resident or non-resident, if dissatisfied with the percentage, may appeal within four months of the inspector’s decision. The appeal must then be heard by a board of referees appointed by the Minister for Finance, and their decision on the matter is final.

Section 1038 Merchanting profit

What options has a non-resident person to be assessed on the basis of merchanting profit?

A resident assessed to tax on the profits of a non-resident (for example, on the basis of a percentage of turnover (section 1037)) may apply to the inspector or the Appeal Commissioners to amend the assessment on the basis of the “merchanting profits” that might reasonably be made by a merchant on the purchase and sale of the goods.

Section 1039 Restrictions on chargeability

What happens if a non-resident carries on business in the State through a broker?

(1) A non-resident who carries on business in the State through a broker or general commission agent is not chargeable to tax in the name of that agent.

A broker or general commission agent is one who acts as agent for more than one supplier.

Whether an agent is a general commission agent, or an agent who acts according to the instructions of his non-resident principal, depends on the facts of the case: Gavazzi v Mace, 10 TC 698.

A person can be an agent in respect of a single transaction: Wilson v Hooker, [1995] STC 1142.

What transactions by a non-resident are chargeable in the name of a resident?

(2) Transactions with other non-residents are not taken into account in deciding whether a non-resident is chargeable in the name of a resident.

Section 1040 Application of sections 1034 to 1039 for purposes of corporation tax

What income tax rules are applied in taxing non-resident companies?

The income tax rules regarding taxation of a non-resident through a branch, agent or resident in the State also apply for corporation tax:

(a) Assessment (section 1034). A non-resident company that carries on a trade or profession within the State is assessed to tax through the branch, agent or manager in the State.

(b) Profits from agencies (section 1035). A non-resident company that carries on a trade or profession within the State is assessed on the “profits arising” through or from the local branch, agent, or manager.

(c) Control over residents (section 1036). If a non-resident company arranges that a closely connected resident is to buy goods from it at artificially high prices with a consequent reduction in tax on the resident’s profits, Revenue may tax the resident as if he/she were the non-resident’s agent in the State.

(d) Charge on percentage of turnover (section 1037). Where the inspector cannot ascertain the true profits of a non-resident company trading through a resident in the State, he/she may assess the non-resident on the basis of a percentage of turnover of the business done through the resident.

(e) Merchanting profit (section 1038). A resident assessed to tax on the profits of a non-resident may apply to have the assessment amended on the basis of the “merchanting profits” that might reasonably be made by a merchant on the purchase and sale of the goods.

(f) Restrictions on chargeability (section 1039). A non-resident who carries on business in the State through a broker or general commission agent is not held chargeable to tax in the name of that agent.

Section 1041 Rents payable to non-residents

Does a non-resident landlord have a branch in the State?

(1) A non-resident who receives rent (Case V) or miscellaneous income (Case IV) from property located in the State, is not taxed (under section 1034) as if he had a branch in the State.

Instead, the tenant paying the rent must treat the payment as an annual payment (section 238) from which standard rate income tax must be deducted and paid over to Revenue.

See also: Tax Briefing 42.

Can a non-resident landlord claim rental deductions?

(2) A non-resident landlord may reduce the tax payable by claiming a deduction for legitimate expenses incurred in arriving at rental income. If the ultimate tax liability is less than the tax deducted at source, any tax overpaid must be repaid.

Section 1042 Charging and assessment of persons not resident or ordinarily resident: modification of general rules

When do the payment dates for CGT not apply to non-resident or ordinarily resident people?

(1) The normal capital gains tax self-assessment payment date (1 November in the next tax year) does not apply to:

(a) a beneficiary who received a capital distribution derived from a chargeable gain by an Irish resident company and who is charged in respect of capital gains tax arrears of that company in respect of that gain (section 977), or

(b) a donee who received a gift from a dono, and who is charged to tax in respect of arrears of capital gains tax owed by that donor in respect of that gift (section 978).

In such cases, the tax is payable within two months of the notice of assessment, or three months of the end of the year in which the gain accrued, whichever is later (section 979).

Similarly, in the case of a disposal is made by a person who is non-resident and non-ordinarily resident at the time of the disposal, the assessment may be made within the tax year during which the disposal occurred, the normal self-assessment payment rules do not apply. The capital gains tax assessed is payable within two months of the notice of assessment, or three months of the disposal, whichever is later.

When can a non-resident or ordinarily resident person use CGT losses against a chargeable gain?

(2) Where a chargeable gain accrues to a non-resident or ordinarily resident person, any unused losses brought forward from previous years may be set-off, provided the corresponding gain (if there had been one) would be chargeable.

Section 1043 Application of sections 1034 and 1035 for purposes of capital gains tax

For a non-resident taxed through a branch in the State, what income tax rules also apply to CGT?

The income tax rules regarding taxation of a non-resident through a branch, agent or resident in the State also apply for capital gains tax:

(a) Assessment (section 1034). A non-resident that carries on a trade or profession within the State is assessed to tax through the branch, agent or manager in the State.

(b) Profits from agencies (section 1035). A non-resident that carries on a trade or profession within the State is assessed on the gains arising through or from the local branch, agent, or manager.

Section 1044 Bodies of persons

How are bodies of persons chargeable to tax?

(1) Bodies of persons are chargeable to income tax in the same manner as individuals.

Trusts and trustees

A trust involves the division of an interest in property. A trust is an obligation binding a person (the trustee) to deal with property in a particular way or for the benefit of a particular class of persons (of which he/she may him/herself be a member). The interests of such members are protected by the courts’ rules of equity.

Therefore, the trust itself is not a legal person such as a company or an individual. In general, it is a legal document (adeed of trust) which provides for a transfer of property. A trust may also be expressly established by will, or by the operation of law (for example, on intestacy). A trust may also be presumed to exist (for example where a person buys property in the name of another – there is a presumed trust in favour of the person who supplied the purchase money.

The person who owns or provides the property (the settlor) transfers his interest to a trustee (who may be the settlor him/herself. The trustee then holds the property in trust (in a fiduciary capacity) for a beneficiary but does not, him/herself, have beneficial ownership of the property. The beneficial owner (the beneficiary) has the legal or equitable interest in the settled property.

A single instrument (for example, a will) may create more than one trust even though there may be only one body of trustees. A will, on the other hand, does not necessarily settle any property on trust; it may devise all the assets to legatees absolutely (Inspector Manual 19.3.1).

If trust income is paid directly to the beneficiary and does not pass through the hands of the trustees, the trustees are not chargeable on that income: Williams v Singer and Pool v Royal Exchange Assurance, (1921) 7 TC 387. Furthermore, if a beneficiary has an absolute right to income, and can demand its payment by the trustees, he/she is liable to tax on that income whether it is paid to him/her or not: Archer-Shee v Baker, (1927) 11 TC 749, Nelson v Adamson, (1941) 24 TC 36.

In Hamilton-Russell’s Executors v IRC, (1943) 25 TC 200, a son became absolutely entitled to trust investments on 17 October 1928, but did not have the investment assigned to him until 18 January 1939. He was assessed for 1938-39 on the entire accumulated trust income. The court held that although he was assessable on the income, he was entitled to a credit for any tax paid by the trustees.

In Moloney v Allied Irish Banks Ltd, 3 ITR 477, the personal representatives (the trustees) were held chargeable on income arising during their period of administration.

Payments to beneficiaries

A capital payment made by a trustee to a beneficiary may be taxed as income (an annuity or annual payment) in the hands of the beneficiary: Bradies’ Trustees v IRC, (1933) 17 TC 433, Cunard’s Trustees v IRC, (1946) 27 TC 122. Conversely, the capital value of an annuity paid from trust income may be treated as capital in the hands of the beneficiary: IRC v Castlemaine (Lady), (1943) 25 TC 408. Recurring payments made by trustees are not necessarily income in the hands of the recipient: Stevenson v Wishart, (1987) 59 TC 740.

ResIdence of trustees

Because a trust deed is not a legal person, it cannot strictly be said to be “resident” anywhere. If the trustees of a trust are resident in the State, they are liable for tax on the trust income (assuming the income is not directly assessable on the beneficiary as explained in the previous paragraph): Kelly v Rogers, (1935) 19 TC 692. Under UK law, all of the trustees must be resident in the UK in order to make the trustees liable to income tax on the trust income. This is because trustees are generally only jointly (and not jointly and severally) entitled to the trust income. As a result, no single trustee can call for trust income to be paid directly to him/her: Dawson v IRC, (1989) STC 473.

Trust residence guidelines

Guidelines for deciding the residence of trusts and estates under administration under the double taxation agreement between Ireland and the United Kingdom. The guidelines, designed to deal with the majority of cases, have been agreed with the British Inland Revenue. These guidelines apply for income tax purposes only. References to trusts should be taken as including estates under administration and references to trustees as including personal representatives. Trustees are a body of persons “other than an individual” (Article 4(3) of Ireland/UK Double Tax Agreement). Therefore the proper test in resolving the residence of trusts Is the place of effective management of the trust. To determine the ‘place of effective management of a trust the following rules should be observed:

(a) If the trustees are all Individuals residing in one country only that country should be accepted as the place of effective management.

(b) If the trustees are all individuals but not all residing in one country

(i) the country in which the individual who generally controls and supervises the work of administering the trust (i.e., keeps the accounts, conducts the correspondence, arranges the meetings of the trustees and puts into effect the decisions taken at such meetings) resides should be taken,

(ii) if there is no such Individual the dates and places of all meetings held should be established and the country In which the majority of the meetings were held regarded as the place of effective management.

(c) If a professional body Is acting as trustee either alone or in conjunction with individuals the place of business of that professional body should generally be presumed to be the effective place of management of the trust.

(d) If the professional body acting as trustee is a United Kingdom Bank with a branch or subsidiary In this country and the work of administering the trust is carried out by that branch or subsidiary this State should be regarded as the country of residence, and vice versa In the converse situation.

(Inspector Manual 34.0.6).

Non-resident trust

A trust is treated as non-resident if:

(a) a company acts as trustee,

(b) the setllors are neither resident, ordinarily resident or domiciled in the State, and

(c) the trust funds are settled in currencies other than the Irish pound and/or property situated outside Ireland.

(Revenue Precedent IT91.3510, 15 January 1991).

A trust established by funeral directors to hold payments made in advance by individuals to meet their future funeral costs is taxed In the following manner:

(a) 18% tax applies to all gross Income of the trust, with credit for deposit Interest retention tax (DIRT, see section 256) allowed. No refund of DIRT is available.

(b) The individual has no further tax liability.

(c) No Individual may invest more than £4,000 (this limit is subject to review).

(d) No individual may have more than one investment.

(e) Details need not be included In the individual’s tax return.

(f) The scheme is subject to review to ensure that it is operating satisfactorily.

(Revenue Precedent IT 5068/95,24 July 1995).

Who is responsible for tax compliance with regard to a body of persons?

(2) In the case of an unincorporated body of persons (for example, a club or association), the treasurer, auditor or receiver is the person responsible for tax compliance.

What power does the officer chargeable with tax compliance of an unincorporated body have?

(3) Such an officer may retain from the money coming into his/her hands a sufficient amount to ensure that the tax liability of the body is paid up to date.

Section 1045 Trustees, guardians and committees

Who is the chargeable person in the case of an incapacitated person chargeable to tax?

If an incapacitated person is chargeable to income tax, that person’s representative (i.e., his/her trustee, guardian or committee) is assessable and chargeable to tax on his/her behalf.

Section 1046 Liability of trustees, etc

What are the duties of a trustee for an incapacitated or non-resident person?

(1) A representative of an incapacitated person, or of a non-resident person is “answerable” for all matters relating to that person’s income tax.

This means that he/she is responsible for filing the income tax return of, and paying any tax owed by, the incapacitated person or non-resident.

Where the whole of the trust income is payable to a non-resident beneficiary, or divisible between two or more non-resident beneficiaries, the liability is confined to that on the income arising in Ireland. This is subject to any exemption available on the basis that the beneficiary is resident in a tax treaty country (section 826).

What power has the representative of an incapacitated or non-resident person over funds held in trust?

(2) The representative may retain from the money coming into his/her hands a sufficient amount to ensure that the tax liability of the incapacitated person (or non-resident person) is paid up to date.

What power has the agent of a non-resident company over funds held for the company?

(3) An agent of a non-resident company is “answerable” for all matters relating to that company’s corporation tax, and may retain from the money coming into his/her hands sufficient funds to ensure that the tax liability of the company is paid up to date.

Section 1047 Liability of parents, guardians, executors and administrators

Who is liable to pay any tax interest or penalties owed by a deceased person?

(1) A deceased person’s liability to tax, interest and penalties is charged on his/her personal representatives. Any sums owed are a debt on his/her estate and his/her executor or administrator may deduct such sums from the estate.

Who is liable to pay tax on income earned by an infant?

(2) Income tax on the earnings of an infant is chargeable on the infant’s parent or guardian.

Section 1048 Assessment of executors and administrators

What tax may be assessed on the personal representatives of a deceased person?

(1) When a person dies, his/her personal representatives may be assessed to income tax in respect of any pre-death income tax liability not already assessed at the date of death. Such tax is a debt due and payable from the deceased person’s estate.

What time limits apply to raising assessments on pre-death income tax liabilities?

(2) Personal representatives cannot be assessed in respect of pre-death income tax liability if more than three years have passed since the end of the tax year in which the person died and a grant of probate or letters of administration were made in that tax year.

Example

X died on 30 May 2010 (i.e., in the tax year 2010).

His executors were granted probate on 2 August 2010 (i.e., in the tax year 2010).

Assessments (if necessary) must be entered by the inspector on or before 31 December 2013 (three years after 31 December 2010, the last day of the tax year 2010).

If the grant of probate or letters of administration were made in a tax year later than the year of death, and two years have passed since the end of that tax year, the personal representatives cannot be assessed in respect of the deceased’s pre-death income tax liability.

Example

Y died on 30 May 2010 (i.e., in the tax year 2010).

Her executors were granted probate on 6 January 2011 (i.e., in the tax year 2011).

Assessments (if necessary) must be entered by the inspector on or before 31 December 2013 (two years after 31 December 2011, the last day of 2011).

Where a corrective or additional affidavit (detailing the deceased’s assets and liabilities, as corrected by reference to the initial affidavit) is lodged for the purposes of capital acquisitions tax, and two years have passed since the end of the tax year in which it was lodged, his/her personal representatives cannot be assessed in respect of any tax he/she may have owed.

Example

Z died on 30 August 2010 (i.e., in the tax year 2010).

The (initial) Inland Revenue Affidavit for capital acquisitions tax was lodged on 6 December 2010.

Her executors were granted probate on 6 January 2011 (i.e., in the tax year 2011).

A corrective Inland Revenue Affidavit was lodged on 7 December 2013 (i.e., in the tax year 2010).

Assessments (if necessary) must be entered by the inspector on or before 31 December 2015 (two years after 31 December 2013, the last day of 2013).

What written statement may be required from the personal representatives of a deceased?

(3) An inspector may, by written notice, require the personal representatives of a deceased person to file a written statement of the profits or gains arising up to the death of the deceased. The income tax provisions relating to filing of statements (section 877) apply to such a statement.

Section 1049 Receivers appointed by court

How is a court appointed receiver chargeable to tax in respect of property under her/his direction?

(1) A receiver appointed by the court over any property, is chargeable to income tax (or where necessary, corporation tax) as if the property were not under control of the court.

What are the tax compliance duties of a receiver?

(2) She/he must file any returns and pay any tax due arising from her/his appointment over the property.

Section 1050 Protection for trustees, agents and receivers

What are the tax compliance duties of a trustee?

(1) A trustee who receives income on behalf of another person must file a return showing, for each person to whom the income belongs, the amount of income and the payee’s name, address, age and residence status (section 890).

A trustee who has made such a return has no further role in the matter of assessing the recipient of the income, but may be required to give testimony.

What are the duties of an agent of a resident person?

(2) An agent of a resident (other than an incapacitated person) may be required to give testimony but is not required to file a return if she/he has filed one under section 890.

Section 1051 Application of Chapter 1 for purposes of capital gains tax

What IT rules apply in assessing trustees for CGT purposes?

The income tax rules regarding taxation of persons chargeable in a representative capacity also apply for capital gains tax:

(a) Bodies of persons (section 1044). Bodies of persons (for example a club) are chargeable to capital gains tax in the same manner as individuals.

(b) Trustees, guardians and committees (section 1045). If an incapacitated person is liable to capital gains tax, that person’s representative (i.e., his/her trustee, guardian or committee) is assessable and chargeable to tax on the incapacitated person’s behalf.

(c) Liability of trustees, etc (section 1046). The representative of an incapacitated person or a non-resident person, is “answerable” for all matters relating to that person’s capital gains tax.

(d) Liability of parents, guardians, and personal representatives (section 1047). If a person aged under 18 years is chargeable to capital gains tax, that person’s parent or guardian (or if he/she dies, his/her personal representative), is chargeable to tax on his/her behalf.

(e) Assessment of personal representatives (section 1048). When a person dies, his/her personal representatives may be assessed to capital gains tax in respect of any pre-death capital gains tax liability. Such tax is a debt due and payable from the deceased person’s estate, within the time limit set out in section 1048.

(f) Receivers appointed by court (section 1049). A receiver appointed by the court over any property is chargeable to capital gains tax as if the property were not under control of the court.

Section 1052 Penalties for failure to make certain returns, etc

What penalties apply to failure to file a return or filing an incorrect return?

(1) A penalty of €3,000 applies for failure to file a return, statement or document under, or to comply with, any of the provisions listed in Schedule 29 column 1 or 2.

A penalty of €3,000 also applies where a return was filed but information required in relation to an exemption, allowance, credit, deduction or relief being claimed was omitted. However, this penalty does not apply if the omission is rectified without unreasonable delay.

A penalty of €3,000 also applies for failure to do any act or provide any information required by the provisions listed inSchedule 29 column 3.

Schedule 29 column 1 lists the main returns of a person’s own income.

Selective prosecution is lawful (in UK): R v IRC, ex parte Mead and Cook, [1992] STC 482.

Penalties under this section are non-criminal and must be pursued by civil proceedings: McLoughlin v Tuite, 3 ITR 387; see also Director of Public Prosecutions v Downes, 3 ITR 641. Criminal proceedings are dealt with by section 1078.

Lack of information is not an excuse for not filing a return: Alexander v Wallington General Comrs and IRC, [1993] STC 588. Other UK cases concerning the imposition of penalties: Napier v Farnham General Comrs and Others, [1978] STI 589; Garnham v Haywards Heath General Comrs and Others, [1977] STI 430; Moschi v Kensington General Comrs and Others, [1980] STC 1; Montague v Hampstead General Comrs, [1989] STC 818; Wilson and Others v Leek General Comrs and IRC, [1994] STC 147.

A penalty may be avoided if the taxpayer files the return before the penalty proceedings are commenced: B and S Displays Ltd and Others v Special Commissioners, [1978] STC 331.

In what circumstances is an increased penalty applied for failure to file returns for a tax year?

(2) The penalty for failure to comply with a Schedule 29 column 1 provision is increased to €4,000 where the failure continues after the end of the tax year following the tax year in which the notice was given.

When is a reduced penalty applied for failure to file a return or filing an incorrect return?

(3) The penalty which applies for failure to make a return of total income is reduced to €5 where it is shown that the person not chargeable to income tax (section 877(5)(b)).

An employer is not liable to a penalty for omitting from a return of employees’ emoluments the names and addresses of employees who are exempt from income tax (section 897(5)).

What certified information will be accepted as evidence in proceedings to collect a penalty?

(4) In proceedings to collect a penalty, a certificate signed by a Revenue official stating that:

(a) a notice or precept was given to a defendant,

(b) a notice or precept has not been complied with by the defendant,

(c) Revenue records show that the defendant has failed to do a stated act or provide requested information, or any of the details required by Schedule 29 column 3,

is evidence of these facts until the contrary is proved. Such a certificate may be tendered in evidence without proof, and is deemed, until the contrary has been proved, to have been signed by the Revenue official.

In relation to an income tax return (section 879) or a partnership return (section 880), the certificate may be signed by the inspector.

Section 1053 Penalty for fraudulently or negligently making incorrect returns, etc

Amendments

This section has been spent: with effect from 24th December 2008.

Section 1054 Increased penalties in case of body of persons

(1) Secretary includes the treasurer, auditor or receiver of an unincorporated body of persons.

What penalties apply to the secretary of a company for failure to file a tax return?

(2) If ya company fails to file a tax return, the company secretary is liable to a separate penalty of:

(a) €2,000 euro where the failure continues after the end of the tax year or accounting period in which the notice was given, and

(b) €1,000 in any other case.

Do separate penalties apply to the secretary of a company for incorrect returns?

(3) If a company files an incorrect tax return fraudulently, negligently, deliberately or carelessly, the company secretary is liable to a separate penalty of:

(a) €1,500, or

(b) €3,000 where the behaviour is deliberate.

When does a reduced penalty apply to a body of persons not filing a return or filing an incorrect return?

4) The penalty which applies for failure to make a return of total income is reduced to €5 where the body of persons proceeded against shows it was not chargeable to income tax (section 877(5)(b)).

An employer is not liable to a penalty for omitting from a return of employees’ emoluments the names and addresses of employees who are exempt from income tax (section 897).

Section 1055 Penalty for assisting in making incorrect returns, etc

What penalties apply for assisting in making an incorrect income or corporation tax return?

A penalty of €4,000 applies to any person who deliberately assists in or induces the making an incorrect income or corporation tax return, declaration or statement.

Section 1056 Penalty for false statement made to obtain allowance

What is meant by “the specified difference”?

(1) The specified difference means the difference between:

(a) a persons’s income tax liability for a tax year (or corporation tax liability for an accounting period) and

(b) the proper tax liability on the basis that the return contains no false representation, accounts, declaration, or understatements of income.

What penalties apply for assisting in the making of a false statement or representation?

(2) These penalties apply where a person knowingly makes a false statement or representation in relation to his/her own income tax (or corporation tax) return to obtain an allowance or reduction of tax to which he/she is not entitled.

These penalties also apply for knowingly assisting, inciting or inducing another person to make a false statement, deliver a false return or declaration, or not disclose the full amount of income, in relation to that other person’s income tax (or corporation tax) return.

What sliding scale of fines applies for offences under this section?

(3) The table shows the sliding scale of fines etc. for false statements made to obtain allowances to which you are not entitled:

summary conviction
specified difference fine imprisonment
less than €1,520 up to 25% of specified difference and/or up to one year
equal to or greater than €1,520 €1,520 and/or up to one year
conviction on indictment
specified difference fine imprisonment
less than €6,345 up to 25% of specified difference and/or up to two years
€6,345 to €12,694 up to 50% of specified difference and/or up to three years
€12,695 to €31,739 up to the specified difference and/or up to four years
€31,740 to €126,969 up to twice the specified difference and/or up to eight years
€126,970 or over up to twice the specified difference and up to eight years (with no discretion for the court)

Can an offence under this section be prosecuted as a criminal Revenue offence?

(4) Yes (see section 1078).

What tax is not included in the penalty provision relating to false statements to obtain an allowance?

(5) Underdeclarations of income, chargeable gains, and value added tax made to the Chief Special Collector in accordance with the 1993 tax amnesty are not prosecutable under this section.

Section 1057 Fine for obstruction of officers in execution of duties

Is there a fine for obstructing or hindering a Revenue official?

(1) A fine of €125 applies for obstructing or hindering an authorised Revenue official, or a person helping such an official, from carrying out his/her duties in relation to income tax or corporation tax. A separate fine applies to each obstruction offence.

What powers of enforcement and collection apply to these penalties?

(2) These penalties may be enforced and collected in the same manner as excise penalties.

When does this section cease to apply?

(3) This section does not apply to acts occurring after 24 December 2008.

Section 1058 Refusal to allow deduction of tax

What penalties apply for refusal to allow a deduction for income tax or corporation tax?

(1) A person who refuses to allow a deduction of income tax or corporation tax authorised by tax law forfeits €3,000.

The legislation requiring tax to be withheld from an annual payment (sections 237238) may not be circumvented, even with the consent of both parties: IRC v Hartley, (1956) 36 TC 348.

What is the legal status of agreements to pay interest rent or other annual payments gross?

(2) Every agreement to pay interest, rent or any annual payment without allowing tax to be deducted is void.

An annuity to be paid “free of tax” is grossed up at the standard rate: IRC v Ferguson, (1969) 46 TC 1. See also notes to section 238 and section 255.

Section 1059 Power to add penalties to assessments

How can Revenue add penalties to an assessment?

A penalty, calculated by imposing an increased rate of income tax or corporation tax, may be added to, and collected as part of, an income tax or corporation tax assessment.

Section 1060 Proceedings against executor or administrator

Amendments

This section has been spent: with effect from 24th December 2008.

Section 1061 Recovery of penalties

Amendments

This section has been spent: with effect from 24th December 2008.

Section 1062 Proceedings where penalty recoverable cannot be definitely ascertained

Can proceedings to recover a penalty be taken when a final tax liability has not been ascertained?

Proceedings may be taken to recover a penalty, the amount of which has not, at the time the proceedings are begun, been finally ascertained because a tax liability (by reference to which the penalty is calculated) has not yet been finally ascertained.

The court may adjourn the hearing of such proceedings until the tax liability on which the penalty is based is finalised.

Section 1063 Time limit for recovery of fines and penalties

What is the time limit for proceedings to recover income tax and corporation tax penalties?

Proceedings may be taken to recover an income tax or corporation tax penalty up to six years after the date on which the penalty was incurred.

In proceedings against an offender’s personal representatives, this time limit is shortened to three years after the end of the tax year in which the offender died if probate or letters of administration were made in that tax year. If probate or letters of administration were made in a later tax year, the time limit is two years from the end of the tax year in which they were made (section 1060).

Section 1064 Time for certain summary proceedings

What is the time limit for certain summary proceedings in relation to income tax or corporation tax penalties?

Summary proceedings to recover an income tax or corporation tax penalty in relation to:

(a) returns of fees, commissions, etc paid by certain persons (section 889),

(b) penalties for breach of regulations (section 987), or

(c) penalty for false statement made to obtain allowance (section 1056),

may be taken up to 10 years after the date on which the offence was committed or the penalty was incurred.

Section 1065 Mitigation and application of fines and penalties

What powers do Revenue have to mitigate fines and penalties?

(1) The Revenue Commissioners have power to mitigate any fine or penalty imposed under the Tax Acts. They may also mitigate a penalty arising from a judgement. They may halt or combine penalty proceedings.

This power to mitigate penalties is usually used to negotiate a settlement in back duty cases: A-G v Johnstone, (1926) 10 TC 758; IRC v Richards, (1950) 33 TC 1; A-G v Midland Bank Executor and Trustee Co Ltd, (1934) 19 TC 136; IRC v Nuttall, [1990] STC 194. See also R v IRC, ex parte National Federation of Self Employed and Small Businesses Ltd, [1980] STC 261 and Willey v IRC, [1985] STC 56.

What is the maximum mitigation that can apply to a fine or penalty?

(2) Revenue or the Minister for Finance may not mitigate more than 50% of a penalty award. Penalties levied on a person who failed to take advantage of, or made a false declaration in relation to, the 1993 tax amnesty may not be mitigated.

To whom must fines, penalties and forfeits be paid to?

(3) Fines, penalties and forfeits are to be accounted for and paid to Revenue.

What does “the Acts” mean in this section?

(4) “The Acts” means the acts related to income tax and capital gains tax, capital acquisitions tax, stamp duty, value added tax and excise duties.

Section 1066 False evidence: punishment as for perjury

What is the punishment for false evidence under oath with regard to income tax or corporation tax?

Where you wilfully and corruptly give false evidence under oath in relation to income tax or corporation tax, you are subject to the same punishment as if you had committed perjury.

Section 1067 Admissibility of statements and documents in criminal and tax proceedings

Can documents provided to Revenuefor a financial settlement be used in later judicial proceedings?

(1) Although a person may have been induced to produce documents to Revenue on the basis that Revenue will in practice make a financial settlement instead of instituting proceedings against a person who has fully cooperated with their investigation, the documents so produced remain admissible in judicial proceedings.

What is meant by judicial proceedings in subsection (1)?

(2) Judicial proceedings means criminal proceedings for fraud, or any proceedings to recover tax arrears or a penalty, in relation to income tax or corporation tax.

This is to prevent proceedings failing, for example, in the case of fraud, where a taxpayer promised a voluntary disclosure and then withheld important information.

Section 1068 Failure to act within required time

In what circumstances will Revenue not take penalty proceedings?

Penalty proceedings may not be taken against a taxpayer who did not do what was required within the time limit but did so within an extended time limit allowed by Revenue.

A taxpayer who had a reasonable excuse for not doing something required to be done, is not regarded as having failed to do it if it is done without unreasonable delay after the excuse expires.

Section 1069 Evidence of income

Does an assessment include an additional or amended assessment?

(1) An assessment includes an additional assessment and an assessment based on an amended self-assessment return (section 955).

Can an assessment be treated as evidence of income or gains?

(2) An assessment which can no longer be varied by the Appeal Commissioners, is sufficient evidence that the income or gains charged in the assessment arose or was received as stated in the assessment.

Section 1070 Saving for criminal proceedings

Can the laws of income tax and corporation tax affect criminal proceedings for a felony or misdemeanour?

No.

Section 1071 Penalties for failure to make certain returns

What penalties may apply to a company for failure to comply with a notice to file a tax return?

(1) A penalty of €2,000 applies to a company if it does not file a return of profits (section 884) in response to a request by an inspector or Revenue officer. If the court awards a penalty judgment, a penalty of €60 applies for each day on which the return remains outstanding.

A separate penalty of €1,000 applies to the company secretary.

What increased penalties apply to a company and a company secretary for continued failure to file a tax return?

(2) Where the failure continues more than one year after the notice was given, the penalty mentioned in (1) is increased to €4,000. The company secretary penalty is increased to €2,000.

What penalty applies to a company secretary if the company fails to pay a penalty imposed?

(2A) If the company has not paid the penalty mentioned in (1) or (2) for failing to file a return of profits, the company secretary is also liable to pay the company’s penalty. Such a penalty may not be sought from the company secretary earlier than three months after the company has been requested to file the return.

If the company secretary pays the company’s penalty, he/she may recover the amount paid from the company.

What extended meanings are included in filing a return of profits under this section?

(3) Filing a return of profits, in this context, includes:

(a) filing a copy of the company’s audited profit and loss account and balance sheet within a specified period,

(b) making the company’s books and records available for inspection within a specified period (section 884(9)).

Section 1072 Penalties for fraudulently or negligently making incorrect returns, etc

Amendments

This section has been spent: with effect from 24th December 2008.

Section 1073 Penalties for failure to furnish particulars required to be supplied by new companies

What penalties apply to a new company or company secretary when relevant particulars are not provided to Revenue?

(1) Every company that is chargeable to corporation tax for an accounting period must, within one year of the end of that accounting period, notify the inspector that it is so chargeable (section 882).

A penalty of €4,000 applies to a company that does not file the statement within the time limit. If the court awards a penalty judgment, a penalty of €60 applies for each day on which the return remains outstanding.

A separate penalty of €3,000 applies to the company secretary.

What penalty applies to a company secretary of a new company when the company fails to pay a penalty imposed?

(2) If the company has not paid the penalty mentioned in (1) for failing to notify the inspector of its chargeability to corporation tax, the company secretary is also liable to pay the company’s penalty. Such a penalty may not be sought from the company secretary earlier than three months after the company has been requested to file the return.

If the company secretary pays the company’s penalty, he/she may recover the amount paid from the company.

Section 1074 Penalties for failure to give notice of liability to corporation tax

What penalties apply to a company and the company secretary for failure to notify a liability of corporation tax?

Every company, within 30 days of beginning its trade, profession or business, must file a written statement (section 883) to the Revenue Commissioners that provides the following information:

(a) The company’s name

(b) The address of the company’s registered office, or in the case of a non-resident company, the address of its main place of business in the State

(c) The company secretary’s name, or in the case of a non-resident company, the name of the company’s agent or representative in the State

(d) The date the company began in business, or in the case of a non-resident company, the date the company began its trade or profession in the State

(e) The nature of the company’s trade, profession or business

(f) The date to which the first accounts will be made up

A penalty of €4,000 applies to a company that does not file the statement within the time limit. If the court awards a penalty judgment, a penalty of €60 applies for each day on which the return remains outstanding.

A separate penalty of €3,000 applies to the company secretary.

Section 1075 Penalties for failure to furnish certain information and for incorrect information

What penalties apply for failure to provide information relating to changes in ownership or group relief?

(1) A penalty of €3,000 applies to a person that does not provide information under the following provisions within the specified time limit:

(a) change in ownership of company: disallowance of trading losses (section 401),

(b) group relief: information as to arrangements for transferring relief, etc (section 427),

(c) close companies (Part 13).

If the court awards a penalty judgment, a penalty of €10 applies for each day on which the information remains outstanding.

What penalties apply for providing incorrect information relating to changes in ownership, group relief or income tax on payments?

(2) A penalty of €3,000 applies to a person who provides incorrect information in relation to income tax on payments (section 239) under any of the provisions mentioned in (1).

What penalties apply to a company and its secretary for failure to provide information regarding changes in ownership or group relief?

(3) Where the person mentioned in (1) is a company:

(a) the company is liable to a €4,000 euro penalty, and a further penalty of €60 euro per day for each day on which the failure continues, and

(b) the secretary is liable to a separate €3,000 euro penalty.

What penalties apply to a company and its secretary for providing incorrect information in relation to changes in ownership, group relief or income tax on payments?

(4) Where the person mentioned in (2) is a company:

(a) the company is liable to a €4,000 euro penalty, and

(b) the secretary is liable to a separate €3,000 euro penalty.

What penalties apply if an innocent error is not remedied without unreasonable delay?

(5) When discovered, an innocent (not through fraud or negligence, or a deliberate or careless error) failure to make a correct return must be remedied without unreasonable delay. Otherwise, the return is treated as having been made fraudulently, negligently, deliberately, or carelessly, as the case may be.

Section 1076 Supplementary provisions (Chapter 2)

What extended definition applies to a secretary in relation to a body of persons and a company?

(1) Secretary includes the treasurer, auditor or receiver of an unincorporated body of persons (section 1044(2)). It also includes the agent or manager of a non-resident company.

If a company’s secretary is an individual who is not resident in the State, any director of the company who is resident in the State may be regarded as secretary.

What status attaches to certificates signed by an inspector in court proceedings to recover penalties?

(2) In proceedings to recover a penalty, a certificate signed by an inspector stating that:

(a) a notice was given to the defendant,

(b) a stated return was not received from the defendant,

is evidence, until the contrary has been proved, of those facts.

Such a certificate may be tendered in evidence without proof and is deemed, until the contrary has been proved, to have been signed by the inspector.

Section 1077 [Penalties for failure to make returns, etc. and for deliberately or carelessly making incorrect returns]

What penalty provisions apply in relation to capital gains tax?

(1) The income tax provisions relating to filing and inspection of statements, returns, documents, information or records apply for capital gains tax (section 913(1)).

The income tax penalty provisions apply to the capital gains tax version of Schedule 29:

(a) Penalties for failure to make certain returns, etc (section 1052).

(b) Penalty for fraudulently or negligently making incorrect returns, etc (section 1053).

(c) Increased penalties in the case of body of persons (section 1054).

What penalties provisions apply for failure to file, or for filing an incorrect, capital gains tax return?

(2) A person who fails to file a return (or file a return that is fraudulent, negligent, deliberately incorrect or careless), in relation to, any of the following provisions as applied for capital gains tax, the appropriate income tax penalty applies to the capital gains tax offence (section 1052):

(a) Notice of liability to tax (section 876).

(b) Returns by persons chargeable (section 877).

(c) Persons acting for incapacitated persons and non-residents (section 878).

(d) Returns of chargeable gains (section 879).

(e) Partnership returns (section 880).

(f) Returns etc by lessors, lessees and agents (section 888).

(g) Power to require production of accounts and books (section 900).

(h) Holder of mineral licence (Schedule 1 para 1).

(i) Returns by issuing houses, stockbrokers, auctioneers, etc (section 914).

(j) Returns by nominee shareholders (section 915).

(k) Returns by party to a settlement (section 916).

(l) Returns relating to non-resident companies and trusts (section 917).

(m) Deduction from consideration on disposal of certain assets (section 980).

Section 1077A Interpretation (Chapter 3A)

What taxes are covered by the new tax-geared penalties?

The new tax-geared penalties apply to income tax, corporation tax, capital gains tax, the income levy, the urban parking levy, VAT, capital acquisitions tax, stamp duties, and excise duties.

Section 1077B Penalty notifications and determinations

Finance (No.2) Act 2008 – Revenue summary

Must Revenue notify a person who is liable to a penalty?

(1) Yes.

Can Revenue amend an opinion that a person is liable to a penalty?

(2) Yes.

Can Revenue apply to a court to determine whether a person is liable to a penalty?

(3) If a person does not agree with Revenue’s penalty opinion, or pay the penalty, Revenue can apply to a Court to have it determine whether he person’s acts or omission give rise to a penalty.

Must Revenue a copy of their application to a court be issued to the person?

(4) Yes.

What penalties do the new determination provisions cover?

(5) The new penalty provisions apply to penalties arising before, on, or after 24 Decemeber 2008, but do not apply to penalties paid before that date.

Section 1077C Recovery of penalties

How can Revenue collect a court-awarded penalty?

(1) Revenue can enforce collection as if it were an amount of tax.

When is a penalty due and payable?

(2) It is due and payable from the date on which:

(a) you agreed it in writing,

(b) Revenue accepted a back duty settlement made up of tax, interest and penalties, or

(c) a court determined that you were liable to the penalty.

What penalties do the new recovery provisions apply to?

(3) The new penalty recovery provisions apply to penalties arising before, on, or after 24 Decemebr 2008.

Section 1077D Proceedings against executor, administrator or estate

Are penalties agreed by a deceased person collectible from his/her estate?

(1) The rule applies if, prior to a person’s death:

(a) he/she agreed a liability to a penalty in writing,

(b) he/she agreed in writing with a Revenue opinion that he/she was liable to a penalty,

(c) Revenue accepted a back duty settlement made up of tax, interest and penalties,

(d) a Court determines that he/she was liable to the penalty.

In such a case, the penalty remains due and payable and Revenue may institute proceedings against the executors or administrators of your estate to collect the tax.

When can Revenue not institute proceedings against an executor or administrator?

(2) Revenue may not institute penalty proceedings if the penalty was not agreed as set out in (1). Even if the penalty was agreed, Revenue may not institute proceedings if more than three years have passed since the end of the tax year in which you died and a grant of letters of administration were made that year.

Section 1077E Penalty for deliberately or carelessly making incorrect returns, etc

What are tax-geared penalties?

(1) This section puts the Revenue audit code of practice, in so far as it relates to penalties, into legislation. In simple terms, penalties are now tax-geared i.e., scaled in proportion to the tax understated, taking into account whether the default was deliberate or careless.

A qualifying disclosure is one that discloses all matters that would give rise to a penalty for the purposes of income tax, corporation tax, capital gains tax, VAT and stamp duty. The disclosure must be made in writing to the appropriate Revenue Officer, it must be signed and accompanied by:

(a) a declaration stating that all matters in the disclosure are correct and complete, and

(b) a payment of the tax and interest on that tax.

There are two types of qualifying disclosure:

(a) a prompted qualifying disclosure, and

(b) an unprompted qualifying disclosure.

A prompted qualifying disclosure is one made between the date you are notified that an investigation or inquiry will start, and the date that the investigation or inquiry starts.

An unprompted qualifying disclosure is one voluntarily furnished to Revenue before any investigation starts, or before a notification of an investigation starts, or before a notification of an investigation or inquiry.

The section goes on to distinguish between an action or omission which has been carried out deliberately and an action or omission which has been carried out carelessly.

A deliberate default carries a penalty of 75% of the difference between the tax paid and the tax payable (reduced to 50% in the case of an unprompted voluntary disclosure, and 10% in the case of a prompted voluntary disclosure).

A careless default carries a penalty as follows:

(a) if there has been no cooperation, the penalty is 40%, reduced to 20% of the difference between the tax paid and the tax payable, where the difference between the tax paid and the tax correctly payable exceeds 15% of the tax correctly payable.

(b) If there has been cooperation:

(i) If the difference between the tax stated and the tax payable is more than 15%, the penalty is 30% (reduced to 20% where there has been a prompted voluntary disclosure, and 5% where there has been an unprompted voluntary disclosure).

(ii) If the difference between the tax stated and the tax payable is not more than 15%, the penalty is 15% (reduced to 10% where there has been a prompted voluntary disclosure and 3% where there has been as unprompted voluntary disclosure).

What is deliberate default?

(2) A person is liable to a penalty if he/she:

(a) files an incorrect return or statement, which contains a deliberate understatement of income, gains or profits, or a deliberate overstatement of a claim for an allowance, declaration, relief or credit,

(b) deliberately files an incorrect return, statement or declaration in connection with a claim for an allowance, deduction or credit,

(c) files with Revenue or the Appeal Commissioners a set of accounts in which income, profits or gains are deliberately understated, or there is an overstatement of any allowance, deduction, relief or credit.

What is the penalty for deliberate failure to file a return or statement?

(3) The penalty for deliberate failure to file a return or statement is €3,000.

What is the penalty for deliberate default?

(4) The penalty starts off at 100% of the difference between the tax paid and the tax correctly payable (see (11) and (12)).

If a taxpayer cooperates fully with the investigation or inquiry, the penalty is reduced to:

(a) 75% of the difference, where there has been no qualifying disclosure,

(b) 50% of the difference where there has been a prompted qualifying disclosure,

(c) 10% of the difference, where there has been an unprompted qualifying disclosure.

What is careless default?

(5) A person is liable to a penalty if he/she carelessly:

(a) files an incorrect return or statement,

(b) incorrectly claims any allowance, deduction, relief or credit,

(c) files with Revenue or the Appeal Commissioners a set of accounts in which income, profits, or gains are understated, or there is an overstatement of any allowance, deduction, relief or credit.

What is the penalty for careless failure to file a return or statement?

(6) The penalty for careless failure to file a return or statement is €3,000.

What is the penalty for careless default?

(7) A careless default carries a penalty as follows:

(a) if there has been no cooperation, the penalty is 40%, reduced to 20% of the difference between the tax paid and the tax payable, where the difference between the tax paid and the tax correctly payable exceeds 15% of the tax correctly payable.

(b) If there has been cooperation:

(i) If the difference between the tax stated and the tax payable is more than 15%, the penalty is 30% (reduced to 20% where there has been a prompted voluntary disclosure, and 5% where there has been an unprompted voluntary disclosure).

(ii) If the difference between the tax stated and the tax payable is not more than 15%, the penalty is 15% (reduced to 10% where there has been a prompted voluntary disclosure and 3% where there has been as unprompted voluntary disclosure).

What penalty applies for providing incorrect details?

(8) The penalty is €5,000 if a person acted deliberately and €3,000 if he/she acted carelessly.

Can an innocent error be self-corrected?

(9) A person can self-correct an innocent error, provided it is done without unreasonable delay.

What is the time limit for penalty proceedings?

(10) In general, it is six years after the end of the tax year or accounting period in which the default occurred.

What is the penalty for deliberately filing an incorrect return?

(11) The penalty is 100% of the difference between the tax payable based on the incorrect details and the tax payable on the basis of a correctly completed return.

What is the penalty for deliberate failure to file a return?

(12) The penalty is 100% of the difference between the tax paid before the inquiry started and the tax payable on the basis of a correctly completed return.

What penalties apply to a second qualifying disclosure?

(13) If the fault was deliberate, the penalty is reduced:

If there is full cooperation, the penalty is 100%. If you make a prompted qualifying disclosure, it is 75% of the difference, and if you make an unprompted qualifying disclosure, it is 55% of the difference.

If the fault was careless, and the difference between the tax stated and the tax payable exceeds 15% of the tax payable, the penalty is reduced to 30% in the case of a prompted voluntary disclosure, and 20% in the case of an unprompted voluntary disclosure

What penalties apply to a third qualifying disclosure?

(14) There is no reduction in penalties if the disclosure is made within five years of the second qualifying disclosure.

When does a disclosure not qualify?

(15) A disclosure does not qualify as qualifying disclosure if:

(a) prior to the disclosure, Revenue had initiated an inquiry into any matter contained in that disclosure, and have notified the taxpayer of that inquiry.

(b) matters contained in the disclosure were about to become known by Revenue through an existing inquiry, or they are already in the public domain.

What is the relevant period?

(16) The relevant period means the period covered by the current period, the next period and the preceding period.

Can I claim that returns were filed without my consent?

(17) Returns or accounts filed in your name are deemed to have been submitted by you unless you can prove that they were filed without your knowledge or consent.

Summary

The system of tax-geared penalties can be summarised as follows:

DELIBERATE

No Cooperation: 100%

Cooperation:

No disclosure: 75%

Prompted: 50%

Unprompted: 10%

CARELESS

No Cooperation:

If the amount underpaid is more than 15% of the total due: 40%

If the amount underpaid is 15% or less of the total due: 20%

Cooperation:

No disclosure

If the amount underpaid is more than 15% of the total due: 30%

If the amount underpaid is 15% or less of the total due: 15%

Prompted

If the amount underpaid is more than 15% of the total due: 20%

If the amount underpaid is 15% or less of the total due: 10%

Unprompted

If the amount underpaid is more than 15% of the total due: 5%

If the amount underpaid is 15% or less of the total due: 3%

Section 1078 Revenue offences

What powers does a Revenue officer have to institute criminal proceedings for a Revenue offence?

(1) A Revenue official (authorised officer) may (see (2)) institute criminal proceedings against a person who has committed a revenue offence under the law relating to income tax, corporation tax, capital gains tax, value added tax, capital acquisitions tax, residential property tax, stamp duties, or customs and excise (the Acts).

What is meant by the new Revenue offences “fraudulent evasion of tax” and “facilitating” such evasion?

(1A) This provides two new revenue offences: fraudulent evasion of tax and facilitating such evasion.

Fraudulent evasion of tax occurs where a person:

(a) evades or attempts to evade any payment of any tax in Revenue’s care, or

(b) claims, obtains, or attempts to claim or obtain an exemption or relief to which he/she is not entitled,

and “deceives, omits or conceals”, or uses any other dishonest means.

This can include providing false information, or failing to provide information, to Revenue.

A person is regarded as “reckless” in facilitating fraudulent evasion of tax, or the commission of a revenue offence, if he/she disregards a substantial risk, i.e., a risk the disregard of which would involve “culpability of a high degree”.

A person is guilty of a revenue offence who is knowingly involved in:

(i) the fraudulent evasion of tax,

(ii) facilitating the fraudulent evasion of tax or the commission of a revenue offence (or if he/she is reckless as to whether or not he/she is concerned in facilitating such evasion),

(ii) the fraudulent evasion, or an attempted fraudulent evasion, of any import or export prohibition.

Is it an offence to impersonate a Revenue officer?

(1B) A person is guilty of a revenue offence if he/she impersonates a Revenue officer with intent to deceive.

What actions or failures constitute a Revenue offence?

(2) A revenue offence and liability to the penalties provided by (3), arises for:

(a) deliberately delivering an incorrect return, accounts, or information in connection with any tax,

(b) assisting another person to deliberately deliver an incorrect return, accounts, or information in connection with any tax,

(c) deliberately claiming a relief, exemption or repayment to which there is no entitlement,

(d) deliberately producing an incorrect invoice, receipt, instrument or document in relation to any tax,

(dd)(i) not deducting dividend withholding tax when required (section 172B(1)),

(ii) not paying on time to the Collector-General dividend withholding tax deducted (section 172K(2)),

(iii) not reducing the amount of shares paid in place of cash dividend (to take account of dividend withholding tax) when required (section 172B(2)),

(iv) not paying on time to the Collector-General dividend withholding tax attributable to shares paid in place of cash dividend (section 172K(2)),

(v) not paying on time to the Collector-General dividend withholding tax attributable to a non-cash distribution (section 172K(2), 172B(3)(a)),

(e) failing, as a banker, to deduct deposit interest retention tax (DIRT) from interest paid on a deposit account (section 257(1)), fail to pay DIRT deducted to the Collector-General within the time limit (section 258(3)), or fail to make an appropriate payment on account in respect of DIRT (section 258(4)),

(f) failing, as a collective investment undertaking, to pay retention tax deducted to the Collector-General within the appropriate time limit,

(g) in relation to any tax, failing without reasonable excuse to file a return of income or gains (or any other return, certificate or statement), or fail to keep, or produce for inspection, books or records,

(h) before the time limit for retention expires, deliberately destroying any documents or records which must be kept or produced for inspection,

(hh) falsifying, hiding, or destroying (or allowing to be falsified, hidden or destroyed) records which:

(i) must be produced for inspection (section 900(3)), or

(ii) have been required by an authorised officer, or by an order of the High Court (section 901, 902A, 908) to be produced for inspection,

(i) failing to deliver a VAT or PAYE return within the time limit, or

(ii) failing to deduct, or pay to the Collector-General, relevant contracts withholding tax (RCWT).

(j) obstructing a Revenue officer acting in the course of his/her duties.

This section provides severe penalties for persons found guilty of a revenue offence (a serious tax offence). The penalties do not apply to taxpayers who, through carelessness or oversight, have not complied with their obligations. They apply to persons who deliberately and defiantly refuse to comply with tax laws by failing to pay tax or by making false returns. The use of the word “wilful” means that the State must prove the defaulter knew what he/she was doing when he/she committed the offence. Proceedings may not be taken under this section without the signature and approval of a Revenue Commissioner.

Note

(g) A taxpayer must be allowed to defend him/herself if accused of “knowingly and wilfully” failing to file a return: O’Callaghan v Clifford and others, 4 ITR 478.

The fact that Revenue has instituted criminal proceedings for fraud does not prevent them from making assessments:Revenue Commissioners and others v Calcul International Ltd, HC 8 November 1986.

The fact that Revenue have agreed a tax liability does not prevent them from instituting criminal proceedings for fraud or perjury. This is reserved and remains unaffected by any settlement of the tax liabilities and penalties: R v Hudson, (1956) 36 TC 561; R v Patel, (1973) 48 TC 647.

What are the penalties for a Revenue offence?

(3) A person convicted of a revenue offence is liable on summary conviction to a fine of €5,000, and/or, at the discretion of the court, 12 months’ imprisonment. Revenue may mitigate the fine to one quarter of the fine imposed by the court.A person

convicted of a revenue offence is liable on conviction on indictment to a fine of €126,790, and/or, at the discretion of the court, five years’ imprisonment.

The use of the words “offence” and “summary conviction” indicate that proceedings taken under this section relate to a “criminal matter”: Director of Public Prosecutions v Seamus Boyle, 4 ITR 395.

What orders can a court issue for failure to file a return or proper records?

(3A) A person who has been convicted for failing to:

(a) file a return of income or gains (subs (2)(g)(i)),

(b) file any other return, certificate or statement (subs (2)(g)(ii)), or

(c) produce for inspection, books or records (subs (2)(g)(iv)),

may be ordered by the court to file the return or produce the records in question.

What penalty applies for failure to comply with a court order to file a tax return?

(3B) A person who fails to comply with a court order to file a tax return is guilty of a Revenue offence.

What is the maximum fine that may be imposed on conviction for an indictable offence?

(4) Under the Criminal Procedure Act 1967 section 14, where a person pleads guilty in the District court to an indictable offence, the maximum fine that may be imposed by the court is €127, and the maximum prison sentence that may be imposed is 12 months.

However, if a person pleads guilty to a revenue offence, the maximum fine that may be imposed is €1,270 (not €127).

What exposure has a company secretary, manager or director for connivance or consent to an offence committed by a body corporate?

(5) Where a revenue offence committed by a body corporate is shown to have been committed with the consent or connivance of, or to be attributable to any recklessness on the part of the body’s secretary, manager or director, he/she is also guilty of the offence and may be separately punished.

When is a return or statement deemed to have been delivered to a Revenue official?

(6) A return or statement delivered to an inspector or Revenue official, and purporting to be signed by a person, is deemed to have been delivered to the official and signed by that signatory, until the contrary is proved.

What is the time limit for taking proceedings in relation to a Revenue offence?

(7) Proceedings may not be taken under this section more than 10 years after the alleged offence was committed, or the penalty was incurred.

Does the judge have discretion to apply the Probation Act in the case of a revenue offence?

(8) No. The Probation of Offenders Act 1907 section 1 allows a court, in dealing with an offence that has been proved, to dismiss the charge or conditionally discharge the offender. This court power does not apply in relation to revenue offences.

What can a Revenue officer certify in revenue offence proceedings that will be taken as evidence until the contrary is proven?

(9) In revenue offence proceedings, a certificate signed by a Revenue officer stating that:

(a) a return, statement, notification or certificate was not received,

(b) wage sheets or other documents were not produced for inspection,

(c) the defendant did not pay tax to the Collector-General,

(d) the defendant did not deduct PAYE from emoluments,

(e) the defendant an employer, or a person registered as an employer for PAYE,

(f) the defendant was a taxable person, a person who is registered for VAT, or a person who is not registered for VAT,

(g) a notice or precept was given to a defendant,

(h) a notice or precept has not been complied with by the defendant,

(i) Revenue records show the defendant has failed to do a stated act or supply requested information, or provide any of the details required by Schedule 29 column 3,

is evidence, until the contrary has been proved, of those facts.

In such proceedings, a certificate signed by a Revenue officer certifying that a form was sent to the defendant on a stated day is evidence, until the contrary has been proved, that the defendant received that form.

A certificate signed by a Revenue officer may be tendered in evidence without proof, and is deemed, until the contrary has been proved, to have been signed by the Revenue official (sections 987(4), 1052 (4) and VATA 1972 26 not found(6)).

A person who discovers that he/she has innocently (not through fraud or negligence) made an incorrect return must remedy his/her error without unreasonable delay. Otherwise, the return is treated as having been made negligently (section 1053(3)).

Accounts submitted on behalf of a person are deemed to have been filed by that person unless he/she proves they were submitted without his/her permission or knowledge (section 1053(7)). Similarly, a VAT return, invoice or other VAT document is deemed to have been submitted by a person unless he/she proves that it was submitted without his/her consent or knowledge (VATA 1972 27 not found(7)).

Revenue offence proceedings may not be taken against a taxpayer who, although he/she did not do what was required within the time limit, did so within an extended time limit allowed by Revenue. A person who had a reasonable excuse for not doing something required to be done, is not regarded as having failed to do it if he/she does it without unreasonable delay after the excuse expires (section 1068).

An assessment includes an additional assessment and an assessment based on an amended self-assessment return. An assessment which has become final and conclusive, and may not therefore be changed by the Appeal Commissioners, is prima facie evidence that the income assessed arose to, or was received by, the taxpayer (section 1069).

Stages leading to prosecution: Tax Briefing 38.

Can a Revenue officer serve a summons, notice or other documents in relation to Revenue offence proceedings?

(10) Yes.

Section 1078A Concealing facts disclosed by documents

How can the concealing of facts disclosed by documents give rise to an offence?

(1) A person is guilty of an offence if:

(a) he/she knows or suspects that a Revenue investigation into an offence under the law relating to income tax, corporation tax, capital gains tax, value added tax, capital acquisitions tax, residential property tax, stamp duties, or customs and excise (the Acts), is being, or is likely to be carried out, and

(b) he/she falsifies, conceals, destroys or disposes of material relevant to the investigation.

How can the court treat falsifying, concealing, destroying or disposing of material relevant to an investigation?

(2) This rule relates to a person who falsifies, conceals, destroys or disposes of material which he/she knew or suspected would be relevant to a Revenue investigation. In this case, he/she is treated as having so known or suspected unless the court finds that there is a reasonable doubt that he/she would have so known or suspected.

What penalties are applied for concealment of facts disclosed in documents?

(3) Where a person is convicted of an offence in relation to concealing or falsification of documents, he/she is liable on summary conviction to a fine of €5,000, and/or, at the discretion of the court, six months’ imprisonment.

If convicted on indictment, you are liable to a fine of €127,000, and/or, at the discretion of the court, five years’ imprisonment.

Section 1078B Presumptions

What is a “return, statement or declaration”?

(1) This section gathers together various legal presumptions that may be made by a court in judicial proceedings in relation to income tax, corporation tax, capital gains tax, value-added tax, capital acquisitions tax, stamp duties, or customs and excise.

Do presumptions apply to all Revenue proceedings?

(2) Presumptions apply to both civil and criminal proceedings.

What presumptions apply in relation to creation of documents?

(3) Any document purporting to have been created by a person is presumed, until the contrary is shown, to have been created by him/her. Any statement in such document, unless expressly attributed to some other person, is deemed to have been made by the document’s creator.

What presumptions apply as regards sending of documents?

(4) Any document purporting to have been created by a person and addressed and sent to another person is presumed, until the contrary is shown, to have been created by the person and received by the second person.

Any statement in such document, unless expressly attributed to some other person, is deemed to have been made by the person and to have come to the notice of the second person.

What presumptions apply in relation to computer printouts?

(5) A document retrieved from a computer system is presumed, until the contrary is shown, to have been created by the person who uses the computer in the ordinary course of his/her business.

What presumptions apply in relation to ownership of records?

(6) Where an authorised Revenue officer gives evidence that records he/she has removed in the course of a Revenue audit are the property of a person, the records are presumed until the contrary is proved to be the property of that person.

What presumptions apply in relation to the business to which records relate?

(7) Where an authorised Revenue officer gives evidence that records he/she has removed in the course of a Revenue audit relate to a particular trade, profession, or activity, the records are presumed, until the contrary is proved, to relate to that trade, profession or activity.

What presumptions apply in relation to a Revenue certificate?

(8) In judicial proceedings, a certificate signed by a Revenue official to the effect that a return in the possession of Revenue has led the officer to conclude that the return was delivered to a Revenue official is evidence, until the contrary is proved, that the return was so delivered.

Can a certificate be tendered without proof?

(9) In judicial proceedings the certificate mentioned in (8) may be tendered in evidence without proof and is deemed, until the contrary has been proved, to have been signed by the person holding, at the time of the signature, the office of the person signing.

What does “written document” include?

(10) In this section, the term “written document” includes both manual and computer documents, and the term “written” includes handwritten and other forms of notation or code, e.g. a computer printout.

Section 1078C Provision of information to juries

What documents may a trial judge order to be given to a jury in proceedings in relation to the 1993 Tax Amnesty?

(1) This section relates to prosecution proceedings in relation to the 1993 Amnesty and tax legislation generally. In such proceedings, the trial judge may order that all or any of the following documents be given to the jury:

(a) any document admitted in evidence at the trial,

(b) transcripts of counsels’ opening speeches,

(c) charts, diagrams, etc, given in evidence at the trial,

(d) transcripts of evidence given at the trial,

(e) transcripts of counsels’ closing speeches,

(f) the transcript of the trial judge’s charge to the jury,

(g) any other document which in the trial judge’s opinion would be of use to the jury in their deliberations (and this may include an accountant’s summary of transactions carried on by the accused).

What rights has an accused person in a trial under the 1993 Tax Amnesty to get copies of documents made available to the jury?

(2) If the prosecutor intends to ask the trial judge to order that a document mentioned in (1)(g) be given to the jury, he/she must also give a copy of the document to the accused and the trial judge must ensure that any representations made by him/her are taken into account in relation to that document.

When can an accountant be summoned to attend a trial involving the 1993 Tax Amnesty?

(3) If the trial judge has ordered that a document mentioned in (1)(g) be given to the jury, the accountant or other professional person must be summoned by the prosecution to attend as an expert witness and may be required by the trial judge to give evidence with regard to procedures or principles within his/her area of expertise.

Section 1079 Duties of relevant person in relation to certain Revenue offences

What constitutes a “relevant offence” that an auditor or accountant would be required to report?

(1) An auditor or accountant (relevant person) who becomes aware in the course of his/her normal work that a client company has committed a relevant offence under the law relating to income tax, corporation tax, capital gains tax, value added tax, capital acquisitions tax, stamp duties, or customs and excise (the Acts), must report the offence.

A client company commits a relevant offence if it deliberately:

(a) delivers an incorrect return, accounts, or information in connection with any tax,

(b) claims a relief, exemption or repayment to which it is not entitled,

(c) produces an incorrect invoice, receipt, instrument or document in relation to any tax,

(d) fails to deliver a return of income or gains, having already failed to deliver such a return in respect of an accounting period falling wholly or partly within the three year period preceding the accounting period to which the current failure relates.

Justice Hamilton, who presided over the Beef Tribunal, recommended that auditors and advisers of companies engaged in serious tax evasion should be obliged to have the company either rectify the matter or report the offence to Revenue. This section (known as the “whistleblower” section) is the result.

Has an employee any obligation to report any relevant offence of his/her employer company?

(2) An employee of the offending company is not regarded as a relevant person. He/she is not obliged to report failures to Revenue and may not therefore be prosecuted under this section.

What obligations are placed on an auditor or accountant who becomes aware that a client company has committed a relevant offence?

(3) A relevant person who, in the course of examining or preparing a company’s accounts, becomes aware that the company has committed a relevant offence must, if the offence is material, without delay, either:

(a) report the offence in writing to the company, requesting it to rectify the matter within six months of the reporting date, or

(b) notify the appropriate nominated Revenue official (appropriate officer) within six months of the date the matter was reported to the company.

If the company has not rectified the matter within the six month period, he/she must cease to act for the company until the matter is rectified, or three years from the reporting date, whichever comes first.

Note

Whether an offence is or is not “material” depends on the auditor’s own professional judgment.

When can an auditor continue to act notwithstanding that a company has not rectified the matter of a relevant offence?

(4) An auditor may continue to act as auditor for a company in relation to civil or criminal legal proceedings that are ongoing six months after the reporting date.

What notification obligations has an auditor who ceases to act because of the failure of a company to notify matters reported to it?

(5) An auditor who ceases to act for a company because the company has not, within the six month time limit, rectified the matter reported to it, must send a written resignation notice to the company and within a further 14 days, send a copy of that notice to the appropriate Revenue official.

When would an auditor be guilty of an offence relating to relevant offences committed by a company?

(6) An auditor is guilty of an offence under this section if he/she:

(a) does not report a relevant offence of which he/she has become aware to the company, or the appropriate Revenue official, within the six month time limit mentioned in (3),

(b) does not resign as auditor (and send a copy of his/her resignation notice to Revenue) if the company has not rectified the matter within the six month time limit mentioned in (5),

(c) deliberately makes a false report in relation to a relevant offence of which he/she has become aware.

What penalties are applied for conviction of a relevant offence?

(7) A person who is convicted of a relevant offence is liable on summary conviction to a fine of €1,265. Revenue may mitigate the fine to one quarter of the fine imposed by the court.

A person who is convicted of a relevant offence is liable on conviction on indictment to a fine of €6,345 and/or, at the discretion of the court, two years’ imprisonment.

What penalty applied in the case of a guilty plea in the District Court to an indictable offence?

(8) Under the Criminal Procedure Act 1967 section 14, where a person guilty in the District Court to an indictable offence, the maximum fine that may be imposed by the court is €127, and the maximum prison sentence that may be imposed is 12 months.

However, if a person pleads guilty to a relevant offence, the maximum fine that may be imposed is €1,270 (not €127).

Is there a time limit for prosecuted in relation to revenue offences?

(9) A person cannot be prosecuted under this section if six years have passed since the time the offence should have been reported to the company.

Does legal professional privilege apply to a person aware of a company client committing a relevant offence?

(10) If a person can show that he/she only became aware of an offence after being engaged by the company to advise it in relation to legal proceedings, he/she will have a good defence against a prosecution for failing to report the offence.

This ensures that a person who is a professional adviser engaged solely on preparing legal proceedings .can maintain his/her legal professional privilege

What consequences could an auditor suffer for reporting a client’s tax offence to Revenue?

(11) An auditor who reports a client’s tax offence to Revenue, is not to be regarded as having breached any duty to the client, and no action may be taken against him/her for reporting the client.

What are the Revenue procedures for nominating an officer to be the appropriate officer?

(12) Revenue may nominate an official to be the appropriate officer to whom you should send details of relevant offences committed by your clients.

The appropriate officer’s name, and the address to which the details must be sent, are to be published in Iris Oifigiúil.

From what date are Revenue offences regarded as relevant offences?

(13) This section applies to relevant offences committed by a company in relation to:

(a) corporation tax assessable for accounting periods beginning after 30 June 1995,

(b) income tax or capital gains tax assessable for 1995-96 and later tax years,

(c) value added tax due for July-August 1995 and later VAT periods,

(d) capital acquisitions tax on gifts or inheritances taken on or after 30 June 1995,

(e) stamp duty on instruments executed on or after 30 June 1995, or

(f) any other tax payable on or after 30 June 1995.

Section 1080 Interest on overdue income tax and corporation tax

In what way is interest calculated on overdue tax?

(1)-(2) The method by which interest is charged on outstanding tax (i.e., income tax, corporation tax and capital gains tax) is as follows:

(i) For accounting periods and tax years (i.e., chargeable periods) beginning before 1 January 2005, interest applies from the due date until payment.

(ii) For chargeable periods beginning on or after 1 January 2005, interest applies to tax due and payable from the due date until payment.

Interest is calculated using the formula

T x D x P

where-

T is the “tax” unpaid

D is the number of “days” for which it has not been paid (i.e., the period of delay), and

P is the appropriate “percentage” applicable:

06.04.1963 to 31.07.1971 0.0164%
01.08.1971 to 30.04.1975 0.0246%
01.05.1975 to 31.07.1978 0.0492%
01.08.1978 to 31.03.1998 0.041%
01.04.1998 to 31.03.2005 0.0322%
01.04.2005 to 30.06.2009 0.0273%
01.07.2009 to date of payment 0.0219%

Example

Tax due: 31 October 2008

Paid: 31 October 2010

Days

31.10.2008 to 30.06.2009 = 241 x 0.0273% = 6.5793%

01.07.2009 to 31.10.2010 = 486 x 0.0219% = 10.6434%

If tax is €20,000, then:

Interest is 20,000 x 6.5793% = 1,316
20,000 x 10.6434% = 2,129
 3,445

How is interest paid on overdue taxes described?

(3) Such interest is not an “annual payment” from which income tax must be withheld by the payer at the standard rate. It is a debt due to the Minister for Finance, for the benefit of the Central Fund, and is payable to the Revenue Commissioners.

How do the tax collection procedures apply as regards interest on overdue taxes?

(4) The tax collection procedures (Part 42) apply in collecting unpaid interest as if the interest were a part of the outstanding tax. In bankruptcy or liquidation proceedings, unpaid interest ranks equally with unpaid tax for payment in priority to other debts.

Section 1081 Effect on interest of reliefs given by discharge or repayment

What is the effect on interest of reliefs given by discharge or repayment?

(1) Where an assessment to income tax, corporation tax or capital gains tax is discharged, any interest paid on the assessment must be correspondingly reduced to what it would have been if the discharged tax had never been charged. If necessary, any interest overpaid must be repaid.

Where income tax or capital gains tax paid in relation to a tax year, or corporation tax paid in relation to an accounting period, is repaid, the taxpayer can elect that the repayment be treated as a discharge of tax made by an assessment. Any interest paid on the tax must be correspondingly reduced to what it would have been after taking account of the repayment.

If in a given tax year or accounting period, some tax (paid on time) does not carry interest, and other tax (paid late) carries interest, the taxpayer can elect that the repayment be treated as a repayment of the tax which carried interest.

Can an interest reduction be applied to any other tax other than the tax in question?

(2) No. The corresponding reduction in interest overpaid may only be made in relation to the income tax assessment that is discharged or repaid.

Section 1082 Interest on overdue income tax and corporation tax in cases of fraud or neglect

Amendments

Section 1082 ceased to apply from 1 January 2005.

Section 1083 Application of sections 1080 to 1082 for capital gains tax purposes

Do the rules relating to the collection of income tax equally apply for capital gains tax purposes?

The rules that apply to collection of interest on overdue income tax or corporation tax also apply for capital gains tax:

(a) Interest on overdue capital gains tax (section 1080). A capital gains tax assessment that is not paid carries interest at 0.0219% for each day or part of a day after the due date the tax remains unpaid.

(b) Effect on interest of reliefs given by discharge or repayment (section 1081). Where a capital gains tax assessed is discharged, any interest paid on the assessed tax must be correspondingly reduced to what it would have been if the discharged tax had never been charged. If necessary, any interest overpaid must be repaid.

(c) Interest on overdue capital gains tax in cases of fraud or neglect (section 1082). A capital gains tax assessment to recover tax underpaid due to fraud or neglect carries interest at 2% for each month or part of a month after the due date for payment of the tax.

Section 1084 Surcharge for late returns

What are the general rules as regards “self-assessment”?

(1) Self-assessment applies to every chargeable person. A chargeable person is one who chargeable to tax (income tax, corporation tax or capital gains tax) on his/her own account, or on account of some other person.

The surcharge applies to a return of income. This means not only the self-assessment return that must be filed with the appropriate inspector on or before the return filing date (specified return date) (section 950), but also a return under the specified provisions:

(a) a statement of total income or gains (section 877),

(b) a return of income by a person acting for an incapacitated person or a non-resident (section 878),

(c) a return of income or gains (section 879),

(d) a partnership return (section 880),

(e) a return of a married person (section 881),

(f) a return of profits of a company(section 884),

(g) a return by a landlord (or former landlord) of a premises, providing details of the lease terms and payments made to him/her under the lease (section 882(2)(a)), or a return by a property management agent stating the address of all such premises under his/her management, the owner of each premises, the rents arising from the premises, and any other information required in relation to the premises (section 888(2)(d)),

(h) a return of income of a married couple who are separately assessed (section 1023).

A person is regarded as having failed to file a return of income if the return, although made before the return filing date:

(a) is made fraudulently or negligently,

(b)(ia) is made non-electronically where the regulations require that the return be filed electronically, or

(ib) omits information required in relation to an exemption, allowance, credit, deduction or relief being claimed (but in this regard, the 5% surcharge and €12,695 maximum apply unless the omission is rectified without unreasonable delay),

(c) although not made fraudulently or negligently, contains material errors which are not remedied within a reasonable time,

(d) is, in the inspector’s opinion, unsatisfactory or incomplete until further documents or information requested by the inspector are delivered.

To allow for postal and other minor delays, a return received within seven days of the return filing date will normally be accepted as being made on time. Statement of practice SP GEN/1/93, January 1993.

From 23 December 2014 a surcharge will not be imposed if a penalty is impoosed under section 1077E(5) for deiberately or carelessly filing an incorrect return.

What surcharge applies where a chargeable person fails to file a return of income on time?

(2) Where a chargeable person does not file a return of income on or before the return filing date, the tax on the assessment to be issued (which may be estimated or may be based on the return details, if later filed) is to be increased by a surcharge of:

(a) 5%, but not more than €12,695, where the return is filed within two months of the return filing date, or

(b) 10% (but not more than €63,485, where the return is filed more than two months after the return filing date.

In general, the surcharge part of an assessment may not be appealed against, but a “5%” surcharge arising from omission of details relating to a claim for exemption etc may be appealed. The surcharge may be collected as if it were part of the original tax assessment.

The surcharge applies to the net tax charged by the assessment. It does not apply to:

(a) tax included in the assessment that has been paid by deduction at source (for example, PAYE) which has not been repaid to you,

(b) any other amounts which you may set against the tax charged in the assessment.

For example, credit for professional services withholding tax (section 526), or relevant contracts withholding tax (section 531).

Submission of the company’s accounts or any other document without a form CT1 is not sufficient and is not regarded as the making of a return: Tax Briefing 3.

A return is required for every tax year (income tax) and for every accounting period (corporation tax). For corporation tax, an accounting period cannot exceed 12 months. Accordingly, where accounts covering a period of more than 12 months are prepared, one return is not sufficient for the entire period covered by the accounts:Tax Briefing 2.

How does a surcharge for late delivery of an income tax form affect a proprietary director?

(3) A proprietary director (section 116), or a person jointly assessed to tax (section 1017) in respect of his/her own income and that of his/her spouse where the spouse is a proprietary director, is not entitled to a credit (see (2)) for tax deducted under PAYE when calculating the amount on which the surcharge applies.

What are the filing date arrangements for a newly commenced business?

(4) For surcharge purposes, the return filing date for a newly commenced business is to be the return filing date for the second tax year of the business. This concession applies to new businesses. It does not apply if the promoter or owner of the business, or his/her spouse, carried on any other business in the tax year before the new business commenced.

In what way is a surcharge for late delivery applied to preliminary tax?

(5) Where a self-assessment return is not filed on or before the return filing date, the surcharge is to be applied to preliminary tax that was paid by the taxpayer on his/her own initiative or notified to him/her by the inspector as being due for the tax year in question.

Section 1085 Corporation tax – late returns: restriction of certain claims for relief

How are loss relief claims affected where a company is late in filing its CT1 form?

(1)-(2) Where a company does not file a self-assessment return (return of income) for an accounting period on or before the return filing date for that chargeable period:

(a) any claim to offset loss relief (section 308(4)), or excess capital allowances (sections 396(2), 396A(3), 399(2)), which may be used to reduce the company profits of the current or preceding accounting periods is restricted to 50% of what it would otherwise have been,

(b) any group relief that the company may claim may not exceed 50% of the company’s profits as reduced by other reliefs,

(ba) any claim for loss relief on a value basis (section 396B(1)) in respect of a 12.5%-taxed activity is restricted to 50% of what it would otherwise have been,

(c) any group loss relief (section 420(1)) that you may surrender is restricted by 50%,

(ca) any claim for loss relief (section 420A(1)) in respect of an activity taxed other than at the higher rate (25%) is restricted to 50% of what it would otherwise have been,

(cb) any claim for loss relief on a value basis (section 420B(1)) in respect of a 12.5%-taxed activity is restricted to 50% of what it would otherwise have been.

A company is regarded as having failed to file a return of income if the return, although made before the return filing date:

(a) was made fraudulently or negligently,

(b) although not made fraudulently or negligently, contains material errors which are not remedied within a reasonable time,

(c) is, in the inspector’s opinion, unsatisfactory or incomplete until further documents or information requested by the inspector are delivered.

What is the limit on any restrictions for loss relief, capital allowances and group relief?

(3) The restriction under (2) for loss relief, capital allowances or group relief may not exceed, in each case, €158,715 for the accounting period.

What reduced restrictions to loss relief apply where a company files its self assessment return within two months of the return filing date?

(4) Where a company files its self-assessment return within two months after the return filing date:

(a) any claim to offset loss relief (section 308(4)), or excess capital allowances (sections 396(2), 399(2)), which it may use to reduce its profits of the current or preceding accounting periods is reduced to 75% of what it otherwise would have been,

(b) any group relief it may claim may not exceed 75% of its profits as reduced by other reliefs,

(c) any group loss relief (section 420(1)) that you may surrender is restricted by 25%.

The restriction under (2) for loss relief, capital allowances or group relief may not exceed, in each case, €31,740 for the accounting period.

These restrictions do not deny relief for set-off of losses, excess capital allowances, group relief or advance corporation tax. They may, however, cause a cash flow problem for a company because they postpone the effect of the relief to a later accounting period.

Example

B Ltd is a 75% subsidiary of A Ltd for the whole of the accounting period of 12 months ended 31.12.2009 The returns of the companies for the 12 months to 31.12.2009 show the following:

A Ltd
Trading profits 36,000
Losses forward 18,000
Rent from letting factory 6,000
Capital allowances in respect of factory 9,600
Charges paid 7,200
B Ltd
Trading loss 12,000
Other income 3,600

B Ltd claims relief under section 396(2). A Ltd claims relief in respect of capital allowances under section 308(4), and also with the consent of B. Ltd, the maximum amount of group relief which can be surrendered by B Ltd. Both A Ltd and B. Ltd delivered their returns to the inspector within two months after the specified return date.

Their respective situations are as follows:

A Ltd
Case I 18,000
Case V NIL
Charges 7,200
Excess capital allowances (3,600 x 75%) 2,700 9,900
8,100
Group relief (9,000 x 75%) 6,075
Profits chargeable 2,025
Excess capital allowances carried forward against Case V 900
B Ltd
Profits 3,600
Loss: section 396(2) (3,600 x 75%) 2,700
Profits chargeable 900
Trading loss 12,000
Allowed: section 396(2) 2,700
9,300
Available for surrender (12,000 x 75%) 9,000
Amount surrendered 6,075
Loss forward [ 12,000 – ( 2,700 6,075) ] 3,255

Example

The facts are the same as in the previous example except that A Ltd delivered its return on time, while B Ltd delivered its return more than two months after the specified date.

A Ltd
Case I 18,000
Case V Nil
18,000
Charges 7,200
Excess capital allowances 3,600 10,800
7,200
Group relief 6,000
Profits chargeable 1,200
B Ltd
Profits 3,600
Losses: section 396(2) 1,800
Profits chargeable 1,800
Trading loss 12,000
Allowed: section 396(2) 1,800
10,200
Available for surrender – 50% x 12,000 = 6,000
Amount surrendered 6,000
Loss forward 4,200

Example

The facts are the same as previous except that B Ltd delivered its return on time, while A Ltd delivered its return more than two months after the return specified date.

A Ltd
Case I 18,000
Case V Nil
18,000
Charges 7,200
Excess capital allowances 1,800 9,000
9,000
Group relief (9,000 x 50%) 4,500
Profits chargeable 4,500
Excess capital allowances carried forward against Case V 1,800
B Ltd
Profits 3,600
Loss section 396(2) 3,600
Profits chargeable Nil
Trading loss 12,000
Allowed: section 396(2) 3,600
Available for surrender 8,400
Amount surrendered 4,500
Loss forward 3,900

Note

See also Revenue Statement of Practice SP- GEN/ 1/ 93 re Surcharge and other Penalties or Restrictions for Late Submission of Tax Returns.

Source: Inspector Manual 12.5.1

Section 1086 Publication of names of tax defaulters

What obligations do Revenue have to compile a list of tax defaulters?

(1)-(2) The Revenue Commissioners must compile for each calendar quarter (relevant period) a list of persons on whom fines or penalties were imposed during that period in relation to tax offences, i.e., offences under the law relating to income tax, corporation tax, capital gains tax, value added tax, capital acquisitions tax, stamp duties, residential property tax and customs and excise (the Acts).

The following must be included in the list:

(a) fines or penalties imposed by a court in relation to tax offences during the quarter,

(b) fines or penalties imposed by a court in respect of an act or omission by a person in relation to tax,

(c) a “back duty” settlement accepted by Revenue, before court penalty proceedings have begun, which is made up of:

(i) tax,

(ii) except in customs and excise cases, interest on that tax, and

(iii) a fine or penalty in respect of that tax.

(d) a “back duty” settlement accepted by Revenue, after court penalty proceedings have begun, which is made up of:

(i) tax,

(ii) except in customs and excise cases, interest on that tax, and

(iii) a fine or penalty in respect of that tax.

A settlement which does not include a penalty need not be included on the list.

What is meant by the “back duty settlement figure” accepted by Revenue?

(2A) The back duty settlement figure accepted by Revenue (see above) means the figure accepted in full settlement of tax, interest on that tax and fines or penalties in respect of that tax.

Can a defaulter’s name be published if he does not pay a settlement amount?

(2B) A defaulter’s name is to be published if he agrees, but does not pay, a settlement amount.

What obligations do Revenue have to publish a list of tax defaulters?

(3) Within three months of the end of each relevant period, the Revenue Commissioners must publish in Iris Oifigiúil the list containing details of fines or penalties imposed, and settlements made, in the preceding quarter.

The list may also be publicised in any other manner that Revenue consider appropriate.

What settlements need not be published?

(4) A settlement made with Revenue is not to be included in the list if:

(a) before the Revenue investigation which resulted in the settlement began, the taxpayer made a complete voluntary disclosure,

(b) the settlement was made under the terms of the 1988 tax amnesty or the 1993 tax amnesty,

(c) the total of the tax, interest and penalties comprised in the settlement is less than €30,000, or

(d) the fine or other penalty does not exceed 15% of the settlement.

What is the threshold for publication in the defaulter’s list, and will this amount be altered?

(4A) The threshold for publication in the defaulter’s list is €30,000 (see (4)(c)). This is to be increased in accordance with the consumer price index every fifth year, starting in 2010, by way of Ministerial Order.

Each future increased threshold will take effect from 1 January and does not apply to liabilites arising before that date.

In what circumstances will A taxpayer’s name not be published in relation to a Revenue offence?

(4B) A taxpayer’s name will not be published if:

(a) the penalty awarded by the court does not exceed 15% of the difference between the declared liability and the tax correctly payable,

(b) the aggregate settlement (comprising tax, interest and penalties) does not exceed €30,000, or

(c) a qualifying disclosure has been made.

What additional details must be published on the list of defaulters?

(5) The following details must also be provided for each taxpayer named on the list:

(a) the matter which gave rise to the imposition of the fine or penalty,

(b) any interest or additional fine or penalty to which the taxpayer was liable or which was imposed by the court on the taxpayer.

What other details may be included for each taxpayer on the list of tax defaulters?

(5A) The following details may be included for each taxpayer named on the list:

(a) in a case where the court imposed a fine or penalty (see (2)(a)-(b) above)), a brief description of the act, omission, offence, or circumstances which gave rise to the imposition of the fine or penalty,

(b) in a case where Revenue accepted a settlement (see (2)(c)-(d)), a brief description of the matter which gave rise to the settlement.

Section 1087 Charge and deduction of income tax not charged or deducted before passing of annual Act

How is the charge for income tax made in any time gap arising between the effective date of a rate change and the date the Finance Act is passed?

(1) If the annual Finance Act increases the standard rate of income tax, there is usually a time gap between the effective date of the rate change and the date the Finance Act is passed.

In the interim period, any undercharge arising as a result of not immediately (from the effective date) applying the new higher standard rate to annual payments is to be charged on you the payer under Schedule D Case IV.

A person making the annual payment must, if requested by Revenue, deliver to them a list of the names and addresses of all persons to whom such payments were made.

How is any shortfall arising as a result of not deducting tax at the increased standard rate during the interim period delt with?

(2) The payer may recoup from later payments to the payee any shortfall arising as a result of not deducting tax at the increased standard rate during the interim period.

If there is no such future payment, the payer may recover the shortfall as a debt due from the payee, as if the increased income tax rate had been in force at the time the payment was made.

Are there any provisions resulting in a Case IV assessment where distributions are made in the time gap between the effective date of a rate change and the date the Finance Act is passed?

(3) These rules do not apply to distributions (Part 6 Chapter 2).

Section 1088 Restriction on deductions in computing profits

What restrictions exist on deductions in computing profits?

(1) In computing profits or gains for tax purposes, only deductions expressly allowed by the Tax Acts may be made.

To the extent that income tax is to be deducted at source from an annual payment paid from those profits or gains, no deduction is given for such payment against the actual profits or gains.

Is any deduction available for “diminution of capital employed”?

(2) In computing profits or gains for tax purposes from a property or employment, no deduction is given for “diminution of capital employed” in any trade, profession or employment.

But see Part 9, capital allowances.

Section 1089 Status of interest on certain unpaid taxes and duties

What is the tax status of interest on certain unpaid taxes and duties?

(1) Interest on unpaid (or underpaid) stamp duty, value added tax, relevant contracts withholding tax (section 531(9)), or employers’ PAYE (section 991) is not an “annual payment” from which you must withhold standard rate income tax.

Such interest is not deductible in computing your profits or gains for income tax purposes.

Is any tax deduction available for interest on wealth tax or capital acquisitions tax?

(2) No. Interest on unpaid (or underpaid) wealth tax or capital acquisitions tax is not deductible in computing your profits or gains for income tax or corporation tax purposes.

Section 1090 Income tax assessment to be conclusive of total income

What are the implications of an assessment becoming final and conclusive for income tax purposes?

An income tax assessment which has become final and conclusive (and may not therefore be changed by the Appeal Commissioners) is conclusive in determining that the assessed income arose to, or was received by, the taxpayer. The income figure on which the assessment is based may not be later revised on the basis that the actual income was less, or a loss arose.

Section 1091 Annexation of statements to interest warrants, etc

What details must be shown on an interest payment warrant?

(1)-(2) Every interest payment (which is not a distribution: see sections 133, 152) by your company must have an attaching warrant showing:

(a) the gross amount of interest paid,

(b) the tax rate applicable, and the interest deducted from the payment, and

(c) the net payment.

What penalty applies if a company does not attach a proper warrant to an interest payment?

(3) If a company fails to issue an interest warrant in accordance with (2), each failure is subject to a penalty of €200, but the total penalty in connection with any particular distribution may not exceed €2,000.

Section 1092 Disclosure of certain information to rating authorities, etc

What information can Revenue supply to a rating authority in connection with an agricultural relief claim?

(1)-(2) Revenue may, in connection with an agricultural relief claim in relation to rates payable on land, supply a rating authority (or an official of the Department of the Environment) with information as to the land’s occupier and its rateable valuation.

What is meant by “occupation” and “rating authority”?

(3) Occupier, in this context, means the person having the use of the land (who may be the owner or a lessee).

A rating authority means a county corporation, a borough corporation, a county council, or an urban district council.

Section 1093 Disclosure of information to Ombudsman

What authority do Revenue have to disclose any information to the Ombudsman in connection with an official investigation?

Official secrecy rules are not to prevent the Revenue Commissioners or their staff disclosing any information to the Ombudsman in connection with an official investigation carried out by him/her.

Section 1093A Disclosure of certain information to Minister for Enterprise, Trade and Employment, etc

What information can Revenue transfer to the Minister for Enterprise?

(1)-(2) Revenue may transfer to the Minister for Enterprise, Trade and Employment, the following information:

(a) details relating to an individual’s income or his/her employer, or

(b) information contained in a declaration stating that a relevant contract is not a contract of employment.

For what purpose can the Minister for Enterprise use the information transferred to him/her by Revenue?

(3) The Minister may use information transferred from Revenue only in relation to employment rights compliance and may not be disclosed to any other person.

Section 1094 Tax clearance certificates in relation to certain licences

What licence holders must possess a tax clearance certificate?

(1) The beneficial holder of any of the following excise licences must have a tax clearance certificate from the Collector-General before the licence can be renewed:

(a) intoxicating liquor retailer licence, including a retailer off licence and a wine retailer licence,

(b) wholesale dealer licence for spirits, beer or wine,

(c) bookmaker licence,

(d) gaming licence,

(e)-(g) auctioneer licence, including auction permits and house agent licences,

(h) mineral oil licences (Finance Act 1999 section 101),

(j) a licence under the Consumer Credit Act 1995 sections 93, 116, or 144,

(k) a liquor licence issued to a national cultural institution.

(l) the liquor licence held by the National Concert Hall,

(m) permits for public places in which amusement machines are located,

(n) liquor licences generally. There is a typo in the legislation – it should refer to subsection (1A) of section 49 of the Finance (1909-10) Act 1910.

The beneficial holder of the licence is usually the person named on the licence, but where the licence is held in the name of a nominee, the beneficial holder must apply in his/her own name for the tax clearance certificate.

A property’s market value is the price it might reasonably be expected to fetch in an open market sale.

When must the Collector-General issue tax clearance to a licence applicant?

(2) The Collector-General must issue a person with a tax clearance certificate if he/she applies for a licence and is up to date with payment of tax (including interest and penalties, if due), and filing of returns in relation to income tax, corporation tax, capital gains tax, and value added tax.

Where a partnership applies, each partner must be up to date with his/her tax affairs. Where a company applies, the person who controls more than half of the company’s share capital must be up to date with his/her tax affairs.

When dealing with an application for a tax clearance certificate by a company, the Collector-General may not take into account the circumstances of a liquidated company (having common directors and employees) with tax arrears engaged in a similar business: Melbarien Enterprises v Revenue Commissioners, HC 19 April 1985.

See also Connolly v Collector of Customs and Excise, 4 ITR 419. In that case, although the publican had continued trading, the Collector of Customs and Excise did not have power to renew his liquor licence which had expired several years earlier.

Can the Collector-General verify continuing compliance?

(2A) Yes. The Collector-General may review a person’s continuing compliance with his/her tax obligations and may rescind a tax clearance certificate if they are not complied with.

In what circumstances must the Collector-General refuse an application for tax clearance?

(3) The Collector-General must not issue a tax clearance certificate to a licence holder (the first-mentioned person) if the tax affairs of any prior licence holder (the second-mentioned person) in the 12 months ending on the succession date are not up to date, and:

(a) the prior licence holder is a company that is connected (section 10 ) with the applicant,

(b) the applicant is a partnership and the prior licence holder was a company more than half of the share capital of which was controlled by one or more of the partners, or

(c) the applicant and the prior licence holder were a partnership, and more than half of the company’s share capital is controlled by one or more of them.

When must the Collector-General refuse a tax clearance certificate to the current holder of an intoxicating liquor licence?

(3A) This rule applies where the applicant acquired a licensed premises at below market value (see (1)) from a prior licence holder who was the last licence holder in respect of the premises.

The Collector-General must not issue a tax clearance certificate to an applicant if the tax affairs of any prior licence holder in the five years ending on the succession date are not up to date and:

(a) the prior licence holder is a company that is connected (section 10) with him/her,

(b) the applicant is a partnership and the prior licence holder was a company more than half of the share capital of which was controlled by one or more of the partners, or

(c) the applicant and the prior licence holder were a partnership, and more than half of the company’s share capital is controlled by one or more of the partners.

Can the Collector-General refuse to grant a tax clearance where a licence was transferred before 24 April 1992?

(4) No – not where the licence was transferred before 24 April 1992, or after that date if the contract for the sale or lease of the premises was signed before that date.

How must a tax clearance application be made?

(5)(a) A tax clearance certificate application must be made by electronic means.

(b) A tax clearance certificate will have a unique “tax clearance access number”.

(c) the holder of a tax clearance certificate must give the tax clearance access number and his/her tax reference to any person who must verify that she/he has a tax clearance certificate.

(d) a person given the tax clearance access number can only use that number to verify the validity of the tax clearance certificate and for no other purpose.

What obligations does the Collector-General have to communicate a refusal to the applicant?

(6) The Collector-General, on refusing or rescinding a tax clearance certificate, must write to the applicant explaining the grounds for the refusal or rescission.

Can an applicant aggrieved by a decision to refuse a tax clearance certificate appeal?

(7) Where an person is aggrieved by the Collector-General’s refusal or rescission of his/her tax clearance certificate application, he/she may appeal in writing to the Appeal Commissioners within 30 days of the date of the refusal or rescission.

The notice of appeal must specify the matter with which he/she is aggrieved, the grounds of appeal, and any tax not in dispute must be fully paid up to date.

The Appeal Commissioners must hear and determine such an appeal in the same manner as an appeal against an income tax assessment, having regard to the same matters which the Collector-General must consider when deciding to grant a clearance certificate.

There is a right, where necessary, to have the case reheard by a Circuit Court Judge. There is also have a right to have a case stated for the opinion of the High Court on a point of law.

Revenue Tax Clearance Manual

What things shall be in electronic format?

(8)(a) An application for a tax clearance certificate;

(b) a tax clearance certificate;

(c) a notice of refusal or rescission of a tax clearance certificate;

(d) the verification of a tax clearance certificate.

Section 1095 Tax clearance certificates in relation to public sector contracts

What is the scheme of tax clearance with regard to public sector contracts generally?

(1)-(2) This section provides tax clearance rules for all applicants for public sector contracts other than in relation to:

(a) liquor licence (section 1094),

(b) approved sports bodies,

(c) the Standards in Public Offices Act 2001 (which requires elected representatives to be tax compliant as a condition of taking up office),

(d) the Free Legal Aid Board Regulations.

Note

The following persons must produce a tax clearance certificate:

(a) A company or individual to whom rent in excess of £5,000 per annum is payable out of public funds (Revenue Precedent IT93-3508, 18 October 1993).

(b) A person receiving a payment from the Department of Agriculture Forest Premium Scheme (Revenue Precedent IT95-3509, 25 February 1995).

When completing a compulsory purchase of land, a local authority is not obliged to operate tax clearance. This is because the local authority is not entering into a contract with the landowner. It is exercising its powers under a statutory scheme for land acquisition. This applies whether the price paid for the land has been agreed between the land owner and the local authority or has been fixed by arbitration.

A local authority entering into a contract with a landowner to buy land is obliged to operate tax clearance, even though it could compulsorily acquire the land (Revenue Precedent IT92-2041, 9 September 1992).

In what circumstances are Revenue obliged to issue a tax clearance certificate to an applicant?

(3) The Collector-General must issue a tax clearance certificate to an applicant who is up to date with payment of tax (including interest and penalties, if due) and filing of tax returns in relation to income tax, corporation tax, capital gains tax, and value added tax.

Can the Collector-General verify continuing compliance?

(3A) Yes. The Collector-General may review a person’s continuing compliance with his/her tax obligations and may rescind a tax clearance certificate if they are not complied with.

When must Revenue refuse an application for tax clearance?

(4) A tax clearance certificate must not be issued to an applicant unless:

(a) he/she, and any partnership of which he/she is a member,

(b) in the case of a partnership, each partner,

(c) in the case a company, any person who is able to control more than 50% of the shares,

is up to date in relation to payment of tax and filing of tax returns.

When must the Collector-General refuse the tax clearance where a company or a partnership previously associated with a controlled company applies?

(5) The Collector-General must not issue a tax clearance certificate if the applicant:

(a) is a company, and the activity was previously carried out by a connected company,

(b) is a partnership and the activity was previously carried on by a company more than half of the share capital of which was controlled by one or more of the partners, or

(c) is a company and the activity was previously carried on by a partnership, and more than half of the company’s share capital is controlled by one or more of the partners,

and the predecessor’s tax affairs are not up to date.

In what format must a tax clearance be issued?

(6) A tax clearance certificate application must be made in electronic format.

The Collector-General, on refusing or rescinding a tax clearance certificate, must advise the applicant by electronic means of the grounds for the refusal or rescission.

An applicant aggrieved by the Collector-General’s refusal or rescission of a tax clearance certificate application may appeal in writing to the Appeal Commissioners within 30 days of the date of the refusal or rescission.

The notice of appeal must specify the matter with which he/she is aggrieved, the grounds of appeal, and any tax not in dispute must be fully paid up to date.

The Appeal Commissioners must hear and determine such an appeal in the same manner as an appeal against an income tax assessment, having regard to the same matters which the Collector-General must consider when deciding to grant a clearance certificate.

There is a right, where necessary, to have the case reheard by a Circuit Court Judge. There is also have a right to have a case stated for the opinion of the High Court on a point of law.

Section 1096 Assessment of Electricity Supply Board

What is the status of Electricity Supply Board as regards assessment to tax?

The Electricity Supply Board may not claim exemption on the grounds that it is a branch or department of government.

Section 1096A Construction of references to oaths, etc

How is “oath” defined as regards persons entitled by law to affirm, attest or swear?

(1) As regards persons entitled by law to affirm instead of swear, the term “oath”, in income tax, corporation tax and capital gains tax legislation, includes an affirmation.

To what laws does subsection(1) refer?

(2) In (1), law includes the Oaths Act 1888, and any other Act authorising an oath to be taken, or an affirmation to be made.

Section 1096B Evidence of computer stored records in court proceedings etc

What authority do Revenue have to scan and store original tax returns?

(1) This section allows Revenue to scan an original tax return (original record), put it in a storage system, i.e., a computer or microfile system (as a provable record), and produce a copy record if required in evidence in any court proceedings.

Are Revenue entitled to destroy original records following scanning and copying?

(2) Revenue may make a legible copy of an original records (copy record), or put it in a storage system, and destroy the original record or copy record.

Can a copy of a record be classed as an original?

(3) The legible copy of a record, or the information stored in the record is deemed to be original record.

What evidence is required in any legal proceedings that the copy record is a true copy of the original record?

(4) In any legal proceedings, a certificate signed by Revenue officer stating that a copy of record has been made using the method described in (2) is evidence, until the contrary is shown, that the copy record is a true copy of original record.

Is a document purporting to be a certificate signed by Revenue deemed to be such a certificate?

(5) In any legal proceedings a document purporting to be a certificate (see (4)) is deemed to be such a certificate, and is deemed to have been properly signed, until contrary is shown.

May a provable record be accepted in evidence in any legal proceedings?

(6) In any legal proceedings a provable record may be accepted in evidence until the contrary is shown of any facts stated in that record or unless the court is not satisfied that the storage system is reliable.

What status does a certificate signed by a Revenue official, stating that a full search has been made and no record has been found, have in the context of any legal proceedings?

(7) In any legal proceedings, a certificate signed by a Revenue official stating that a full search has been made and no records has been found, is evidence that the event did not happen. This rule applies unless the contrary is shown or unless the court is not satisfied:

(a) that the storage system is reliable,

(b) that if the event has happened, a copy would have been made of it,

(c) that the only reasonable explanation is that the event did not happen.

What powers and functions do Revenue have to delegate their powers and functions in relation to storage of Revenue files?

(8) The Revenue Commissioners may delegate their powers and functions in relation to storage of Revenue files to an authorised Revenue official.

Section 1097 Commencement

When is the Taxes Consolidation Act 1997 deemed to have come into force as regards various taxes?

(1) The Taxes Consolidation Act takes effect:

(a) in relation to income tax, for 1997-98 and later tax years,

(b) in relation to corporation tax, for accounting periods ending on or after 6 April 1997,

(c) in relation to capital gains tax, for 1997-98 and later tax years.

What consolidation provisions came into force on 6 April 1997 in substitution for corresponding repealed provisions?

(2) A consolidated provision comes into force on 6 April 1997, in substitution for the corresponding repealed provision, in so far as the provision is concerned with:

(a) making, varying or revoking an order or regulation,

(b) making a return or providing information to an inspector or authorised revenue official,

(c) imposing a fine or penalty,

(d) a power conferred or an obligation imposed, in relation to:

(i) income tax for more than one tax year (but not where only income tax for tax years before 1997-98 is concerned),

(ii) corporation tax for more than one accounting period (but not where only corporation tax for accounting periods ending before 6 April 1997 is concerned),

(iii) capital gains tax for more than one tax year (but not where only capital gains tax for tax years before 1997-98 is concerned),

(e) any tax other than income tax, corporation tax or capital gains tax.

What is the position for 1997-98 and later tax years as regards anything done under corresponding provisions?

(3) For 1997-98 and later tax years, anything done under corresponding repealed provisions in relation to the matters mentioned in (2), is deemed to have been done under the new consolidated provision which replaces it.

The Revenue power to make regulations, for example, in relation to rent paid by private tenants (Income Tax Act 1967 section 142A(7)), continues under section 473(9).

How do repealed penalty provisions continue in force as regards offences that took place before 6 April 1997?

(4) A repealed penalty provision continues in force, in substitution for its consolidated provision, in so far as it is concerned with an offence that took place or began before 6 April 1997.

What status for 1997-98 and later tax years do any orders or regulations have that were made under a repealed provision?

(5) For 1997-98 and later tax years, an order or regulation made under a repealed provision is deemed to have been made under the corresponding consolidated provision.

For example, for 1997-98 and later tax years, the Income Tax (Rent Relief) Regulations 1982 (SI 318/1982) made under Income Tax Act 1967 section 142A(7) are deemed to have been made under section 473(9).

Section 1098 Repeals

What tax Acts were repealed from 6 April 1997?

(1) As the legislation has now been consolidated in the form of the Taxes Consolidation Act 1997, the Parts of the following Acts dealing with income tax, corporation tax and capital gains tax are repealed from 6 April 1997:

(a) the Income Tax Act 1967,

(b) the Capital Gains Tax Act 1975,

(c) the Corporation Tax Act 1976,

(d) the Capital Gains Tax (Amendment) Act 1978,

(e) the Finance Acts 1967 to 1997 inclusive,

(f) the Finance (Taxation of Profits of Certain Mines) Act 1974,

(g) the Finance (Miscellaneous Provisions) Act 1968, and

(h) the Waiver of Certain Tax Interest and Penalties Act 1993 sections 10-13.

The Parts are listed in detail in Schedule 30.

To what do the consolidated provisions apply?

(2) Unless specifically provided for by section 1097, the consolidated provisions do not apply:

(a) in relation to income tax, for 1996-97 and previous tax years,

(b) in relation to corporation tax, for accounting periods ending before 6 April 1997,

(c) in relation to capital gains tax, for 1996-97 and previous tax years.

The corresponding repealed provisions continue to apply for those tax years, and accounting periods, as if the consolidated legislation had not been passed.

Section 1099 Saving for enactments not repealed

What references to any other Act are not to be affected the consolidated Act?

References in any other Act to income tax, corporation tax and capital gains tax provisions which have not been repealed by the consolidated Act are not to be affected by the consolidated Act.

Section 1100 Consequential amendments to other enactments

What is the status of pre-consolidated references in other Acts consequent to the introduction of the Taxes Consolidation Act 1997?

Pre-consolidation references in other Acts (for example, the Value Added Tax Act 1972) to income tax, corporation tax and capital gains tax provisions that have been consolidated in the new Act are to be replaced by their equivalent post-consolidation references (Schedule 31).

Section 1101 Transitional provisions

What assurance is there that certain reliefs allowed by repealed pre-consolidation legislation are not lost?

The transitional provisions (Schedule 32) ensure that certain reliefs allowed by repealed pre-consolidation legislation are not lost and may continue to be claimed by persons entitled to such relief.

Section 1102 Continuity and construction of certain references to old and new law

What effect does the introduction of the Taxes Consolidation Act 1997 have on the powers and duties that Revenue had under the pre-consolidation legislation?

(1) All the powers and duties the Revenue Commissioners had under the pre-consolidation legislation in relation to tax continue under the consolidated Act.

Does income tax, CT and CGT law continue in force even though the consolidation legislation stands in place of the repealed legislation?

(2) Yes.

How is any reference in any document or other Act to a consolidation provision to be read on or after 6 April 1997?

(3) A reference in any document or other Act to a consolidated provision is to be read, where necessary, as a reference to the underlying pre-consolidation legislation.

For example, an assessment made under the consolidated legislation, covering pre-consolidation and post-consolidation tax years, is to be read, in relation to the pre-consolidation tax years, as made under the pre-consolidation provision, and in relation to the post-consolidation tax years, as made under the post-consolidation provision.

How is any reference to any enactment or document to a pre-consolidation provision to be read on or after 6 April 1997?

(4) A reference in any document or other Act to a pre-consolidation provision is to be read, where necessary, as a reference to the equivalent consolidated provision.

What acts or omissions are not to be regarded as offences occurring in the period 6 April 1997 to 30 November 1997?

(5) An act which was not an offence when it was committed (or when it occurred) before 6 April 1997, is not to be regarded as an offence committed (or occurring) in the period from 6 April 1997 to 30 November 1997.

Section 1103 Continuance of officers, instruments and documents

What are the provisions as respects continuance of officers, instruments and documents on the passing of the TCA 1997?

(1) Officers appointed under the repealed pre-consolidation legislation continue to hold office as if they were appointed under the equivalent provisions of the consolidated Act.

What is the status of officers authorised or nominated under the repealed pre-consolidation legislation?

(2) Officers authorised or nominated under the repealed pre-consolidation legislation are deemed to have been authorised or nominated under the equivalent provisions of the consolidated Act.

What is the status of instruments, documents, authorisations and letters of appointment made under repealed pre-consolidation legislation?

(3) Instruments, documents, authorisations and letters of appointment made under repealed pre-consolidation legislation are deemed to have been made under the equivalent provisions of the consolidated Act.

Section 1104 Short title and construction Commentary

What is the full title of the TCA?

(1) This Act’s formal title is “The Taxes Consolidation Act, 1997”.

What provisions in the TCA 1997 are closely linked to and must be read together with customs law?

(2) The following provisions in the Taxes Consolidation Act are closely linked to, and must be read together with customs law:

Application to certain taxing statutes of Age of Majority Act 1985 (section 7)

Evidence of authorisation (section 858)

Anonymity of authorised officers in relation to certain matters (section 859)

Use of information relating to other taxes and duties (section 872(1))

Inspection of documents and records (section 905)

Authorised officers and Garda Síochána (section 906)

Power to obtain information from Minister of the Government (section 910)

Computer documents and records (section 912)

Deduction from payments due to defaulters of amounts due in relation to tax (section 1002)

Revenue offences (section 1078)

Duties of a relevant person in relation to certain revenue offences (section 1079)

Disclosure of information to Ombudsman (section 1093)

What provisions in the TCA 1997 are closely linked to and must be read together with VAT law?

(3) The following provisions in the Taxes Consolidation Act are closely linked to, and must be read together with VAT law:

Application to certain taxing statutes of Age of Majority Act 1985 (section 7)

Transactions to avoid liability to tax (section 811)

Evidence of authorisation (section 858)

Anonymity of authorised officers in relation to certain matters (section 859)

Use of information relating to other taxes and duties (section 872(1))

Use of electronic data processing (section 887)

Inspection of documents and records (section 905)

Authorised officers and Garda Síochána (section 906)

Power to obtain information from Minister of the Government (section 910)

Computer documents and records (section 912)

Transmission to Collector-General of particulars of sums to be collected (section 928)

Liability to tax etc., of holder of fixed charge on book debts of company (section 1001)

Deduction from payments due to defaulters of amounts due in relation to tax (section 1002)

Poundage and fees due to sheriffs or county registrars (section 1006)

Revenue offences (section 1078)

Duties of a relevant person in relation to certain revenue offences (section 1079)

Publication of names of tax defaulters (section 1086)

Disclosure of information to Ombudsman (section 1093)

Tax clearance certificates in relation to certain licences (section 1094)

Tax clearance certificates in relation to public sector contracts (section 1095)

What provisions in the TCA 1997 are closely linked to and must be read together with stamp duty law?

(4) The following provisions in the Taxes Consolidation Act are closely linked to, and must be read together with stamp duty law:

Application to certain taxing statutes of Age of Majority Act 1985 (section 7)

Construction of certain taxing statutes in accordance with Status of Children Act 1987 (section 8)

Transactions to avoid liability to tax (section 811)

Evidence of authorisation (section 858)

Anonymity of authorised officers in relation to certain matters (section 859)

Use of information relating to other taxes and duties (section 872(1))

Exemption of appraisements and valuations from stamp duty (section 875)

Inspection of documents and records (section 905)

Authorised officers and Garda Síochána (section 906)

Power to obtain information from Minister of the Government (section 910)

Deduction from payments due to defaulters of amounts due in relation to tax (section 1002)

Revenue offences (section 1078)

Duties of a relevant person in relation to certain revenue offences (section 1079)

Publication of names of tax defaulters (section 1086)

Disclosure of information to Ombudsman (section 1093)

What provisions in the TCA 1997 are closely linked to and must be read together with capital acquisitions tax law?

(5) The following provisions in the Taxes Consolidation Act are closely linked to, and must be read together with capital acquisitions tax law:

Application to certain taxing statutes of Age of Majority Act 1985 (section 7)

Construction of certain taxing statutes in accordance with Status of Children Act 1987 (section 8)

Transactions to avoid liability to tax (section 811)

Evidence of authorisation (section 858)

Anonymity of authorised officers in relation to certain matters (section 859)

Use of information relating to other taxes and duties (section 872(1))

Use of electronic data processing (section 887)

Inspection of documents and records (section 905)

Authorised officers and Garda Síochána (section 906)

Power to obtain information from Minister of the Government (section 910)

Computer documents and records (section 912)

Payment of tax by way of donation of heritage items (section 1003)

Poundage and fees due to sheriffs or county registrars (section 1006)

Revenue offences (section 1078)

Duties of a relevant person in relation to certain revenue offences (section 1079)

Publication of names of tax defaulters (section 1086)

Disclosure of information to Ombudsman (section 1093)

What provisions in the TCA 1997 are closely linked to and must be read together with residential property tax law?

(6) The following provisions in the Taxes Consolidation Act are closely linked to, and must be read together with residential property tax law:

Application to certain taxing statutes of Age of Majority Act 1985 (section 7)

Transactions to avoid liability to tax (section 811)

Anonymity of authorised officers in relation to certain matters (section 859)

Use of information relating to other taxes and duties (section 872(1))

Use of electronic data processing (section 887)

Inspection of documents and records (section 905)

Authorised officers and Garda Síochána (section 906)

Power to obtain information from Minister of the Government (section 910)

Computer documents and records (section 912)

Deduction from payments due to defaulters of amounts due in relation to tax (section 1002)

Poundage and fees due to sheriffs or county registrars (section 1006)

Publication of names of tax defaulters (section 1086)

Revenue offences (section 1078)

Disclosure of information to Ombudsman (section 1093)

Schedule 1 Supplementary provisions concerning the extension of charge to tax to profits and income derived from activities carried on and employments exercised on the Continental Shelf

What information must the holder of an exploration licence produce if requested to do so by notice served by the inspector of taxes?

(1) An exploration licence holder must, if requested by the inspector, within the specified time limit which may not be less than 30 days, provide information in relation to:

(a) offshore activities which may bring the holder within the charge to income tax or corporation tax,

(b) emoluments payable to employees carrying out the offshore activities.

The holder must take reasonable steps to obtain this information, in order to comply with the notice.

When may an exploration licence holder be required to pay income tax or CT that was not paid by the non-resident offshore exploration company?

(2) Revenue may require the licence holder to pay an income tax or corporation tax assessment (in respect of profits from offshore exploration or exploitation activities) that was not paid by the non-resident offshore exploration company within 30 days of the notice of assessment. The licence holder must pay the unpaid tax, together with any attaching interest, within 30 days of the notice being served.

The unpaid tax may be recovered as if it were a tax debt owed by the holder. The holder may recover the tax from the exploration company, as if it were an unpaid contract debt.

Must the licence holder pay unpaid employers’ PAYE owed by the exploration company in respect of employees working on offshore activities?

(3) Revenue may not require the licence holder to pay unpaid employers’ PAYE owed by the exploration company in respect of employees working on offshore activities.

Is a licence holder required to pay an exploration company’s unpaid income tax or CT assessment if the assessed profits or gains arose under an agreement made before 16 May 1973?

(4) Revenue may not require a licence holder to pay an exploration company’s unpaid income tax or corporation tax assessment if the assessed profits or gains arose to the exploration company under an agreement made with the holder before 16 May 1973 (unless he/she is connected with the exploration company, or the agreement was varied after that date).

When will Revenue issue a certificate exempting a licence holder from being assessed on the unpaid tax of the exploration company?

(5) Revenue may, on receipt of an application from the exploration company, if they are satisfied that the company will be tax compliant, issue a certificate exempting the licence holder from being assessed in respect of the exploration company’s unpaid tax.

When can Revenue cancel a certificate exempting a licence holder from being assessed in respect of the exploration company’s unpaid tax?

(6) Revenue may, by written notice to the certificate holder, cancel a certificate that exempts a licence holder from being assessed in respect of the exploration company’s unpaid tax. The certificate may not be cancelled from a date earlier than 30 days after the date of the written notice.

Does the holder of a petroleum licence include the holder of a petroleum lease?

(7) Yes. The holders of a petroleum licence includes the holder of a petroleum lease.

Schedule 2 Machinery for assessment, charge and payment of tax under Schedule C and, in certain cases, Schedule D

What is Schedule C tax?

Schedule C tax, also known as encashment tax, is levied on paying and collecting agents, i.e., persons who pay or receive:

(a) public revenue dividends, or

(b) interest and dividends of certain non-resident entities.

A person who received income that has been subject to encashment tax must include such income on his tax return and and pay any further tax due if appropriate.

What types of income are subject to Schedule C tax?

(1) Dividends includes interest, annuities and shares from annuities; in the context of Part 4, the term includesforeign dividends, i.e., dividends and interest payable out of securities of non-resident persons.

Public revenue means the public revenue of any Government or foreign public authority or institution.

Foreign public revenue dividends are dividends payable outside the State from foreign public revenue.

Coupons include bills of exchange in payment of foreign public revenue dividends.

Who deducts Schedule C tax?

(1A) A paying and collecting agent (chargeable person) must deduct Schedule C tax when he makes a payment ofspecified dividend income.

Is a recipient of income that has been subject to Schedule C tax entitled to credit for the tax deducted?

(14) A paying and collecting agent (chargeable person) must deduct Schedule C tax from each a payment ofspecified dividend income and pay the tax deducted to Revenue on behalf of the recipient of the income.

The tax paid by the chargeable person is treated as paid by the recipient of the income.

Is a paying and collecting agent obliged to file self-assessment return of tax deducted?

(15) A paying and collecting agent must:

(a) within 46 days of the end of each tax year, file a return showing the tax deducted from payments of specified dividend income.

(b) pay the tax shown due on the return to the Collector-General on a self-assessment basis.

Revenue may issue an assessment of the tax due if the tax is not paid on or before the due date.

The self-assessment return must be made on a form prescribed by Revenue, and must contain a declaration that the return is correct and complete.

Can an inspector make an assessment of Schedule C tax due?

(16) An inspector may make an assessment of the tax due where:

(a) specified dividend income has not been included in a return, or

(b) he is dissatisfied with a return.

Can an inspector make adjustments to ensure that the correct Schedule C tax is collected?

(17) An inspector may make any adjustments or set-offs required to ensure the correct Schedule C tax is collected.

What records is a paying agent required to keep in relation to Schedule C tax?

(18) A paying agent must keep a record of each payment of specified dividend income, including the payee’s name and address, the amount payable, and the public revenue from which the amount is payable.

The paying agent keep such records for six years and produce them to Revenue on request.

Can Revenue audit the records of paying agents?

(19) Yes

Do the income tax rules relating to assessments, appeals and tax collection apply to Schedule C tax?

(20) Yes

Do the income tax rules relation to interest on unpaid tax apply to Schedule C tax?

(21) Yes.

What happens if the Schedule C tax is deducted twice from the same payment?

(22) If the Schedule C tax is deducted twice, Revenue must repay the tax over-deducted.

Are foreign public revenue dividends subject to Schedule C tax?

(23) Revenue may relieve a paying agent in the State through whom foreign public revenue dividends (or dividends of a non-resident body of persons) are payable, from the obligation to deduct income tax from such payments.

Is the relief relating to foreign public revenue dividends subject to conditions?

(24) When granting this relief to a paying agent, Revenue may stipulate conditions to ensure that the tax arising on the dividend payments is assessed and paid.

What constitutes evidence to show that Revenue have relieved a paying agent from Schedule C tax?

(25) A letter signed by a secretary or assistant secretary of the Revenue Commissioners (or an equivalent notice published in Iris Oifigiúil), stating that they have exercised their powers under this Part, is evidence that they have done so.

Who pays the tax where a paying agent has been relieved of the obligation to deduct Schedule C tax?

(26) When a paying agent is relieved of the obligation to deduct Schedule C tax from dividend payments, the person entitled to receive the dividend payment is to be assessed and charged on the income arising.

Are paying agents entitled to commission?

(27) No.

Are payments to investment funds within the exit tax regime subject to Schedule C tax?

(28) No.

Schedule 2A Dividend withholding tax

What are the relevant definitions in the context of dividend withholding tax (DWT)?

(1) A person the appropriate person in relation to a pension scheme if he/she is:

(a) the administrator (section 770) of an approved employee pension scheme (section 774),

(b) the person carrying on the annuity business in the case of a self-employed pension scheme (section 784, 785),

(c) the trustees of a trust scheme to provide self-employed pensions (section 784, 785).

A beneficiary of a trust means:

(a) any person who is entitled, directly or indirectly, to benefit under the trust, and

(b) someone who may reasonably expect to become entitled under the trust to income or capital, or to have income or capital applied for his benefit, or to receive a benefit.

A settlor is a person who makes a settlement (trust) and can include any person who directly or indirectly funds the settlement.

A trust includes any disposition, covenant, agreement or arrangement, made by a settlor whereby assets or income owned by the settlor are vested in trustees to be held and managed for, paid to, or applied for beneficiaries.

A trust does not include a pension fund, charity, or undertaking for collective investment which is established or regulated in a tax treaty country (section 826)

How long does a non-residency certificate remain valid from its date of issue?

(2) The non-residency certificate for an individual (para 8(f)) is valid from its date of issue until 31 December in the fifth year following the year in which it was issued.

How long does a declaration last?

(2A) A declaration lasts until 31 December in the fifth year following the year in which the declaration was made.

What appropriate declaration must an Irish resident company make so as to avoid the deduction of DWT?

(3) An Irish resident company must not deduct dividend withholding tax from a relevant distribution made to an Irish resident company which has made the appropriate declaration (section 172C(2)(a)). The declaration must:

(a) be made by the person beneficially entitled to the distribution (the declarer),

(b) be signed by the declarer,

(c) be made on the Revenue-prescribed form,

(d) declare that, at the time of the declaration, the person beneficially entitled to the distribution is a company resident in the State,

(e) contain the company’s name and tax number,

(f) contain an undertaking by the declarer that if the company ceases to qualify, the declarer will notify (in writing) the company making the distribution,

(g) contain any other information that Revenue may reasonably require.

What appropriate declaration must a pension scheme make so that an Irish resident company will not deduct DWT?

(4) An Irish resident company must not deduct dividend withholding tax from a relevant distribution made to a pension scheme which has made the appropriate declaration (section 172C(2)(b)). The declaration must:

(a) be made by the person beneficially entitled to the distribution (the declarer),

(b) be signed by the declarer,

(c) be made on the Revenue-prescribed form,

(d) declare that, at the time of the declaration, the person beneficially entitled to the distribution is a pension scheme,

(e) contain the pension scheme’s name and tax number,

(f) contain a certificate by the pension scheme’s appropriate person (see para 1 above) that the declaration in (d) and the certificate in (e) are true and correct,

(g) contain an undertaking by the declarer that if the pension scheme ceases to qualify, the declarer will notify (in writing) the company making the distribution,

(h) contain any other information that Revenue may reasonably require.

What appropriate declaration must a qualifying fund manager make so that an Irish resident company will not deduct DWT?

(4A) An Irish resident company must not deduct dividend withholding tax from a relevant distribution made to a qualifying fund manager or qualifying savings manager who has made the appropriate declaration (section 172C(2)(ba)(ii)). The declaration must:

(a) be made by the person beneficially entitled to the distribution (the declarer),

(b) be signed by the declarer,

(c) be made on the Revenue-prescribed form,

(d) declare that, at the time of the declaration, the person beneficially entitled to the distribution is a qualifying fund manager or qualifying savings manager,

(e) contain the name and tax number of the qualifying fund manager or qualifying savings manager,

(f) contain a statement that the dividend income will be applied as income of an approved retirement fund, an approved minimum retirement fund or a special savings incentive account,

(g) contain an undertaking by the declarer that if the qualifying fund manager or qualifying savings manager ceases to qualify, the declarer will notify (in writing) the company making the distribution,

(h) contain any other information that Revenue may reasonably require.

What appropriate declaration must a qualifying share ownership trust make so that an Irish resident company will not deduct DWT?

(5) An Irish resident company must not deduct dividend withholding tax from a relevant distribution made to a qualifying share ownership trust which has made the appropriate declaration (section 172C(2)(c)). The declaration must:

(a) be made by the person beneficially entitled to the distribution (the declarer),

(b) be signed by the declarer,

(c) be made on the Revenue-prescribed form,

(d) declare that, at the time of the declaration, the person beneficially entitled to the distribution is a qualifying share ownership trust,

(e) contain the name and tax number of the qualifying share ownership trust,

(f) contain a statement that, at the time of the declaration, the distributions are part of the income of the qualifying share ownership trust, and that the trustees will apply the income for qualifying purposes (Schedule 12 para 13),

(g) contain an undertaking by the declarer that if the qualifying share ownership trust ceases to qualify, the declarer will notify (in writing) the company making the distribution,

(h) contain any other information that Revenue may reasonably require.

What appropriate declaration must a collective investment undertaking make so that an Irish resident company will not deduct DWT?

(6) An Irish resident company must not deduct dividend withholding tax from a relevant distribution made to a collective investment undertaking which has made the appropriate declaration (section 172C(2)(d)). The declaration must:

(a) be made by the person beneficially entitled to the distribution (the declarer),

(b) be signed by the declarer,

(c) be made on the Revenue-prescribed form,

(d) declare that, at the time of the declaration, the person beneficially entitled to the distribution is a collective investment undertaking,

(e) contain the collective investment undertaking’s name and tax number,

(f) contain an undertaking by the declarer that if the collective investment undertaking ceases to qualify, the declarer will notify (in writing) the company making the distribution,

(g) contain any other information that Revenue may reasonably require.

What appropriate declaration must a person entitled to exemption from income tax under Schedule F make so that an Irish resident company will not deduct DWT?

(6A) An Irish resident company must not deduct dividend withholding tax from a relevant distribution made to a person entitled to exemption from income tax under Schedule F who has made the appropriate declaration (section 172C(2)(da)(iii)). The declaration must:

(a) be made by the person beneficially entitled to the distribution (the declarer),

(b) be signed by the declarer,

(c) be made on the Revenue-prescribed form,

(d) declare that, at the time of the declaration, the person beneficially entitled to the distribution is a person entitled to exemption from income tax under Schedule F,

(e) contain the person’s name and tax number,

(f) contain an undertaking by the declarer that if the person ceases to qualify, the declarer will notify (in writing) the company making the distribution,

(g) contain any other information that Revenue may reasonably require.

What appropriate declaration must be made by a charity so that an Irish resident company will not deduct DWT from a relevant distribution?

(7) An Irish resident company must not deduct dividend withholding tax from a relevant distribution made to a charity which has made the appropriate declaration (section 172C(2)(e)(ii)). The declaration must:

(a) be made by the person beneficially entitled to the distribution (the declarer),

(b) be signed by the declarer,

(c) be made on the Revenue-prescribed form,

(d) declare that, at the time of the declaration, the person beneficially entitled to the distribution is a charity,

(e) contain the charity’s name and address,

(f) contain a statement that, at the time of the declaration, the distributions are part of the income of the charity, and will be applied for Revenue-recognised charitable purposes (sections 207208),

(g) contain an undertaking by the declarer that if the charity ceases to qualify, the declarer will notify (in writing) the company making the distribution,

(h) contain any other information that Revenue may reasonably require.

What appropriate declaration must be made by an athletic or amateur sports body so that an Irish resident company will not deduct DWT from a relevant distribution?

(7A) An Irish resident company must not deduct dividend withholding tax from a relevant distribution made to an approved athletic or amateur sports body (section 172C(2)(f)(ii)). The declaration must:

(a) be made by the person beneficially entitled to the distribution (the declarer),

(b) be signed by the declarer,

(c) be made on the Revenue-prescribed form,

(d) declare that, at the time of the declaration, the person beneficially entitled to the distribution is an approved athletic or amateur sports body,

(e) contain the body’s name and address,

(f) contain a statement that, at the time of the declaration, the distributions are part of the income of the body, and will be applied for promoting amateur or athletic games or sports,

(g) contain an undertaking by the declarer that if the body ceases to qualify, the declarer will notify (in writing) the company making the distribution,

(h) contain any other information that Revenue may reasonably require.

What appropriate declaration must a designated stockbroker operating special portfolio investment accounts make so that an Irish resident company will not deduct DWT from a relevant distribution?

(7B) An Irish resident company must not deduct dividend withholding tax from a relevant distribution made to a designated stockbroker operating special portfolio investment accounts who has made the appropriate declaration (section 172C(2)(g)(ii)). The declaration must:

(a) be made by the person beneficially entitled to the distribution (the declarer),

(b) be signed by the declarer,

(c) be made on the Revenue-prescribed form,

(d) declare that, at the time of the declaration, the person beneficially entitled to the distribution is a designated stockbroker,

(e) contain the designated broker’s name and tax number,

(f) contain a statement that, at the time of the declaration, the distributions will be applied as part of the income or gains of a special portfolio investment account (section 838),

(g) contain an undertaking by the declarer that if the designated broker ceases to qualify, the declarer will notify (in writing) the company making the distribution,

(h) contain any other information that Revenue may reasonably require.

What appropriate declaration must a qualifying non-resident person (other than a company) make so that an Irish resident company will not deduct DWT from a relevant distribution?

(8) An Irish resident company must not deduct dividend withholding tax from a relevant distribution made to a qualifying non-resident person (other than a company) which has made the appropriate declaration (section 172D(3)(a)(iii)). The declaration must:

(a) be made by the person beneficially entitled to the distribution (the declarer),

(b) be signed by the declarer,

(c) be made on the Revenue-prescribed form,

(d) declare that, at the time of the declaration, the person beneficially entitled to the distribution is a qualifying non-resident person,

(e) contain that person’s name and address,

(f) be accompanied by a certificate from the tax authority of the country in which the person is tax-resident, which certifies that the person is tax-resident in that country,

(g) if the recipient is a trust, be accompanied by:

(i) a certificate signed by the trustees stating the names and addresses of the settlor(s) and beneficiaries,

(ii) a written notice from Revenue stating that they have noted the contents of the certificate mentioned in (i),

(h) contain an undertaking by the declarer that if the non-resident person ceases to qualify, the declarer will notify (in writing) the company making the distribution,

(i) contain any other information that Revenue may reasonably require.

What appropriate declaration must a qualifying non-resident company make so that an Irish resident company will not deduct DWT from a relevant distribution?

(9) An Irish resident company must not deduct dividend withholding tax from a relevant distribution made to a qualifying non-resident company which has made the appropriate declaration (section 172D(3)(b)). The declaration must:

(a) be made by the person beneficially entitled to the distribution (the declarer),

(b) be signed by the declarer,

(c) be made on the Revenue-prescribed form,

(d) declare that, at the time of the declaration, the person beneficially entitled to the distribution is a qualifying non-resident,

(e) contains:

(i) the company’s name an address,

(ii) the territory in which the company is tax resident,

(iii) in the case of a company controlled by persons resident in an EU State or a tax treaty country section 172D(3)(b)(ii)), the details of the territory in which those persons are resident,

(iv) in the case of a company (or its parent), the shares of which are regularly and substantially traded on a recognised stock exchange section 172D(3)(b)(iii)), the name and address of that stock exchange,

(h) contain an undertaking by the declarer that if the non-resident company ceases to qualify, the declarer will notify (in writing) the company making the distribution,

(i) contain any other information that Revenue may reasonably require.

Self-Certification for Non-Resident Companies: eBrief 26/10

What appropriate declaration must be made by a PRSA administrator so that an Irish resident company will not deduct DWT from a relevant distribution?

(10) An Irish resident company must not deduct dividend withholding tax from a relevant distribution made to a PRSA administrator who has made the appropriate declaration (section 172C(2)(bb)). The declaration must:

(a) be made by the person beneficially entitled to the distribution (the declarer),

(b) be signed by the declarer,

(c) be made on the Revenue-prescribed form,

(d) declare that, at the time of the declaration, the person beneficially entitled to the distribution is a PRSA administrator,

(e) contain the person’s name and tax reference number,

(f) contain a statement that the distribution will be applied as income of a PRSA,

(g) contain an undertaking by the declarer that if the PRSA administrator ceases to qualify, the declarer will notify (in writing) the company making the distribution,

(h) contain any other information that Revenue may reasonably require.

What appropriate declaration must an exempt unit trust make so that an Irish resident company will not deduct DWT from a relevant distribution?

(11) An Irish resident company must not deduct dividend withholding tax from a relevant distribution made to an exempt unit trust which has made the appropriate declaration (section 172C(2)(db)). The declaration must:

(a) be made by the person beneficially entitled to the distribution (the declarer),

(b) be signed by the declarer,

(c) be made on the Revenue-prescribed form,

(d) declare that, at the time of the declaration, the person beneficially entitled to the distribution is an exempt unit trust,

(e) contain the person’s name and tax reference number,

(f) contain a statement that the distribution will be applied as income of an exempt unit trust,

(g) contain an undertaking by the declarer that if the exempt unit trust ceases to qualify, the declarer will notify (in writing) the company making the distribution,

(h) contain any other information that Revenue may reasonably require.

Schedule 2B Investment undertakings: declarations

How is the “appropriate person” defined in relation to a pension scheme?

(1) The appropriate person in relation to a pension scheme is:

(a) the administrator (section 770) of an approved employee pension scheme (section 774),

(b) the person carrying on the annuity business in the case of a self-employed pension scheme (section 784, 785),

(c) the trustees of a trust scheme to provide self-employed pensions (section 784, 785).

A person’s tax reference number means their Revenue and Social Insurance (RSI) Number (section 885).

What appropriate declaration must a pension scheme make so that an investment undertaking shall not deduct retention tax from a gain payable?

(2) An investment undertaking must not deduct retention tax from a gain payable to a pension scheme which has made the appropriate declaration (section 739D(6)(a)). The declaration must:

(a) be made by the person beneficially entitled to the units (the declarer),

(b) be signed by the person beneficially entitled to the units,

(c) be made on the Revenue-prescribed form,

(d) declare that, at the time of the declaration, the person entitled to the units is a pension scheme,

(e) contain the pension scheme’s name and tax number,

(f) contain a certificate by the pension scheme’s appropriate person (see para 1 above) that the declaration in (d) and the certificate in (e) are true and correct, and

(g) contain any other information that Revenue may reasonably require.

What appropriate declaration must a life company make so that an investment undertaking will not deduct retention tax from a gain payable?

(3) An investment undertaking must not deduct retention tax from a gain payable to a life company which has made the appropriate declaration (section 739D(6)(b)). The declaration must:

(a) be made by the person entitled to the units (the declarer),

(b) be signed by the declarer,

(c) be made on the Revenue-prescribed form,

(d) declare that, at the time of the declaration, the person entitled to the units is a life company (section 706),

(e) contain the life company’s name and tax number, and

(f) contain any other information that Revenue may reasonably require.

What appropriate declaration must an investment undertaking make so that an investment undertaking will not deduct retention tax from a gain payable?

(4) An investment undertaking must not deduct retention tax from a gain payable to another investment undertaking which has made the appropriate declaration (section 739D(6)(c)). The declaration must:

(a) be made by the person entitled to the units (the declarer),

(b) be signed by the declarer,

(c) be made on the Revenue-prescribed form,

(d) declare that, at the time of the declaration, the person entitled to the units is an investment undertaking,

(e) contain the investment undertaking’s name and tax number, and

(f) contain any other information that Revenue may reasonably require.

What appropriate declaration must an investment limited partnership make so that an investment undertaking will not deduct retention tax from a gain payable?

4A An investment undertaking must not deduct retention tax from a gain payable to an investment limited partnership which has made the appropriate declaration (section 739D(6)(cc)). The declaration must:

(a) be made by the person entitled to the units (the declarer),

(b) be signed by the declarer,

(c) be made on the Revenue-prescribed form,

(d) declare that, at the time of the declaration, the person entitled to the units is an investment undertaking,

(e) contain the investment undertaking’s name and tax number, and

(f) contain any other information that Revenue may reasonably require.

What appropriate declaration must a special investment scheme make so that an investment undertaking will not deduct retention tax from a gain payable?

(5) An investment undertaking must not deduct retention tax from a gain payable to a special investment scheme which has made the appropriate declaration (section 739D(6)(d)). The declaration must:

(a) be made by the person entitled to the units (the declarer),

(b) be signed by the declarer,

(c) be made on the Revenue-prescribed form,

(d) declare that, at the time of the declaration, the person entitled to the units is a special investment scheme,

(e) contain the special investment scheme’s name and tax number, and

(f) contain any other information that Revenue may reasonably require.

What appropriate declaration must a unit trust make so that an investment undertaking will not deduct retention tax from a gain payable?

(6) An investment undertaking must not deduct retention tax from a gain payable to a unit trust which has made the appropriate declaration (section 739D(6)(e)). The declaration must:

(a) be made by the person entitled to the units (the declarer),

(b) be signed by the declarer,

(c) be made on the Revenue-prescribed form,

(d) declare that, at the time of the declaration, the person entitled to the units is a unit trust,

(e) contain the unit trust’s name and tax number, and

(f) contain any other information that Revenue may reasonably require.

What appropriate declaration must a charity make so that an investment undertaking will not deduct retention tax from a gain payable?

(7) An investment undertaking must not deduct retention tax from a gain payable to a charity which has made the appropriate declaration (section 739D(6)(f)). The declaration must:

(a) be made by the person entitled to the units (the declarer),

(b) be signed by the declarer,

(c) be made on the Revenue-prescribed form,

(d) declare that, at the time of the declaration, the person entitled to the units is a charity,

(e) contain the charity’s name and address,

(f) contain a statement that, at the time of the declaration, the units are assets of a Revenue-recognised charity, and will be held for Revenue-recognised charitable purposes (sections 207208),

(g) contain an undertaking by the declarer that if the charity ceases to qualify, the declarer will notify (in writing) the investment undertaking,

(h) contain any other information that Revenue may reasonably require.

What appropriate declaration must a qualifying management company or specified company make so that an investment undertaking will not deduct retention tax from a gain payable?

(8) An investment undertaking must not deduct retention tax from a gain payable to a qualifying management company or a specified company which has made the appropriate declaration (section 739D(6)(g)). The declaration must:

(a) be made by the person entitled to the units (the declarer),

(b) be signed by the declarer,

(c) be made on the Revenue-prescribed form,

(d) declare that, at the time of the declaration, the person entitled to the units is a qualifying management company or a specified company,

(e) contain the declarer’s name and tax number, and

(f) contain any other information that Revenue may reasonably require.

A qualifying management company is a 10%-taxed Shannon or IFSC company (a qualified company) that manages investment and business activities of a specified collective investment undertaking (SCIU).

A specified company is a qualified company the share capital of which is at least 75% owed by non-residents, or is wholly owned by a company the share capital of which is 75% owned by non-residents (section 734).

What appropriate declaration must a qualifying manager of an approved ARF or an AMRF make so that an investment undertaking will not deduct retention tax from a gain payable?

(9) An investment undertaking must not deduct retention tax from a gain payable to a qualifying fund manager of an approved retirement fund (ARF) or an approved minimum retirement fund (AMRF), or to a qualifying savings manager, which has made the appropriate declaration (section 739D(6)(h)). The declaration must:

(a) be made by the qualifying fund manager in respect of the fund units, or the qualifying savings manager in respect of the assets in the special savings incentive account (the declarer),

(b) be signed by the declarer,

(c) be made on the Revenue-prescribed form,

(d) declare that, at the time of the declaration, the units are

(i) assets of an ARF or AMRF, and

(ii) managed by the declarer on behalf of the beneficial owner of the units,

(e) contain the beneficial owner’s name and tax number,

(f) contain an undertaking by the declarer that if the units ceases to qualify as assets of an ARF or AMRF, or are transferred to another ARF or AMRF, the declarer will notify (in writing) the investment undertaking,

(g) contain any other information that Revenue may reasonably require.

What appropriate declaration must a PRSA administrator make so that an investment undertaking shall not deduct retention tax from a gain payable?

(9A) An investment undertaking must not deduct retention tax from a gain payable to PRSA administrator who has made the appropriate declaration (section 739D(6)(i)). The declaration must:

(a) be made by the PRSA administrator (the declarer) in respect of PRSA assets,

(b) be signed by the declarer,

(c) be made on the Revenue prescribed form,

(d) declare that, at the time of the declaration, the units are PRSA assets which are managed by declarer on behalf of their beneficial owner,

(e) contain the beneficial owner’s name, address and tax reference number,

(f) contain an undertaking by a declarer that if the units cease to be PRSA assets, or are transferred to another PRSA, the declarer will notify the investment undertaking,

(g) contains any other information that Revenue may reasonably require.

What appropriate declaration must a credit union make so that an investment undertaking will not deduct retention tax from a gain payable?

(9B) An investment undertaking must not deduct retention tax from a gain payable to credit union that has made the appropriate declaration (section 739D(6)(j). The declaration must:

(a) be made by the credit union (the declarer) in respect of PRSA assets,

(b) be signed by the declarer,

(c) be made on the Revenue prescribed form,

(d) contain the declarer’s name and address,

(e) contain a declaration that the person entitled to the units, at the time of the declaration, is a credit union,

(f) contains any other information that Revenue may reasonably require.

What appropriate declaration must a non-resident unit holder make so that an investment undertaking will not deduct retention tax from a gain payable?

(10) An investment undertaking must not deduct retention tax from a gain payable to a unit holder which has made the appropriate non-residency declaration on acquiring the units (section 739D(7)(a)(i)). The declaration must:

(a) be made by the person entitled to the units (the declarer),

(b) be made at the time the units are acquired by the declarer,

(c) be signed by the declarer,

(d) be made on the Revenue-prescribed form,

(e) declare that, at the time of the declaration, the declarer is not resident in the State,

(f) contain the declarer’s name and address,

(g) contain an undertaking by the declarer that if he/she becomes resident in the State, he/she will notify (in writing) the investment undertaking,

(h) contain any other information that Revenue may reasonably require.

What appropriate declaration must a unit holder neither resident or ordinarily resident make so that an investment undertaking will not deduct retention tax from a gain payable?

(11) An investment undertaking must not deduct retention tax from a gain payable to a unit holder who has made the appropriate non-residency declaration (section 739D(7)(a)(ii)). The declaration must:

(a) be made by the person entitled to the units (the declarer),

(b) be signed by the declarer,

(c) be made on the Revenue-prescribed form,

(d) declare that, at the time of the declaration, the declarer is neither resident nor ordinarily resident in the State,

(e) contain the declarer’s name and address,

(f) contain an undertaking by the declarer that if he/she becomes resident in the State, he/she will notify (in writing) the investment undertaking,

(g) contain any other information that Revenue may reasonably require.

What appropriate declaration must a non-resident unit holder make so that an investment undertaking which was an SCIU investment undertaking on 31 March 2000 will not deduct retention tax from a gain payable?

(12) An investment undertaking which was an SCIU (section 734) on 31 March 2000 need not deduct retention tax from a gain payable to a unit holder if it makes before 30 June 2000 a non-residency declaration (section 739D(8)) to the Collector-General in respect of its unit holders. The declaration must:

(a) be made and signed by the investment undertaking,

(b) be made on the Revenue-prescribed form,

(c) contain the investment undertaking’s name, address, and tax number,

(d) declare that, on 1 April 2000, no units in the undertaking were held by a person resident in the State, other than persons listed in the schedule to the declaration, and

(e) contain a schedule which lists the names and addresses of the unit holders who, on 1 April 2000, were resident in the State.

What appropriate declaration must an intermediary make so that an investment undertaking will not deduct retention tax from a gain payable?

(13) An investment undertaking must not deduct retention tax from a gain payable to an intermediary who has made the appropriate declaration (section 739D(9)(a)). The declaration must:

(a) be made and signed by the intermediary,

(b) be made on the Revenue-prescribed form,

(c) contain the intermediary’s name and address,

(d) declare that,

(i) at the time of the declaration, the beneficial owner of the units is

(I) in the case of a company, not resident in the State,

(II) in the case of an individual (non-corporate person) neither resident nor ordinarily resident in the State,

(ii) every subsequent applications by the intermediary to acquire units in the investment undertaking (or an associate undertaking) is on behalf of such a beneficiary owner,

(e) contain an undertaking by the intermediary that if the owner of the units becomes resident (or in the case of an individual, ordinarily resident) in the State, he/she will notify (in writing) the investment undertaking,

(f) contain any other information that Revenue may reasonably require.

What appropriate declaration must an intermediary, acting on behalf of a resident body that is entitled to claim exemption from exit tax, make so that an investment undertaking will not deduct retention tax from a gain payable?

(14) An investment undertaking must not deduct retention tax from a gain payable to an intermediary acting on behalf of a resident body (for example, a Revenue approved charity or pensions fund) that is entitled to claim exemption from exit tax, provided the intermediary has made the appropriate declaration (section 739D(9A)(a)).

The declaration must:

(a) be made and signed by the intermediary,

(b) be made on the Revenue-prescribed form,

(c) contain the intermediary’s name and address,

(d) declare that,

(i) at the time of the declaration, the beneficial owner of the units is an exempt body (within section 739D(6)(a)-(k)),

(ii) every subsequent applications by the intermediary to acquire units in the investment undertaking (or an associate undertaking) is on behalf of such a beneficiary owner,

(e) contain an undertaking by the intermediary that if the owner of the units loses its exempt status, he/she will notify (in writing) the investment undertaking,

(f) contain any other information that Revenue may reasonably require.

Schedule 3 Reliefs in respect of income tax charged on payments on retirement, etc

(1.1) The relevant capital sum, in relation to an employment, means the total of the following sums received or receivable by an employee or a former employee from a Revenue approved employee pension fund:

(a) a lump sum (not chargeable to income tax) received,

(b) the value at the relevant date of any lump sum (not chargeable to income tax), receivable,

(c) the value at the relevant date (section 201(1)) of any lump sum (not chargeable to income tax) which on the exercise of an option to commute all or part of the employee’s pension entitlement in favour of a lump sum, may be received at some future date.

The standard capital superannuation benefit (SCSB) means, in relation to an employment, one-fifteenth of the employee’s average yearly emoluments (A) for the last three employment years (or the whole period if less than three years) before the relevant date, multiplied by the whole number of the employee’s complete years of service (B), lessthe relevant capital sum (C).

The Standard Capital Superannuation Benefit is normally encapsulated in the formula:

((A x B)/15) – C

Income chargeable under section 128 (employee share options) should be included as an emolument for the purposes of calculating the Standard Capital Superannuation Benefit.

Where the employee has less than three years’ paid service in the period immediately prior to the relevant date (for example, due to a career break) one must look at the emoluments for “the last three years of his service”. Where there are gaps in service it is necessary to go back further than 36 months to determine the emoluments for the last three years of service (Revenue Precedent IT94-1612, 10 January 1994).

The Appeal Commissioners have held that shares given to an employee under an approved profit sharing scheme (section 510) must be treated as emoluments in the SCSB calculation (Schedule 3): 9 AC 2000

Example

You are the sales director of X Ltd, and you receive a termination payment of €186,000 in respect of your retirement on 30 June 2009 (see examples to sections 123 and 201).

Under X Ltd’s exempt approved pension scheme, you (aged 58) are entitled to a deferred pension due to start on 1 July 2013 – in four years time – with the right to opt then to commute up to 25% of your pension for a tax free lump sum.

You have no rights to any other lump sum under the pension scheme, nor have you received any such lump sum from the scheme. Your “relevant capital sum” for your employment with X Ltd. is therefore limited to the value at 30 June 2009 of your right to opt in four years’ time for a lump sum equal to 25% of your “pension fund” in the company’s scheme.

This value has to be determined actuarially. Assume that the present value of your right to opt for a lump sum in four years’ time is €80,000. Your relevant capital sum is thus €80,000.

Example

Continue with the case above and your termination payment of €186,000 from X Ltd. Your total emoluments from X Ltd. for the three years before 30 June 2009 (the relevant date) are:

Year to 30 June 2008

102,000

Year to 30 June 2007

96,000

309,000

Average for one year

103,000

Based on your 32 full years’ service and a relevant capital sum of €80,000, the SCSB for your employment to 30 June 2009 is now calculated:

1/15th x €103,000 x 32 years

219,733

Less Relevant capital sum

80,000

SCSB for employment

139,733

(1.2) The relevant capital sum must include the value of a lump sum commutable on the exercise of an option,whether or not that option is exercised.

If, however, you are entitled under the terms of the pension scheme to irrevocably surrender your option to commute part of the pension in favour of a lump sum, and you do so before the relevant date, the relevant capital sum need notinclude the value of the lump sum obtainable on the exercise of the option.

What is meant by a termination payment?

(2) In this Schedule, a termination payment (section 123) means such a payment after allowing relief in respect of thebasic exemption, i.e., the first €10,160 increased by €765 for each complete year of service (section 201(1) and, if Schedule 3 para 8 applies, as increased by the excess, if any, of €10,000 over the relevant capital sum).

How is income tax charged on payments on retirement?

(3) In this Schedule, income tax chargeable on a person means income tax chargeable by way of assessment or deduction.

How is relief in respect of income tax charged on payments on retirement effected?

(4) The relief provided by this Schedule is to be allowed against income tax chargeable on a termination payment (section 123) where a claim is made that part of the payment is exempt (section 201).

Can relief in respect of income tax charged on payments on retirement be used against covenanted income?

(5) This relief may not be used against covenanted income (the tax in respect of which the claimant must deduct from annual payments made (section 237)).

What relief in addition to the basic exemption is available in respect of tax charged on payments on retirement?

(6) If the SCSB is greater than the basic exemption (as increased, where appropriate, by up to €10,000 under para 8), then the part of the termination payment to be charged to tax is further reduced by an amount equal to the excess of the SCSB over the basic exemption.

Example

Continue with the previous example with your termination payment of €186,000 from X Ltd. Your SCSB of €139,733 (see last example) is €105,093 greater than your basic exemption of €34,640 (see example to section 201(1)). By claiming relief under Schedule 3 (section 201(6)), you are able to deduct this €105,093 from the payment chargeable to tax. The net amount chargeable (to be treated as additional income for the year) is now arrived at:

Payment chargeable to tax (after deducting basic exemption)

151,360

Deduct:

Excess of SCSB over basic exemption

105,093

Net amount chargeable in tax year 2009

46,269

How is the matter of two or more termination payments treated as respects reliefs on income tax charged on payments on retirement?

(7) If tax is chargeable on you in respect of two or more termination payments from the same employer (or associated employers), the payments are aggregated for the purpose of the calculation in para 6. If the payments were made in respect of separate employments with the same employer (or associated employers), the SCSB is calculated by adding the separate SCSB results for each employment.

If two or more termination payments are treated as income arising in different tax years, the increase in the basic exemption (for a termination payment made in the latest tax year) to the SCSB is limited to the extent to which the increase exceeds such increases in previous tax years.

Where two or more termination payments are received from the same employment, and the SCSB calculation produces a different result for each payment, the highest SCSB result may be taken to be the SCSB figure.

By how much can an employee’s termination payment be increased, and how often can an employee enjoy such an increase?

(8) If the payment is the recipient’s first termination payment, and the relevant capital sum is less than €10,000, the basic exemption is increased by the excess of €10,000 over the relevant capital sum or, if the net capital sum is nil, the basic exemption is increased by €10,000.

Example

1. Continue with the previous example. Since you have never previously claimed relief under Schedule 3, the possibility of increasing your basic exemption by up to €10,000 can be considered. However, as you have a relevant capital sum of €80,000 (see example re para 1(1)) – over €10,000 – no such increase applies and your basic exemption remains €27,200.

2. Assume that you did not have any entitlement to opt for a lump sum under the pension scheme. In this event, your relevant capital sum would have been nil. This would have allowed you to an increased basic exemption calculated:

Basic exemption (for 32 years’ service)

34,640

Add

Excess of €10,000 over nil relevant capital sum

10,000

Basic exemption (as increased)

44,640

How does an employee receive relief for any foreign service part of the termination payment?

(9) An employee who receives a termination payment may also claim relief for any “foreign service” part of the termination payment. The proportion of the payment that relates to foreign service is calculated by dividing the length of foreign service by the length of the total service before the relevant date.

(9A) This subsection does not apply to payments made on or after 27 March 2013.

What is top-slicing relief?

(10) The relief is calculated using the formula:

A – (P x T)
I

The tax on the termination payment (P), after allowing exemption for the basic exemption and foreign service relief where applicable, may be also recalculated.

The recalculation uses an artificial tax rate arrived at by dividing the tax (T) on the employee’s income for the three tax years preceding the tax year in which the termination payment is made, by the employee’s aggregate taxable income (I) for those years.

The tax (A) that would otherwise have arisen (at higher rates) on the termination payment may then be reduced by the difference between that figure and the tax arrived at by applying the (lower) artificial three year tax rate to the termination payment, i.e., P x (T/I).

This relief, known as top-slicing relief, was introduced to reduce the effective tax rate on termination payments receivable by workers who would, for the three tax years preceding the termination, have paid tax at marginal rate of 25%/35%, and were then faced with a marginal tax rate of up to 65% on the termination payment.

Example

Continue with the previous examples (but ignore Example 2 to para 8). As worked out in the Example to para 6, your final net chargeable amount in respect of the termination payment is €46,269.

Your income from its various sources for the tax year 2009, your deductions and personal allowances and other data used are as set out in the following computation:

In order to apply the para 10 (“top-slicing”) formula to calculate the relief by reduction in tax payable, it is also necessary to know the total income tax payable (before DTR) and the taxable incomes for the 5 previous tax years. The relative figures (calculations not shown) are as follows:

Income tax payable

Taxable income

2008

31,148

107,150

2007

31,528

100,900

2006

26,305

95,575

Totals for 3 years

88,981

303,625

The Schedule 3, para 10 formula to calculate the top slicing reduction in the income tax payable in respect of the termination payment is now evaluated:

Tax on income including section 123 payment

35,815

Tax on income excluding section 123 payment

12,917

Extra tax due to section 123 payment (= A)

22,898

Net amount of payment chargeable (= P)

46,269

Income tax payable for previous 3 years (= T)

88,981

Taxable income for previous 3 years (= I)

303,625

Reduction in income tax per formula

€22,898 – (€46,269 x 88,981) / 303,625

9,338

Your final income tax payable for the tax year 2009 on your income (including the section 123 payment) is now:

Tax on income including section 123 payment (as above)

35,815

Less: reduction per para 10 formula

9,338

Final income tax payable for 2009

26,477

Lump Sum Payments & Top Slicing Relief: Tax Briefing Issue 67 – 2007

How are multiple payments from the same employer in the same tax year relieved from tax on termination?

(11) Where you are chargeable to tax on two or more termination payments from the same employment in the same tax year, the payments are combined for the purposes of this relief.

How are payments from more than one employer treated?

(12) Paragraphs 10 and 11 apply as if the payments were from one employer.

Is there a limit to top-slicing relief?

(13) Top-slicing relief is not available for amounts of €200,000 or more paid on or after 1 January 2013.

When does top-slicing relief cease to be available?

(14) Top-slicing relief is no longer available in respect of payments made on or after 1 January 2014.

Schedule 4 Exemption of specified non-commercial State sponsored bodies from certain tax provisions

What exposure to tax do listed non-commercial State sponsored bodies have?

A listed non-commercial State sponsored body, although exempt from income tax or corporation tax under Schedule D Case III, IV, or V, is chargeable to tax on its trading income (Schedule D Case I). Furthermore, a body is not exempt from deposit interest retention tax (section 227).

Schedule 4A

What material is contained in Schedule 4A?

This Schedule lists energy-saving equipment which qualifies for accelerated capital allowances.

Schedule 5 Description of Custom House Docks Area

Schedule 6 Description of Temple Bar Area

Schedule 7 Description of certain enterprise areas

Schedule 8 Description of qualifying resort areas

Schedule 8A Description of qualifying rural areas

Schedule 8B Description of qualifying mid-Shannon areas

Schedule 9 Change in ownership of company: disallowance of trading losses

How are the use of trading losses restricted in circumstances where a company is taken over?

(1) Under the “loss buying” provisions (section 401), unrelieved trading losses of a company which is taken over (i.e., changes ownership) cannot be used by the acquiring company. This rule also applies to unrelieved losses of an exploration company that changes ownership within 12 months before, or 24 months after, it begins to trade (section 679(4)).

A company is regarded as having changed ownership once a person, or two or more persons (each owning at least 5% of the company’s shares) acting together, acquire more than half of the company’s ordinary share capital. In considering the separate shareholdings of two or more persons, a person’s holding of less than 5% is to be ignored unless together with other holdings it has the effect of bringing a shareholder’s total holding to more than 5%.

What change in the shareholdings of a company determine if a change of ownership has taken place?

(2) In deciding whether a change of ownership has taken place, the shareholdings in a company may be compared at any two points in time within a three year period. A shareholder may then be treated as having acquired the shares held at the later time, irrespective of whatever share dealings took place since the earlier time.

The comparison of the shareholdings at the two different times may be made in percentage terms. A person having a greater percentage shareholding at the later time is regarded as having increased his shareholding.

In deciding whether a person has a shareholding of 5% or more, holdings of connected persons are aggregated and treated as held by the same person.

In deciding whether a person has a shareholding of 5% or more, shareholdings acquired by way of unsolicited gift or inheritances are ignored.

Percentage holding comparison: this is to allow for changes in capital structure, for example, bonus share issues, etc.

What other voting rights or powers of shareholders determine if a change of ownership has taken place?

(3) If certain shareholders or persons have special voting rights or extraordinary powers, holdings of ordinary share capital will not reveal whether the ownership of the company has changed. In such cases, in deciding whether ownership has changed, ownership of all kinds of share capital and voting powers may be taken into account.

What factors are relevant when determining if a second change of ownership has occurred?

(4) Once a company that has changed ownership is denied loss relief from the pre-change period, the circumstances in the pre-change period may not be taken into account again if it is necessary to decide whether there has been a subsequent further change of ownership.

(5.1) A change in ownership of a parent company is not to be taken into account in deciding whether its 75% subsidiary has changed ownership, if the same parent company owns 75% or more of the subsidiary before and after the change.

(5.2) A subsidiary is to be regarded as having changed ownership if the parent whose ownership has changed does not own 75% of the subsidiary both before and after the change.

What definitions apply to company ownership in the context of the loss buying provisions?

(6) In the context of the loss-buying provisions:

(a) ownership means beneficial ownership,

(b) a company is a 75% subsidiary of another (parent) company if the parent company owns, whether directly or indirectly through another company or companies, not less than 75% of the subsidiary’s ordinary share capital,

(c) the indirect ownership rules (section 9(5)-(10)) apply in deciding what percentage of a company’s ordinary share capital is owned indirectly through other companies.

(7.1) In deciding whether a company has changed ownership, ordinary shares are regarded as having been acquired when the contract to acquire them was made with (or assigned to) the new shareholder. Ordinary shares acquired under a purchase option agreement are regarded as acquired when the option was acquired.

(7.2) The rules in (1) do not apply to contracts made before 16 May 1973.

What information must a nominee holder of securities provide in response to a written request from Revenue?

(8) A nominee holder of securities (i.e., a person who holds the securities on behalf of the real or beneficial owner), if requested in writing by the Revenue Commissioners or an inspector, must state the beneficial owner’s name and address.

Schedule 10 Relief for investment in corporate trades: subsidiaries

Can a company use EIIS finance for a trade carried on by its subsidiary?

(1) A company may issue shares in order to raise money for a qualifying trade carried on by its subsidiary.

The shares must be held for three years (the relevant period) from the date on which they were issued, or the date the company began its qualifying trade.

(2.1) A clawback arises if:

(a) an individual is a partner, director or employee of the subsidiary (section 492(2)),

(b) an individual has or can obtain 30% or more of the subsidiary’s ordinary share capital, issued share capital and loan capital (any debt incurred by the company for money borrowed or assets acquired), or voting power (section 492(4)-(5)),

(c) an individual is entitled to at least 30% of the subsidiary’s net assets available for its equity holders (section 413) on a notional winding up (section 415): section 492(6).

(2.2) An investor is also treated as connected with a company if:

(a) within three years (the relevant period) of the share issue date or the date the qualifying trade began, he/she had control (section 11) of a subsidiary of that company,

(b) he/she owns, or is entitled to acquire, loan capital in a subsidiary of that company.

(2.3) Future entitlements count in deciding whether he/she has breached the 30% limit – see section 492(5), (9).

(3.1) There is a clawback of relief if an individual receives value from the subsidiary before or during the three year relevant period.

(3.2) There is a clawback if the subsidiary redeems or buys back any of its shares from any person other than the original investor within the relevant period.

Can an inspector examine arrangements relating to subsidiaries?

(4) If an inspector believes that arrangements exist whereby the subsidiary could be owned or controlled by a person other than the qualifying company (section 505(2)(c)), he/she may write to the investor, the company and any person controlling it, requiring information regarding the arrangements to be sent to him/her within 60 days.

Schedule 11 Profit sharing schemes

What is the definition of “control” in relation to profit sharing schemes?

(1) A company controls another company if the first company can control the second company’s affairs, or obtain more than half the second company’s shares, voting power, income, or assets (on a winding up) (see section 432).

When does a company become a member of a consortium?

(2) A consortium member is a company which together with five or fewer consortium members owns at least 75% of the share capital of a company, with each consortium member owning at least 5% of that company’s capital.

(3.1) Where a body corporate (the applicant company) applies for approval of its profit sharing scheme, the Revenue Commissioners must approve the scheme if they are satisfied:

(a) that the scheme applies to eligible participants (employees or directors of the applicant company who are chargeable to income tax under Schedule E),

(b) that the scheme has no unnecessary features, i.e., features concerned with matters other than the provision of shares to participants.

(3.2) A profit sharing scheme that extends to one or more companies controlled by the applicant company is called agroup scheme, and each group scheme company is called a participating company.

(3.3) To be approved, a scheme must be administered by a body of persons resident in the State (the trustees) who:

(a) are required by the scheme conditions to buy shares from the applicant company (or from a participating company),

(b) are obliged to appropriate shares acquired to eligible participants, and

(c) in carrying out their functions are regulated by a deed of trust, governed by Irish law, which meets the conditions in paras 15-18 (Part 5).

(3.4) The initial market value of shares appropriated by the trustees to a participant is their open market value at the appropriation date (or such earlier date as may be agreed between the trustees and the Revenue Commissioners).

The scheme rule must ensure that the initial market value of shares appropriated to any one participant in a tax year may not exceed:

(a) €12,700, or

(b) €38,100, in the case of shares previously held in an employee share ownership trust: section 515(1), (2A)).

(3.5) An application for approval of a scheme must be made in writing, and must be accompanied by any other particulars or evidence required by the Revenue Commissioners.

(4.1) For a scheme to be approved, Revenue must be satisfied that each participant:

(a) in the case of a profit sharing scheme approved before 10 May 1997, is a full-time employee or director of the applicant company (or a participating group company), and in the case of a profit sharing scheme approved on or after 10 May 1997, is an employee or full-time director of the applicant company (or a participating group company),

(b) has been such an employee or director for a qualifying period of up to three years,

(c) is chargeable to tax under Schedule E in respect of the income from that employment or directorship.

Eligible participants (who satisfy these conditions) must be entitled to participate in the scheme on similar terms.

(4.1A) In relation to profit sharing schemes approved on or after 27 March 1998 (date of passing of Finance Act 1998), Revenue must be satisfied that:

(a) the scheme’s features do not discourage any class of eligible employees from participating in the scheme, and

(b) in the case of a scheme for a group of companies, the scheme does not confer benefits wholly or mainly on the directors or the highest paid employees.

In this regard, a group of companies means a company and any companies it controls, or with which it is associated.

A company is regarded as associated with another company, if:

(a) the company and the associate act in pursuit of a common purpose,

(b) persons having a reasonable commonality of identity have (or have had) the power to control, directly or indirectly, the trading operations of both companies,

(c) persons having a reasonable commonality of identity control both companies.

See notes to section 491(4) for precedents on this terminology.

(4.1B) As regards an approved profit sharing scheme (APSS) established by TSB Bank or ICC Bank plc (a relevant company):

(a) an employee or full-time director includes an ex-employee and an ex-full-time director of the company, or a group company, and

(b) periods spent as employee or director of a company in the relevant company’s group, or in the acquiring company’s group, count towards the qualifying period (see (1)(b)).

(4.1C) From 4 February 2010, a profit-sharing scheme will not be approved if there are arrangements in place for loans to be made to eligible employees.

In this regard, arrangements includes any arrangements, scheme, undertaking or understanding whether legally enforceable or not.

(4.2) Participants who obtain a larger profit share on the basis of their pay level or length of service are not considered ineligible.

(5.1) The Revenue Commissioners may withdraw a scheme’s approval if:

(a) a participant does not:

(i) allow the trustees to hold his/her shares for the retention period,

(ii) pay standard rate income tax to the trustees on the locked-in value of any shares he/she instructs them to transfer to him/her before the release date, or

(iii) instruct the trustees to sell the shares to anyone other than for the best consideration (section 511(4)(d)),

(b) in operating the scheme, any rule contained in sections 509518, the scheme itself, or the scheme’s trust deed is broken,

(c) scheme shares appropriated to a participant have different dividend or repayment entitlements, restrictions or other rights attaching,

(d) Revenue are no longer satisfied that the scheme is confined to eligible participants (para 4).

(5.2) If changes are made to a Revenue approved profit sharing scheme, or the scheme’s governing deed of trust, the scheme’s approval is automatically withdrawn from the date of the changes unless the changes are approved by Revenue.

(5.3) No. A scheme’s approval will not be withdrawn on the basis that newly issued shares have a lesser dividend entitlement (in relation to periods before the share issue date) than shares already in existence at the issue date.

(6.1) A company may, within 30 days of a Revenue decision to deny or withdraw approval for a scheme, appeal, by written notice to Revenue, to have the matter heard by the Appeal Commissioners.

(6.2) The Appeal Commissioners must hear and determine such an appeal in the same manner as an appeal against an income tax assessment. You have a right, where necessary, to have your case reheard by a Circuit Court Judge. You also have a right to have a case stated for the opinion of the High Court on a point of law.

To obtain Revenue approval, what class of shares must be appropriated under the profit sharing scheme?

(8) For a profit sharing scheme to be approved, the scheme shares must be ordinary shares in:

(a) the applicant company,

(b) a company which controls the applicant company, or

(c) a member company of a consortium that owns the applicant company (or a company which controls the applicant company), with the member company itself owning at least 15% of the applicant company’s (or its controlling company’s) ordinary share capital, or

(d) a company which issued shares to the ESOT trustees who then passed the shares to APSS trustees.

What is the extended definition of shares in the context of ESOTs and APSS?

(8A) Shares in para 8(d) includes shares, acquired by an ESOT as result of a company reorganisation (section 584), which replace shares or specified securities previously acquired by the ESOT on a share for share exchange (section 586).

Can shares in service companies qualify for profit-sharing relief?

(8B.1)-(8B.2) From 4 February 2010, shares in service companies do not qualify for profit-sharing relief.

A company is treated as a service company if its business consists wholly or mainly of providing services to:

(i) persons who control the company,

(ii) an associate company, or

(iii) a partnership associated with the company.

One company is regarded as associated with another if:

(i) both are under common control, or

(ii) both act in pursuit of a common purpose, or persons having a “reasonable commonality of identity” control both companies or have power to determine their trading operations.

A partnership is associated with a company if the company and the partnership act in pursuit of a common purpose.

What class of company must hold the ordinary shares in a profit sharing scheme?

(9) The scheme shares must also be shares in:

(a) a quoted company,

(b) a company that is not controlled by another company, or

(c) a company controlled by a quoted company that is not a close company (section 430).

See also: Profit Sharing Schemes, Revenue Leaflet IT62.

(10.1) The scheme shares must also be fully paid up, non-redeemable, and not subject to any restrictions (apart from the restriction mentioned in (2)) that do not apply equally to all shares.

(10.2) In relation to a profit sharing scheme approved on or after 10 May 1997, a restriction imposed by the company’s articles of association requiring a participant who ceases to hold such shares to dispose of them (for example, on leaving the company), will not prevent the shares from qualifying. Similarly a restriction that requires a non-participant who acquires scheme shares (for example, a former employee) to dispose of them on acquiring them will not prevent the shares from qualifying.

(10.3) The exceptional restrictions mentioned in (2), which will not prevent shares from qualifying, are not to apply unless:

(a) the shares must be disposed of for money, in accordance with terms contained in the company’s articles of association, and

(b) the articles of association contain general provisions requiring a person disposing of shares of the same class to sell them for money.

(10.4) As a participant, you are not compelled to dispose of beneficial interest in shares which trustees have not yet transferred to you. The exceptional restrictions mentioned in (2) do not compel you, before the release date, to dispose of your beneficial interest in shares which the trustees have not yet transferred to you.

Where a company has several classes of ordinary share capital, who must hold the majority of issued shares of the same class?

(11) In the case of a company with two or more classes of ordinary share capital, the majority of issued shares of the same class must be held by shareholders who are not:

(a) directors or employees of the applicant company who acquired their shares, not by public offering, but by taking up special rights conferred on such directors or employees,

(b) trustees holding shares on behalf of such directors or employees,

(c) in the case of a company (ultimately) controlled by a quoted company that is not a close company (9(c)), companies which control, or are associates of, the applicant company.

(11A.1) In the case of specified securities, para 11A applies in place of para 8-11.

(11A.2) The specified securities must also be shares in:

(a) a company that is not controlled by another company, or

(b) a company controlled by a quoted company that is not a close company (section 430).

(11A.3) No. The specified securities must not be subject to any restrictions that do not apply equally to all shares.

(11A.4) A restriction imposed by the company’s articles of association requiring a participant who ceases to hold such specified securities to dispose of them (for example, on leaving the company), will not prevent the specified securities from qualifying. Similarly a restriction that requires a non-participant who acquires scheme specified securities (for example, a former employee) to dispose of them on acquiring them will not prevent the specified securities from qualifying.

(11A.5) The exceptional restrictions mentioned in (2), which will not prevent specified securities from qualifying, are notto apply unless:

(a) the specified securities must be disposed of for money, in accordance with terms contained in the company’s articles of association, and

(b) the articles of association contain general provisions requiring a person disposing of specified securities of the same class to sell them for money

What conditions must be fulfilled in order to be eligible to receive an appropriation of shares?

(12) An individual is not eligible to receive an appropriation of shares from the scheme’s trustees unless he/she is, or was within the preceding 18 months, an employee or director of the applicant company, or a group scheme participating company) (but see 12A below).

What conditions must be fulfilled if a beneficiary of an ESOT is to be eligible to receive shares from a profit sharing scheme?

(12A) Where an individual is (or were within the preceding 30 days) a beneficiary of an employee share ownership trust (section 519), he/she is eligible to have shares appropriated to him/her if the shares were transferred to the trustees of the profit sharing scheme by the trustees of the ESOT.

When would a person not be eligible to receive an appropriation of shares in a tax year?

(13) An individual is not eligible to receive an appropriation of shares from the scheme’s trustees in a tax year if he/she has already received an appropriation of shares under another approved profit sharing scheme from:

(a) the same company or a company that controls, or is controlled by, that company, or

(b) a member of a consortium which owns that company, or a company partly owned by that company as a member of a consortium.

(13A.1) If an individual has received an appropriation of shares from a company in a tax year, he/she may obtain relief on an appropriation of shares in the same tax year by a company which has taken over the first-mentioned company.

See also: Tax Briefing 40.

(13A.2) The scheme rule (para 3(4)) which provides that the maximum aggregate reliefs that may be given to an individual in a tax year is €12,700, or in the case of shares previously held in an employee share ownership trust, €38,100 (section 515(1), (2A)) applies to the aggregate of the appropriations mentioned in (1).

(13A.3) This rule applies to an appropriation of shares made on or after 23 March 2000.

(13B.1) The rule in para 13 does not prevent an employee of TSB Bank or ICC Bank plc from receiving an appropriation of shares if he/she has already received an appropriation from an APSS in the same group. If an employee in either company has already received an appropriation of shares, the first appropriation is ignored.

(13B.2) The maximum shares that may be appropriated to an employee in a tax year, from any number of approved schemes, is generally

(a) €12,700,

(b) €38,100 in the case of shares held in an employee share ownership trust.

(14.1) An individual is not eligible to receive an appropriation of shares from the scheme’s trustees if he/she has, or had within the preceding 12 months, a material interest in:

(a) the close company (section 430) whose shares are to be appropriated, or

(b) a company which controls, or is a member of a consortium that owns, that company.

(14.2) In this context, close company includes a non-resident company (section 430(1)(a)) and a quoted company which is regarded as close, for example because the company’s principal members hold more than 85% of the voting power, including voting power that can be exercised through a nominee, an associate, or a company controlled by that person (section 431).

(14.3) In this context, an associate of a participator includes:

(a) a relative (spouse, brother, sister, ancestor or lineal descendant) or partner of the participator,

(b) a trustee of a settlement made by the participator (or a relative of the participator),

(c) any person also interested in shares held on trust (or as part of a deceased person’s estate) which the participator has an interest in.

An associate does not include a person (within (c)) entitled to benefit under a Revenue approved employee pension scheme. An associate does include a person entitled to benefit under an employee pension scheme trust (the benefits of which are confined to employees or directors of the employer company) if that person owns, either alone or through relatives, 15% of the ordinary share capital of the company (or in the case of a group scheme, a participating company).

A person has a material interest in a close company if, alone or together with associates, he/she can control 15% of the company’s ordinary share capital.

What must a trust deed provide regarding notification to a participant of details of his/her share appropriation by the trustees?

(15) The trust deed must provide that the trustees must write to a participant to whom they have appropriated shares, stating the number and type of shares, and their initial market value.

(16.1) The trust deed must prohibit the trustees from disposing of any scheme shares during the retention period (other than by way of exchange for replacement shares in a takeover or merger situation, section 511(6)).

(16.2) The trust deed must prohibit the trustees from disposing of any scheme shares after the end of the retention period but before the release date unless:

(a) instructed to do so by the participant (or a person holding the shares on the participant’s behalf), and

(b) the participant agrees to pay the trustees income tax at the standard rate on the locked-in value (section 512) of the shares, and he/she also agrees that the shares will not be sold other than for the best consideration (section 511(4)(c)).

What must the trust deed provide regarding payments by the trustees to participants and the trustees role in dealing with rights issues on behalf of participants?

(17) The trust deed must also require the trustees:

(a) To pay the participant any dividends or other income received in respect of his/her scheme shares. This does not oblige the trustees to repay income tax which the participant has paid to the trustees where they dispose of the shares before the release date (section 511(4)(c)). Nor does it oblige the trustees to pay the participant the value of new shares received in exchange for the old shares in a takeover or merger situation (section 514).

(b) To deal with any rights issue in respect of the shares only in accordance with the instructions of the participant (or a person holding the shares on the participant’s behalf).

What must be included in the trust deed regarding the tax obligations of trustees?

(18) The trust deed must also oblige the trustees:

(a) to keep proper records that will enable them to comply with the tax obligations of Part 17,

(b) to inform a participant who becomes liable to income tax under Schedule E (for example, on a disposal of scheme shares) of the event which gave rise to the tax charge.

Sample deed: Revenue Leaflet IT62.

Schedule 12 Employee share ownership trusts

(1.1) A company’s ordinary share capital is its entire issued share capital, excluding fixed rate preference shares.

Securities means shares (including stock) and debentures.

A relevant company means TSB Bank or ICC Bank plc, ACC Bank plc, or a company which acquired control of the Irish National Petroleum Corporation Ltd. This definition is used in para 7A and 11A, to facilitate the setting up of employee share ownership trusts (ESOTs) in TSB Bank and ICC Bank.

(1.2) A company controls another company if the first company can control the second company’s affairs, or obtain more than half the second company’s shares, voting power, income, or assets (on a winding up) (see section 432).

(1.3) In the case of employee share ownership schemes approved on or after 27 March 1998, a company is within the founding company’s group if:

(a) it is the founding company, or

(b) it is a company controlled by the founding company and the trust’s terms apply to it.

In the case of employees share ownership schemes approved before 27 March 1998, an employee or director was not regarded as an employee or director of a company in the founding company’s group unless he/she was, or was within the preceding 18 months, an employee or director of:

(a) the founding company or a company controlled by the founding company, which is resident in the State,

(b) the founding company or a company controlled by the founding company which, although not resident in the State, trades through a branch or agency in the State.

Allows the founding company to choose the companies to be included in the employee share ownership trust scheme.

(1.3A) A company is within the group of a relevant company (TSB Bank or ICC Bank plc) if it is the company in question, or if it is controlled by the company in question and the ESOT refers to it.

(1.4) A person has a material interest in a company if, alone or together with associates (section 433(3)), he/she owns, or can control, 5% of the company’s ordinary share capital. In this context, control means being able to obtain more than half the second company’s shares, voting power, income, or assets (on a winding up) (section 432).

In the case of employee share ownership schemes approved on or after 27 March 1998, associates include former employees covered by the company pension scheme.

(1.5) A trust is regarded as established only when the deed of trust is executed.

(2.1) The Revenue Commissioners must approve an employee share ownership trust established by a body corporate (the founding company), if they are satisfied the trust meets the conditions in paras 6 to 18. An approved trust is aqualifying employee share ownership trust.

(2.2) In the case of employee share ownership schemes approved on or after 27 March 1998, if the founding company is a member of a group of companies, Revenue must be satisfied that the scheme does not confer benefits wholly or mainly on the directors or the highest paid employees.

A company is regarded as associated with another company, if:

(a) the company and the associate act in pursuit of a common purpose,

(b) persons having a reasonable commonality of identity have (or have had) the power to control, directly or indirectly, the trading operations of both companies,

(c) persons having a reasonable commonality of identity control both companies.

See notes to section 491(4) for precedents on this terminology.

(3.1) The Revenue Commissioners may withdraw a trust’s approval if:

(a) in operating the trust, any condition contained in paras 6 to 18 is broken,

(b) scheme shares acquired by the trustees have different dividend or repayment entitlements, restrictions or other rights attaching.

(3.2) If changes are made to a trust’s terms, the trust’s approval is automatically withdrawn from the date of the changes unless the changes are approved by Revenue.

(3.3) No. A trust’s approval will not be withdrawn on the basis that newly issued shares have a lesser dividend entitlement (in relation to periods before the share issue date) than shares already in existence at the issue date.

(3.4) The Revenue Commissioners may, by written notice, require any person to send them information to enable them to give or withdraw approval of an employee share ownership trust, and determine the tax liability of any beneficiary of such a trust.

(3.5) The scheme trustees must file a self-assessment form on or before 31 March in the following year. The penalties that apply for not filing a return apply if the form is not filed.

(4.1) A founding company may, within 30 days of a Revenue decision to deny or withdraw approval for a trust, appeal, by written notice to Revenue, to have the matter heard by the Appeal Commissioners.

(4.2) The Appeal Commissioners must hear and determine such an appeal in the same manner as an appeal against an income tax assessment. The appellant has a right, where necessary, to have his/her case reheard by a Circuit Court Judge. He/she also has a right to have a case stated for the opinion of the High Court on a point of law.

What power do Revenue have to nominate any of their officers to act or discharge their functions in relation to an ESOT?

(5) The Revenue Commissioners may nominate an inspector or other Revenue officer to perform their functions in relation to employee share ownership trusts.

Can an ESOT be set up by a founding company which is controlled by another company?

(6.1)-(6.2) An employee share ownership trust must be established under a trust deed by the founding company.

At the time the trust is established, the founding company must not be controlled by any other company.

How must the trust deed be structured?

(7) The trust deed must provide for establishment of a body of trustees, using a trust structure in paras 8, 9 or 10.

How is the term “employee” defined in the case of an ESOT set up by TSB Bank or ICC Bank plc?

(7A) An employee or director of TSB Bank or ICC Bank plc, includes:

(a) an (ex) employee or director who was an employee or director within the relevant company’s group on the date the ESOT was established, and

(b) an employee or director within the relevant company’s group after the ESOT has been established.

(8.1) This trust structure provides that a majority of the trustees must be employee representatives.

The trust deed must appoint initial trustees and contain rules governing the retirement and removal of trustees and the appointment of replacement and additional trustees.

(8.2) The trust deed must ensure that, while the trust exists, it has at least three trustees, all of the trustees are resident in the State, and one of the trustees is a professional trustee (trust corporation, solicitor, or professional person).

The trust deed must also ensure that more than half of the trustees must be persons who are not, and have never been, directors of the founding company’s group.

More than half of the trustees must be employee representatives of companies in that group, who do not have a material interest (more than 5% of the ordinary share capital) in a company in that group. These employee representative trustees must have been chosen by a majority of the employees in companies in the founding company’s group.

(9.1) This trust structure provides that the employees and the company are equally represented among the trustees.

The trust deed must appoint initial trustees and contain rules governing the retirement and removal of trustees and the appointment of replacement and additional trustees.

(9.2)-(9.3) The trust deed must ensure that, while the trust exists, it has at least three trustees, all of the trustees are resident in the State, one of the trustees is a professional trustee (trust corporation, solicitor, or professional person), and at least two of the trustees are non-professional trustees.

The trust deed must also ensure that at least half of the non-professional trustees must have been selected under the rules in (6)-(7). These non-professional trustees must be employees of companies in the founding company’s group, who do not have a material interest (more than 5% of the ordinary share capital) of a company in that group.

(9.4)-(9.5) In the context of this trust structure, a professional trustee is a trust corporation, solicitor, or professional person who is not an employee or director of any company in the founding company’s group. Furthermore, the professional trustee must be appointed:

(a) as an initial trustee by persons who later become the trust’s non-professional trustees, or

(b) as a replacement or additional trustee by the trust’s non-professional trustees.

A non-professional trustee means a trustee other than a professional trustee.

(9.6) Trustees are chosen using this selection process, if every employee of a company in the founding company’s group, who does not have a material interest (5% of the ordinary share capital) in a company in that group, is given the chance to stand for selection. Every employee must also be given the chance to vote. The selection process should give preference to a candidate who wins more votes than another candidate.

(9.7) Trustees are chosen using this selection process if they are chosen by the elected representatives of employees in the founding company’s group.

(10.1) This trust structure provides for a single trustee, the trust company.

(10.2) The trust deed must provide that the trustee is a trust company resident in the State and controlled by the founding company. The trust deed must also appoint the initial trustee and contain rules governing the removal and replacement of that trustee.

(10.3)-(10.4) The trust deed must ensure that, while the trust exists, the trust company has at least three directors, all of the directors are resident in the State, one of the directors is a professional trustee (trust corporation, solicitor, or professional person), and at least two of the directors are non-professional directors.

The trust deed must also ensure that at least half of the non-professional directors must have been selected under the rules in (7)-(8). These non-professional directors must be employees of companies in the founding company’s group, who do not have a material interest (5% of the ordinary share capital) of a company in that group.

(10.5)-(10.6) In the context of this trust structure, a professional director is a trust corporation, solicitor, or professional person who is not an employee of any company in the founding company’s group. The professional director must not be a director of any company in the founding company’s group other than the trust company.

Furthermore, the professional director must be appointed:

(a) as an initial director by persons who later become the trust company’s non-professional initial directors, or

(b) as a replacement or additional director by the trust’s non-professional directors.

A non-professional director means a director other than a professional director.

(10.7) Directors are chosen using this selection process, if every employee of a company in the founding company’s group, who does not have a material interest (5% of the ordinary share capital) in a company in that group, is given the chance to stand for selection. Every employee must also be given the chance to vote. The selection process should give preference to a candidate who wins more votes than another candidate.

(10.8) Directors are chosen using this selection process if they are chosen by the elected representatives of employees in the founding company’s group.

(11.2) The trust deed must provide that a person qualifies as a beneficiary at a particular time (the relevant time) if:

(11.1) The trust deed must contain the following provisions regarding trust beneficiaries.

(a) he/she is at that time an employee or director of a company in the founding company’s group,

(b) he/she was such an employee or director at each given time in the qualifying period,

(c) if a director, he/she must at each given time in the qualifying period also have worked for the company concerned for at least 20 hours per week (ignoring holidays and sickness), and

(d) any pay receivable by him/her as director or employee is chargeable to tax under Schedule E (this applies to employee share ownership schemes approved on or after 27 March 1998).

Restricts membership of employee share ownership trusts to PAYE employees.

(11.2A) The trust deed may provide that an employee or director may qualify as a beneficiary, if he/she would qualify under (2) apart from the requirement that he/she be chargeable under Schedule E.

Gives the company discretion to include non-PAYE (i.e., foreign) employees.

(11.2B) The trust deed may provide that a person may qualify as a beneficiary at a particular time (the relevant time) if:

(a) at each given time in the qualifying period, he/she was an employee or director of a company in the founding company’s group,

(b) he/she was such an employee or director on the date the trust was established (or within the nine month period preceding that date, or the five year period succeeding that date),

(c) he/she is no longer an employee or director of the company (or the company has left the group),

(d) 50% (or a lesser percentage prescribed by order made by the Minister for Finance) of the securities retained by the trustees during the five year period mentioned in (b), or the case of an ESOT approved on or after 23 March 2000 the shorter period prescribed by order made by the Minister for Finance, were pledged by the trustees as security for borrowings,

(e) the relevant time occurs not more than 20 years since the trust was established.

(11.2C) Yes. If the rule mentioned in (2B) or (3) is included in a trust deed, it must apply to every person in the scheme.

(11.3) A beneficiary includes a former employee or director (who was such an employee or director at each given time in a qualifying period) of a company in the founding company’s group if not more than 18 months have elapsed since the person ceased to be an employee or director of the company, or the company ceased to trade.

(11.4) A beneficiary may include a charity if, because there are no beneficiaries within (2)-(3), the trust is being wound up.

(11.5) In the context of (2), a qualifying period means a period, specified in the trust deed, of not more than five years ending at the time the person’s status as a beneficiary is being considered (the relevant time).

(11.6) In the context of (3), a qualifying period means a period, specified in the trust deed, ending at the time the person ceased to be an employee, or the company ceased to be a member of the group.

(11.7) Only persons mentioned in (2)-(4) may be a beneficiary.

(11.8) A beneficiary may not include a person who has, or had within the preceding year, a material interest (5% of the ordinary share capital) in the founding company.

(11.9) Charity means a body of persons established for charitable purposes only.

(11.10) Yes.

(11A.1) As regards an ESOT established by TSB Bank or ICC Bank plc, the rules in para 11A apply in place of the rules in para 11.

(11A.2) The trust deed must contain the following provisions regarding trust beneficiaries.

(11A.3) The trust deed must provide that a person qualifies as a beneficiary at a particular time (the relevant time) if:

(a) he/she was at that time an employee or director of a company in the relevant company’s group,

(b) he/she is at that time an employee or director of

(i) a company within the same group,

(ii) a company within a group which has acquired the company,

(iii) a company to which he/she has been transferred under EU employment protection legislation,

(iv) a company within a group of which the company is, or was, a member, or

(c) he/she was such an employee or director at each given time in the qualifying period,

(d) if a director, he/she must at each given time in the qualifying period also have worked for the company concerned, or a group company, for at least 20 hours per week (ignoring holidays and sickness), and

(e) any pay receivable by him/her as director or employee is chargeable to tax under Schedule E, i.e., is subject to PAYE.

Restricts membership of employee share ownership trusts to PAYE employees.

(11A.4) The trust deed may provide that an employee or director may qualify as a beneficiary, if he/she would qualify under (2) apart from the requirement that he/she be chargeable under Schedule E.

Gives the company discretion to include non-PAYE (i.e., foreign) employees.

(11A.5) The trust deed may provide that a person may qualify as a beneficiary at a particular time (the relevant time) if:

(a) he/she was such an employee or director on the date the trust was established, or in the case of the Irish National Petroleum Corporation Ltd, within nine months prior to that date,

(b) at each given time in the qualifying period he/she was an employee or director of a company in the relevant company’s group,

(c) he/she is no longer an employee or director of the company (or the company has left the group),

(d) 50% (or a lesser percentage prescribed by order made by the Minister for Finance) of the securities retained by the trustees during the five year period were pledged by the trustees as security for borrowings, and

(e) the relevant time occurs not more than 20 years since the trust was established.

(11A.6) A beneficiary includes an employee or director where the following conditions are met:

(a) the person was an employee or director on the date the trust was established, or in the case of the Irish National Petroleum Corporation Ltd within nine months prior to that date,

(b) he/she was such an employee or director at each given time in a qualifying period of a company in the founding company’s group,

(c) the person is no longer an employee or director of the company or group,

(d) not more than 18 months have elapsed since the person ceased to be an employee or director of the company, or the company ceased to trade.

(11A.7) No. The trust deed must not contain a rule that conforms with (5) or (6), unless that rule applies to all beneficiaries equally.

(11A.8) A beneficiary may include a charity if, because there are no beneficiaries within (3)-(6), the trust is being wound up.

(11A.9) In the context of (3), a qualifying period means a period, specified in the trust deed, of not more than three years ending at the time the person’s status as a beneficiary is being considered (the relevant time).

(11A.10) In the context of (5)-(6), a qualifying period means a period, specified in the trust deed, ending at the time the person ceased to be an employee, or the company ceased to be a member of the group.

(11A.11) Only persons mentioned in (4)-(8) may be a beneficiary.

(11A.12) The trust deed must provide that a beneficiary may not include a person who has, or had within the preceding year, a material interest (5% of the ordinary share capital) in the relevant company. In the context of TSB, this includes a company that has been reorganised into TSB.

(11A.13) A period spent as director or employee of a company that has been reorganised into TSB counts towards the qualifying period mentioned in (3)(c), (5)(b) and (6)(b).

(11A.14) Charity means a body of persons established for charitable purposes only.

(11A.15) Yes.

(12.1) The trust deed must contain the following provisions regarding trustees’ functions.

(12.2) The trust deed must clearly state that the trustees’ functions are:

(a) to receive sums from the founding company,

(b) to acquire securities,

(c) to give rights to acquire shares to the beneficiaries,

(d) to transfer securities to the beneficiaries,

(e) to transfer securities to the trustees of an approved profit sharing scheme (Schedule 11 Part 2),

(f) to manage the securities before they are transferred.

(13.1) The trust deed must require the trustees to spend any sum they receive within the expenditure period (see (2)) and only for a qualifying purpose (see (3)). Sums received by the trustees must be kept in the form of cash or in a bank account with a licensed bank (section 256).

(13.2) The expenditure period is the nine month period which begins, where the sum is received from the founding company (or a company controlled by that company), the day after the accounting period in which the company spent the sum. In any other case, it is the period which begins the day the sum is received.

(13.3) Each of the following is a qualifying purpose:

(a) the acquisition of shares in the founding company, or the acquisition of specified securities, (section 509(1)),

(b) the repayment of a loan,

(c) the payment of interest on a loan,

(d) a payment to a beneficiary under the trust deed,

(da) a payment to a personal representative of a beneficiary under the trust deed,

(e) the payment of expenses.

(13.4) The trust deed must provide that, in ascertaining the order in which sums are spent, sums received by the trustees are treated as spent before sums received later.

(13.5) The trust deed must provide that sums paid by the trustees to beneficiaries at the same time must be paid on similar terms.

(13.6) Sums paid by the trustees to beneficiaries on the basis of differing pay levels or length of service, are not disqualified on the basis that such sums are not paid on similar terms.

(14.1) The trust deed must provide that the securities acquired by the trustees are ordinary shares in the founding company which are fully paid up, non-redeemable, and not subject to any restrictions (apart from the restriction mentioned in (2)) that do not apply equally to all shares.

(14.2) A restriction imposed by the founding company’s articles of association requiring an employee or director of the founding company (or one of its group companies) who ceased to hold such shares, to dispose of them (for example, on leaving the company), will not prevent the shares from qualifying. Similarly, a restriction that requires a former employee or director who acquires such shares to dispose of them on acquiring them will not prevent the shares from qualifying.

(14.3) The exceptional restrictions mentioned in (2), which will not prevent shares from qualifying, are not to apply unless:

(a) the shares must be disposed of for money, in accordance with terms contained in the company’s articles of association, and

(b) the articles of association contain general provisions requiring a person disposing of shares of the same class to sell them for money.

(14.4) The trust deed must provide that the trustees may not acquire shares in the founding company for a price higher than their market value.

What may the trust deed provide regarding the acquisition of shares, other than shares in the founding company, by the trustees?

(15) The trust deed may allow the trustees to acquire securities which are not shares in the founding company if they are acquired on a share-for-share basis in exchange for original shares as part of a company reorganisation or reduction of share capital (section 584), or as part of a company amalgamation by exchange of shares (section 586).

(16.1) The trust deed must provide that the trustees must, within 20 years of acquiring the securities, transfer them to the beneficiaries on qualifying terms (see (2)).

(16.2) Securities are transferred on qualifying terms if they are offered to all beneficiaries under the trust deed, and, if transferred at the same time, are transferred on similar terms to all beneficiaries who accept the offer.

(16.3) Securities transferred to beneficiaries on the basis of differing pay levels or length of service, will not be disqualified on the basis that such a transfer is not made on similar terms.

(16.4) The trust deed must provide that in ascertaining the order in which securities are transferred, securities acquired earlier by the trustees are treated as transferred before securities acquired later.

(This is the First In First Out (FIFO) rule.)

What other incidental or inessential features might be contained in the trust deed?

(17) The trust deed must have no unnecessary features (i.e., features concerned with matters other than the transfer of securities to employees and directors, or to the trustees of an approved profit sharing scheme).

(18.1) The trust deed must provide that the trustees are treated as:

(a) acquiring securities when they become entitled to them,

(b) having transferred securities to a person when that person becomes entitled to them,

(c) retaining securities if they remain entitled to them.

(18.2) Where the trust deed allows the trustees to acquire securities which are not shares in the founding company on a share-for-share basis as part of a company reorganisation or reduction of share capital (section 584), or as part of a company amalgamation by exchange of shares (section 586) (see para 15), the new securities are treated as acquired when the original shares (or exchanged shares) were acquired.

(18.3) The trust deed must provide:

(a) the date on which the trustees become entitled to securities which have been transferred to them is the date of the transfer agreement (not a later transfer date stated in the agreement), or if the agreement is subject to conditions being satisfied, the date when those conditions are satisfied,

Schedule 12A Approved savings-related share option schemes

(1.1) Where on or after 6 April 1999, an employee or full-time director of a body corporate obtains rights to acquirescheme shares (para 10) in a grantor company or a participating company in a group scheme, under the terms of an approved savings-related share option scheme, the receipt of the right is exempt from benefit in kind (section 519A).

A company is an associate of another company if at any time, one controls the other or both are controlled by a third person (section 432; see also subpara (4) below).

The retirement age (specified age) means an age not less than 60 years and not more than 66 years (the age at which a person becomes eligible for old age pension under the Social Welfare Acts).

(1.2) The connected person rules (section 10) apply for the purposes of this Schedule.

(1.3) A consortium member is a company which together with five or fewer consortium members owns at least 75% of the share capital of a company, with each consortium member owning at least 5% of that company’s capital.

(1.4) A person controls a company if he/she can directly or indirectly control the company’s affairs, or if he/she is entitled to more than half of the company’s share capital, voting power, distributable income, or assets on winding up (section 432(2)). Shares or voting power obtainable at some future date are counted as available immediately, as are shares held through nominees. Rights and powers held by a person’s associates or companies which he/she controls are treated as available to that person (section 432(3)-(6)).

(2.1) Where a body corporate (the grantor) applies for approval of its savings-related share option scheme, the Revenue Commissioners must approve the scheme if they are satisfied that it meets the conditions in this Schedule.

(2.2) An application for approval must be made in writing and must be supported by any evidence that Revenue may need.

See also:Tax Briefing 42

(2.3)-(2.4) A savings-related share option scheme that extends to one or more companies controlled by the applicant company is called a group scheme, and each group scheme company is called a participating company.

(2.5) The scheme rules must indicate the retirement age (see (1)) beyond which rights may continue to be exercised (see paras 20-21 below).

(3.1) To be approved, a scheme must have no unnecessary features, i.e., features concerned with matters other than the provision of share options to employees and directors.

(3.2) Revenue must be satisfied that:

(a) the scheme’s features do not discourage any class of eligible employees from participating in the scheme, and

(b) in the case of a scheme for a group of companies, the scheme does not confer benefits wholly or mainly on the directors or the highest paid employees.

(3.3) In (2), a group of companies means a company taken together with the companies it controls or with which it is associated.

A company is regarded as associated with another company, if:

(a) the company and the associate act in pursuit of a common purpose,

(b) persons having a reasonable commonality of identity have (or have had) the power to control, directly or indirectly, the trading operations of both companies,

(c) persons having a reasonable commonality of identity control both companies.

See notes to section 491(4) for precedents on this terminology.

(4.1) The Revenue Commissioners may withdraw a scheme’s approval if:

(a) any of the conditions mentioned in this Schedule cease to be satisfied,

(b) the grantor does not provide information requested by Revenue (see para 6 below).

Relief is withdrawn from the time the conditions cease to be met, or a later date specified by Revenue. Pre-withdrawal relief given to employees and directors remains valid.

(4.2) If changes are made to a Revenue approved savings-related share option scheme, or the scheme’s governing deed of trust, the scheme’s approved status is automatically withdrawn from the date of the changes unless the changes are approved by Revenue.

What appeal mechanisms are available to a grantor company where Revenue decide to deny or withdraw approval for a savings-related share option scheme?

(5) A grantor company may, within 30 days of a Revenue decision to deny or withdraw approval for a scheme, appeal, by written notice to Revenue, to have the matter heard by the Appeal Commissioners.

The Appeal Commissioners must hear and determine such an appeal in the same manner as an appeal against an income tax assessment. The appellant has a right, where necessary, to have his/her case reheard by a Circuit Court Judge. He/she also has a right to have a case stated for the opinion of the High Court on a point of law.

What powers do Revenue have to seek information to aid them in determining whether to withdraw existing approval?

(6) The Revenue Commissioners may, by written notice, require any person, within 30 days, to send them information:

(a) to enable them to give or withdraw approval of a savings-related share option scheme, and to determine the tax liability of any person who has participated in the scheme,

(b) relating to the administration of the scheme, and any changes in the terms of the scheme.

What self-assessment obligations do the trustees of a savings-related share option scheme have?

(6A) The scheme trustees must file a self-assessment form on or before 31 March in the following year. The penalties that apply for not filing a return apply if the form is not filed.

What powers do Revenue have to nominate any of their officers to perform any acts and functions relating to savings-related share option schemes?

(7) The Revenue Commissioners may nominate an inspector or other Revenue officer to perform their functions in relation to savings-related share option schemes.

(8.1) A person is not eligible to participate in the scheme if he/she has, or had within the preceding 12 months, a material interest in:

(a) the close company (section 430) whose shares are the subject of the share option scheme, or

(b) a company which controls, or is a member of a consortium that owns, that company.

(8.2) A close company (see (1)) includes a non-resident company (section 430(1)(a)) and a quoted company which is regarded as close, for example because the company’s principal members hold more than 85% of the voting power, including voting power that can be exercised through a nominee, an associate, or a company controlled by that person (section 431).

(8.3) In this context, an associate of a participator includes:

(a) a relative (spouse, brother, sister, ancestor or lineal descendant) or partner of the participator,

(b) a trustee of a settlement made by the participator (or a relative of the participator),

(c) any person also interested in shares held on trust (or as part of a deceased person’s estate) which the participator has an interest in.

An associate does not include a person (within (c)) entitled to benefit under a Revenue approved employee pension scheme (section 776). An associate does include a person entitled to benefit under an employee pension scheme trust (the benefits of which are confined to employees or directors of the employer company) if that person owns, either alone or through relatives, 15% of the ordinary share capital of the company (or in the case of a group scheme, a participating company).

A person has a material interest in a close company if, alone or together with associates, he/she can control 15% of the company’s ordinary share capital.

See also para 27: in determining material interest holdings, options are counted as shares.

(9.1) Every employee and full-time director of the grantor company (or participating company in a group scheme) is eligible to obtain and exercise rights under an approved savings-related share option scheme, on similar terms, provided:

(a) he/she has been such an employee or director for a qualifying period of not less than three years, and

(b) the income from the employment or office is chargeable to tax under Schedule E.

(9.2)-(9.3) Employees or full-time directors who obtain larger share option rights on the basis of their pay level or length of service, are not considered ineligible (as not being entitled to participate on similar terms).

What rights must be provided to employees and full-time directors under an approved savings-related scheme?

(10) The scheme must provide that employees and full-time directors can obtain rights to scheme shares.

What are the characteristics of shares which are approved under an approved savings-related share option scheme?

(11) For a savings-related share option scheme to be approved, the scheme shares must be ordinary shares in:

(a) the grantor company,

(b) a company which controls the grantor company, or

(c) a member company of a consortium that owns the applicant company (or a company which controls the applicant company), with the member company itself owning at least 15% of the applicant company’s (or its controlling company’s) ordinary share capital.

In what form of shares must shares of an approved savings-related scheme be held?

(12) The scheme shares must also be shares in:

(a) a quoted company,

(b) a company that is not controlled by another company, or

(c) a company controlled by a quoted company that is not a close company (section 430).

(13.1) The scheme shares must also be fully paid up, non-redeemable, and not subject to any restrictions (apart from the restriction mentioned in (2)) that do not apply equally to all shares (see also para 14(1)).

(13.2) A restriction imposed by the company’s articles of association requiring a participating employee or director who ceases to hold such shares to dispose of them (for example, on leaving the company), will not prevent the shares from qualifying.

Similarly a restriction that requires a non-participant who acquires scheme shares (for example, a former employee) to dispose of them on acquiring them will not prevent the shares from qualifying.

(13.3) The exceptional restrictions mentioned in (2), which will not prevent shares from qualifying, are not to apply unless:

(a) the shares must be disposed of for money, in accordance with terms contained in the company’s articles of association, and

(b) the articles of association contain general provisions requiring a person disposing of shares of the same class to sell them for money.

When are shares regarded as being subject to a restriction?

(14.1) Shares are subject to a restriction (para 13(1)) if there is a contract, agreement, arrangement or condition which:

(a) restricts the person’s freedom to dispose of the shares, an interest in the shares, or the sale proceeds from the shares,

(b) restricts the person’s freedom to exercise rights under the shares,

(c) causes a disposal of the shares, or exercise of the rights, to result in a disadvantage to the person, or to a person connected (section 10) with him/her.

(14.2) A restriction contained in the Listing Rules of the Irish Stock Exchange (or equivalent wording) does not come within (1).

What constraints are placed on the holding of the majority of issued shares of the same class in the case of a company with several classes of ordinary share capital?

(15) In the case of a company with two or more classes of ordinary share capital, the majority of issued shares of the same class must be held by shareholders who are not:

(a) directors or employees of the grantor company who acquired their shares, not by public offering, but by taking up special rights conferred on such directors or employees,

(b) trustees holding shares on behalf of such directors or employees,

(c) in the case of a company (ultimately) controlled by a quoted company that is not a close company (para 12(c)), companies which control, or are associates of, the grantor company.

(16.1) An approved scheme may contain rules similar to the rollover relief which allows a “gain” arising on the “disposal” of an old share as part of a share-for-share exchange (for example, in relation to a company reconstruction etc (sections 584587)) to be deferred until the disposal of the replacement share (the new share).

If the scheme contains such a rule, then a gain arising on the “disposal” of the old rights as part of a rights-for-rights exchange may be deferred until the disposal of the replacement rights (the new rights). This applies where another company (the acquiring company):

(a) takes over the company operating the scheme,

(b) takes over the company operating the scheme as part of a court-sanctioned compromise or arrangement with its creditors (Companies Act 1963 section 201),

(c) becomes bound or entitled to acquire shares of a dissenting minority (Companies Act 1963 section 204).

(16.2) To qualify for this relief, the participating employee or director must exchange the old rights for the new rights within the appropriate period. This is:

(a) in a case within (1)(a), six months from the time the person making the offer has obtained control of the company,

(b) in a case within (1)(b), six months from the time the court sanctions the arrangement or compromise, and

(c) in a case within (1)(c), the period during which the company is bound to acquire the shares.

(16.3) The rights-for-rights relief does not apply unless:

(a) the new rights meet the conditions in paras 11-15,

(b) the new rights are capable of being exercised in the same manner as the old rights,

(c) the pre-exchange market value of the shares which are the subject of the old rights must equal the market value of the pre-grant value of the new shares.

(16.4) The new rights are regarded, and continue to be regarded, as granted when the old rights were acquired (free of benefit in kind) by the employee or director (section 519A).

In what way will the savings-related share option scheme shares be paid for?

(17) The scheme shares must be bought from the savings under (i.e., repayments and interest from) a certified contractual savings scheme (section 519C(4)).

What stipulations are there on when rights under an approved savings-related share option scheme must not be capable of being exercised?

(18) Apart from the exceptions mentioned in paras 19-22, the rights must not be capable of being exercised before the date on which savings under the certified contractual savings scheme are due to be paid (the bonus date) and not later than six months after the bonus date.

In this regard, the individual may decide, at the time the rights are obtained, whether or not savings to be used to buy the shares should include the bonus. Where repayments are to include the bonus (whether it is the maximum bonus or any other bonus payable) the bonus date is the earliest date that bonus is payable.

What provision must the approved savings-related share option schemes provide as regards the exercise of rights if a person dies before the bonus date?

(19) The scheme must provide that rights obtained by a person who dies:

(a) before the bonus date may be exercised within the 12 months of the date of death, and

(b) within the six months after the bonus date may be exercised within 12 months following the bonus date.

What provision must the approved savings-related share option schemes stipulate as regards the exercise of rights obtained by a person who is no longer employed?

(20) The scheme must provide that rights obtained by a person who is no longer employed due to:

(a) injury, disability, or redundancy, or

(b) retirement (i.e., reaching the specified age, i.e., 60 years),

may be exercised within six months of ceasing to be employed.

The scheme must also provide that rights held by a person who ceases employment for any other reason may be exercised within the six months of the cessation, provided the rights were held for more than three years. If the rights were held for less than three years the scheme must provide for the rights to lapse.

What provision must the approved savings-related share option scheme stipulate as regards a person who continues to work after reaching the specified age?

(21) The scheme must provide that a person who continues to work after reaching the specified age (60 years of age) may exercise his/her rights within six months of reaching that age.

(22.1) The scheme may provide that:

(a) if the company operating the scheme is taken over, the rights may be exercised within six months of the takeover date,

(b) if the company operating the scheme makes a court-sanctioned compromise or arrangement with its creditors (Companies Act 1963 section 201), the rights may be exercised within six months of the date of the compromise or arrangement,

(c) if the company operating the scheme becomes bound or entitled to acquire shares of a dissenting minority (Companies Act 1963 section 204), the rights may be exercised within six months of the date on which the company became so bound or entitled,

(d) if the company goes into a voluntary winding up, the rights may be exercised within six months of the date on which the winding up resolution was passed,

(e) in the case of a person who is no longer eligible because:

(i) his employing company is no longer part of the group (i.e., controlled by the grantor company), or

(ii) his employment or directorship has been transferred to a company which is neither associated with (see para 1), nor controlled by, the grantor company,

the rights may be exercised within six months of ceasing employment,

(f) in the case of an employee or director of a non-participating company, who at the bonus date (para 18) is:

(i) an associated company (see para 1) of the grantor, or

(ii) a company of which the grantor has control,

the rights may be exercised within six months of the bonus date.

(22.2) In this context, a person controls a company if he/she and others acting in concert together have control of the company.

Are share rights obtained by a person under a savings-related share option scheme capable of being transferred by that person?

(23) Rights obtained by a person under a scheme must not be capable of being transferred by that person. Such rights must not be capable of being exercised later than six months after the bonus date.

At what stage is a person regarded as no longer employed by the grantor company?

(24) A person is only treated as no longer employed by the grantor company (para 20 and 22(1)(e)), when that person is no longer employed by the grantor company, and any company controlled by, or associated with, the grantor company.

(25.1) The scheme rules must ensure that as far as possible, the savings made by the employee or director in the certified contractual savings scheme match the amount needed by the saver to acquire the shares (see para 18 regarding bonuses).

(25.2) The scheme rules must ensure that total contributions made by a participant may not exceed €500 per month. The scheme rules may impose a minimum monthly contribution, but that minimum may not be less than €12 per month.

What stipulation must be included as regards the price at which shares may be acquired by the exercise of a right obtained under an approved savings-related share option scheme?

(26) The price at which shares may be acquired by the exercise of a right obtained under the scheme:

(a) must be stated at the time the right is obtained, and

(b) must not be manifestly less than 75% of the market value of the shares of the same class at that time (or an earlier time agreed between Revenue and the company).

The scheme may allow the price to vary to take account of any variation in the share capital of which the scheme shares form part.

(27.1) In determining a material interest in a company (section 437(2)) for the purposes of para 8(3)(b)(ii), a right to acquire shares is taken as a right to control those shares.

(27.2) Share options granted under this Schedule count as full shares when determining material interest (para 8(3)(b)(ii)) holdings.

(27.3) Where an individual has unexercised rights to acquire new (i.e., previously unissued) shares, and the company is contractually bound to issue those share if the rights are exercised, the “rights” shares (although not yet issued) are treated as issued, i.e., as part of the company’s ordinary share capital.

Schedule 12C Approved share option schemes

Schedule 13 Accountable persons for purposes of Chapter 1 of Part 18

What bodies must deduct PSWT from fees paid for professional contract work?

This Schedule lists Government funded bodies which must apply professional services withholding tax (PSWT) when paying a professional person who performs professional contract work for the body in question.

A subsidiary resident in the State of a company listed in Schedule 13 is also an accountable person for the purposes of the PSWT. Broadly, a company is a subsidiary (Companies Act 1963 section 155) of another company if that other company:

(a) is a member of it and controls the composition of its board of directors,

(b) holds more than half in nominal value of its equity share capital, or

(c) holds more than half in nominal value of its shares carrying voting rights (other than shares with limited voting rights).

A non-resident subsidiary is not an accountable person (Revenue Leaflet IT61).

See also: 18.1.1.

Schedule 14 Capital gains tax: leases

A leasehold interest in land or buildings is an asset (section 532) for capital gains tax purposes.

The disposal of a long lease (50 or more years to run) is treated in the same manner as the disposal of a freehold interest.

The disposal of a short lease (less than 50 years to run) is treated as the disposal of a wasting asset (section 560). This means that the full acquisition cost of the asset is not allowed when computing the chargeable gain. The “wasted” part of the acquisition cost must be deducted from the acquisition cost when computing the gain on the disposal of the lease.

The creation of a short lease or a long lease out of a freehold is regarded as a part disposal (section 557) of the freehold.

The creation of a long lease out of a long lease is regarded as a part disposal (section 557) of the long lease.

The creation of a short lease out of a long lease is regarded as a part disposal (section 557) of the long lease.

What is a “premium” payable on a lease?

(1) A premium includes any similar sum payable to the immediate or superior lessor. A sum (other than rent) paid for the granting of a tenancy is regarded as a premium, unless other sufficient consideration is given as payment.

(2.1) A lease of land becomes a wasting asset once the lease has less than 50 years to run.

(2.2) Where at the start of a lease period, the leased land is itself sublet at a rent of less than full value, and in computing a gain on the disposal of the lease, the estimated value of the lease at the end of the sublease period exceeds any deductible expenditure, the lease will not be regarded as a wasting asset until the sublease ends.

Example

In 1995 a person, A, acquired a lease with 20 years left to run, cost £20,000.

At that time the lease was subject to a sub-lease at a rent fixed below market rent. The sub-lease is due to expire in 2000. It is agreed that the value of the lease when the sub-lease expires is £25,000 – lessor will be in a position to receive increased rental. In these circumstances the expenditure of £20,000 will not be regarded as wasting until 2000 although in 1995 the lease had only 20 years to run.

Source: Inspector Manual 19.2.21 (modified and updated)

(2.3) A wasting asset that is a lease of land need not be written off at a uniform rate (section 560). Instead, the lease should be written off using the table to this paragraph.

(2.4) In computing a gain on the disposal of a lease with less than 50 years to run, the person disposing of the lease is not allowed to deduct the full cost of the lease. He/she must eliminate the cost relating to the part of the lease that has expired or wasted while he/she held the lease.

The percentage used to calculate the non-deductible part of the acquisition cost of the lease is:

P(1) – P(2)
P(1)

where P(1) is the percentage given by the table for the lease at the start of the lease period, and P(2) is the percentage given by the table at the time of disposal of the lease.

Example

On 1 July 2009, you assign a 25 year lease to X for €25,000 (when the lease still has 10 years to run).

The lease was granted to you on 1 July 2003, for a premium of €13,900. The incidental costs of acquisition were €100, giving a total expenditure of €14,000.

Computation:

Proceeds (2009)

25,000

Less

Acquisition cost

14,000

Less wasted part of cost*

5,939

Allowable cost (2003)

8,061

8,061

Chargeable gain

16,939

Note

*Table percentages: 25 years = 81.1 = P(1); 10 years = 46.7 = P(3).

The percentage for the wasted part of cost is calculated as (81.1 – 46.7) divided by 46.7, i.e., 42.42%, which applied to €14,000 gives €5,939.

Source: Inspector Manual 19.2.21 (modified and updated)

(2.5) These rules apply to a lease longer than 50 years, as soon as the lease has only 50 years to run. In computing a gain on the disposal of a lease with more than 50 years to run, no part of the lease’s acquisition or enhancement cost is to be “wasted”.

(2.6) The wasting asset restrictions (section 560(3)-(5)) do not apply to expenditure on business assets (or the part thereof) that qualifies for capital allowances (section 561).

Example

01.07.2009 X Ltd bought a lease of land for €100,000 when it had 25 years left to run.

01.11.2009 X Ltd spent €200,000 building a factory on the site for use in its trade, and this expenditure qualified for a full industrial building allowance.

On a subsequent disposal of the lease, only the €100,000 cost of the lease is wasted. The €200,000 which qualified for industrial building allowance is not wasted.

Example

06.04.2003 X acquired a lease by assignment paid for €21,000 (including expenses of acquisition) when the lease (which was originally for 99 years) has exactly 21 years to run and the amount.

The residue of the previous owner’s capital expenditure in respect of which X is entitled to industrial buildings allowances was €2,100.

X incurs capital expenditure of €1,900 on additions to the factory and claims industrial buildings allowances on the whole amount.

06.04.2009 For a capital payment of €13,000 (net after expenses), X assigns a leasehold interest in a factory which X has used for his manufacturing trade.

X’s assignment of the lease gives rise to a balancing adjustment (section 274). The total capital allowances given (after deducting balancing charges) is:

A

B

C

Residue on Acquisition

Expenditure 2003

Balance

Cost (€21,000)

2,100

18,900

Enhancement expenditure (€1,900)

1,900

Apportioned sale price (say)

1,000

2,000

10,000

Net capital allowances

1,100

Nil

The wasting asset rules only apply in relation to Part C:

Part A

Apportioned sale price

1,000

Less apportioned cost

2,100

Loss

1,100

Less capital allowances

1,100

Allowable loss

Nil

Part B

Apportioned sale price (2009)

2,000

Allowable cost (2003)

2,000

Result

NG/NL

Part C

Balance of sale price (2003)

10,000

Apportioned cost

18,900

Less wasted part of cost*

6,232

Allowable cost

12,668

Loss

2,668

Total allowable loss

2,668

Note

Table percentages: 21 years = 74.6; 11 years = 50.0

*Wasted part of enhancement cost is calculated as:

(P(2) – P(3)) / P(2) = (74.6 – 50.0) / 74.6 x €18,900 = €6,232

Source: Inspector Manual 19.2.21 (modified and updated)

(2.7) In using the table, if the lease term is not an exact number of years (for example 46 and a half years), the percentage is taken as the percentage for the whole number of years (46 years: giving a percentage of 98.5) plus one-twelfth of the difference between the percentage for that number of years and the next highest number of years (47 years: giving a percentage of 98.9) for each month.

(3.1) Where on the grant of a lease, a premium is required, there is a part-disposal of the freehold interest (or superior lease) from which the lease is granted.

(3.2) In applying the part-disposal rules to a premium received on the grant of a lease, the value of the property that is not let includes the right to receive the rent under the lease. That right is valued at the time of the part-disposal.

(4.1) Where the terms of a lease of land require the lessee to pay a lump sum in lieu of rent for a period, or as consideration for the surrender of the lease, that lump sum is treated as an additional premium to be paid to the lessor for that period.

Example

06.04.2003 X acquires a freehold property for €20,000 including expenses of purchase.

06.04.2009 X grants a 21 year lease for a premium of €4,200 and a rent. Under the terms of the lease the tenant is entitled to and does surrender the lease after seven years on payment of €4,000 to X.

The value of the property retained by X (including the right to receive rent) is agreed at €21,000.

Premium

Income tax computation:

Premium received

4,200

Less €4,200 x (7- 1)/50 =

504

Schedule D liability on

3,696

CGT computation:

Proceeds (2009)

4,200

Less taxed under Schedule D

3,696

504

Less part cost (2003)

€20,000 x 504 / 4,200 21,000 =

400

Gain

104

Surrender payment

Income tax computation:

Surrender payment received

4,000

Less €4,000 x (7- 1)/50 =

480

Schedule D liability on

3,520

CGT computation:

Proceeds

4,000

Less taxed under Schedule D

3,520

Chargeable gain

480

Note

1. There is no allowance in this computation (i.e., of the gain of €480) in respect of the part cost of the freehold as the sum received on surrender is treated as arising from an entirely separate asset, namely, the interest in the lease.

2. The allowable cost of the property for use in the computations on a subsequent disposal is €19,600, i.e., €20,000 less €400 allowed on the grant of the lease.

Source: Inspector Manual 19.2.21 (modified and updated)

Example

The facts are the same as in Example 1 except that the property acquired for €20,000 is a lease running for 41 years from the date of acquisition (6 April 1989) and the rent payable under the sub-lease is equal to the rent payable under the main lease.

Premium

Income tax computation:

Premium received

4,200

Less €4,200 x (7- 1)/50 =

504

Schedule D liability on

3,696

Less deduction in respect of premium paid 20,000 x (10/50) x (7/41)

683

Schedule D liability on

3013

CGT computation:

Proceeds (2003)

4,200

Less

Acquisition cost

20,000

Less wasted part of cost*

18,625

Allowable cost

1,375

2,825

Less taxed under Schedule D

3,013

Chargeable gain

Nil

Note

1. Table percentages: 41 years = 96; 36 years = 92.8; 29 years = 86.2. Sublease = 92.8 – 86.2 = 6.6 = P(3)

*Wasted part of cost is calculated as:

(P(1) – P(3)) / P(1) = (96 – 6.6) / 96 x €20,000 = €16,900

2. As regards the surrender payment, the computations are the same as in Example 1 (for Schedule D, €3,520; for capital gains tax, €480).

There is no allowance in the capital gains tax computation in respect of the part cost of the head lease as the sum received on surrender of the sub-lease is treated as arising from an entirely separate asset, namely, the interest in the sub-lease.

Source: Inspector Manual 19.2.21 (modified and updated)

(4.2) Where a lessee pays a lump sum which is not rent in return for the variation or waiver of the terms of the lease, that lump sum is treated as an additional premium to be paid to the lessor for the period from when the variation or waiver takes effect to when it ceases to have effect.

(4.3) An additional premium deemed to have been received by the lessor under (1) or (2) is treated as consideration given to the lessor for the grant of the lease, at the time the lease was granted.

Example

06.04.2003 X buys a freehold shop for €20,000, including expenses of purchase.

06.04.2004 X grants a lease for 21 years at a rent of €2,500 a year. Under the terms of the lease the tenant may commute the rent for any period on the payment of a lump sum.

06.04.2005 The tenant exercises this right and pays €37,500 in commutation of the rent from that date until the end of the lease (i.e., for 19 years).

Income tax computation:

Payment in commutation of rent

37,500

Less €37,500 x (19 – 1)/50

13,500

Schedule D liability on

24,000

Capital gains tax computation:

The commutation of the rent is to be treated as a part disposal at the date the lease was granted. The value of the property which remained undisposed of represents the right to receive rent for the period from 6 April 2001 to 5 April 2003, together with the right to the reversion at the end of the lease. This value is agreed with the taxpayer to be €12,500.

Proceeds (2009)

37,500

Less taxed under Schedule D

24,000

13,500

Less part cost (2003)

€20,000 x 13,500 / (37,500 12,500)

5,400

Gain

8,100

Source: Inspector Manual 19.2.21 (modified and updated)

If, however, the lease has less than 50 years to run, the additional premium is to be treated as consideration paid for a sublease for the period covered by the payment. The consideration for the sublease is treated as enhancement expenditure incurred by the “sublessee”.

Example

06.04.2003 X acquires a 41 year lease of a property at a rent of €2,000 a year and no premium.

06.04.2004 She grants a 21 year lease of the whole property at a rent of €3,000 a year. Under the terms of the lease, the tenant may commute the rent for any period on the payment of a lump sum.

06.04.2009 The tenant exercises this right and pays €16,000 in commutation of the rent from that date until 5 April 2015 (i.e., for 6 years).

Income tax computation:

Payment in commutation of rent

16,000

Less €16,000 x (6 – 1)/50

1,600

Schedule D liability on

14,400

CGT computation:

Proceeds (2009)

16,000

Allowable cost (no premium paid)

Nil

Gain

16,000

Less taxed under Schedule D

14,400

Chargeable gain

1,600

Source: Inspector Manual 19.2.21 (modified and updated)

Example

The facts are the same as above except that X pays €4,100 as a premium for the lease the acquired on 2003.

Income tax computation:

Amount chargeable under Schedule D

14,400

Less deduction in respect of premium paid* (€20 a year for 6 years)

120

Schedule D liability on

14,280

CGT computation:

Proceeds (2009)

16,000

Less

Acquisition cost

4,100

Less wasted part of cost*

3,852

Allowable cost (2003)

248

15,752

Less taxed under Schedule D

14,280

Chargeable gain

1,472

Note

1. X is entitled to an allowance against his rents in respect of the premium he pays. This amount is €4,100 x (10/50) x (1/41) = €20 per year.

2. Table percentages: 41 years = 96.0; 35 years = 92.0; 29 years = 86.2. Commutation period = 92.0 – 86.2 = 5.8 = P(3)

*Wasted part of cost is calculated as:

(P(1) – P(3)) / P(1) = (96 – 5.8) / 96 x €4,100 = €3,852

Source: Inspector Manual 19.2.21 (modified and updated)

Example

The facts are the same except that X obtains a premium of €8,400 on the grant of the sub-lease on 6 April 2001.

The amount of the premium which would have been obtained if the rent under the sub-lease had been €2,000 a year (i.e., equal to the rent paid) is €16,800.

Premium

Income tax computation:

Premium on grant of sublease

8,400

Less €8,400 x (21 – 13)/50

3,360

5,040

Less deduction in respect of premium paid (€20 a year for 21 years)

420

Schedule D liability on

4,620

Capital gains tax computation:

Proceeds (2003)

8,400

Less

Acquisition cost 4,100 x (8,400/16,800)

2,050

Less wasted part of cost*

1,458

Allowable cost (1998-99)

592

592

7,808

Less taxed under Schedule D

4,620

Chargeable gain

3,188

Payment in commutation of rent

Income tax computation:

Payment in commutation of rent

16,000

Less €16,000 x (6 – 1)/50

1,600

Schedule D liability on

14,400

CGT computation:

Proceeds (2009)

16,000

Less

Acquisition cost 4,100 x (8,400/16,800)

2,050

– wasted part** 3,852 x (8,400/16,800)

1,926

124

124

15,876

Less taxed under Schedule D

14,400

Chargeable gain

1,476

Note

Table percentages: 41 years = 96.0; 38 years = 94.2; 17 years = 66.5. Sublease period = 94.2 – 66.5 = 27.7 = P(3)

*Wasted part of cost is calculated as:

(P(1) – P(3)) / P(1) = (96 – 27.7) / 96 x €2,050 = €1,458

The acquisition cost (€4,100) is scaled down in the proportion which the premium for the sub-lease (€8,400) bears to the premium which would have been paid (€16,800) if the rent had been €2,000 a year.

**The wasted part of cost is calculated as €3,852, but one-half of this expenditure (8,400/16,800) was allowed in computing the gain on the premium of €8,400 so that the allowance is also halved to €124.

Source: Inspector Manual 19.2.21 (modified and updated)

(4.4) Where an additional premium paid during the currency of a lease is treated as consideration given to the lessor for the grant of the lease, the lessor’s chargeable gain on the disposal of the lease is to be recomputed. Any resulting shortfall in tax is to be recovered from the lessor by an assessment, and any tax overpaid is to be repaid to the lessor.

(4.5) Where a lump sum payable in lieu of rent is treated as an additional premium paid to the lessor as consideration for the surrender of a lease, the additional premium is treated as consideration received by the lessor for the disposal of his interest in the lease.

(4.6) Where a lessee pays a lump sum in return for the variation or waiver of the terms of the lease, and the transaction is not at arm’s length or is entered into gratuitously, the lessor is treated as having received the premium that would have been paid under an arm’s length transaction.

(4.7) The re-computation of a chargeable gain (see (4)) applies also for corporation tax.

(5.1)-(5.2) Where in return for a premium (the actual premium), a sublease is granted out of a lease which has less than 50 years to run, in computing the chargeable gain on the disposal, the part-disposal formula (section 557) is not to be used in apportioning the deductible expenditure.

(5.3) Instead, the deductible expenditure attributed to the part-disposal is:

(a) In a case where the actual premium is not less than the premium that would be payable if the rent payable under the sublease were equal to the rent payable under the lease (the full premium), the amount to be written off over the duration of the sublease, and

(b) In a case where the actual premium is less than the full premium, the proportionate part of the actual premium which corresponds to the proportion the actual premium bears to the full premium.

Example

01.12.2003 X acquires a long lease of a shop for a premium which, with expenses of acquisition, amounts to €20,000. The lease runs for 60 years to 25 December 2052.

25.12.2009 (when the lease still has 49 years to run), X grants a sub-lease for 21 years (at the same rent as X pays under the head lease) for a premium of €16,000.

The granting of the sub-lease is a part disposal of X’s interest in the property which, by 2002, has become a wasting asset. The computations are as follows:

Income tax computation:

Premium received

16,000

Less €16,000 x (21- 1)/50 =

6,400

Schedule D liability on

9,600

Capital gains tax computation:

Proceeds (2009)

16,000

Less

Acquisition cost

20,000

Less wasted part of cost*

17,080

Allowable cost

2,920

2,920

13,380

Less taxed under Schedule D

9,600

Chargeable gain

2,441

Note

Table percentages: 60 years = 100; 49 years = 99.7; 28 years = 85.1. Sublease of 21 years = 99.5 – 85.1 = 14.6 = P(3)

*Wasted part of cost is calculated as:

(P(1) – P(3)) / P(1) = (100 – 14.6) / 100 x €20,000 = €17,080

Source: Inspector Manual 19.2.21 (modified and updated)

Example

06.04.2003 X acquires a lease on assignment for a payment of €16,400. At that date the lease (which was originally for 99 years) has exactly 41 years to run.

06.04.2009 X grants a sub-lease for a period of 11 years (at the same rent as that payable by X under the head lease) and obtains a premium of €10,000.

Income tax computation:

Premium received

10,000

Less €10,000 x (11- 1)/50 =

8,000

Schedule D liability on

2,000

CGT computation:

Proceeds (2009)

10,000

Less

Acquisition cost

16,400

Less wasted part of cost*

11,343

Allowable cost

5,057

5,057

3,943

Less taxed under Schedule D

8,000

Chargeable gain (no allowable loss)

Nil

Note

Table percentages: 41 years = 96 = P(1); 20 years = 72.8; 9 years = 43.2. Sublease of 11 years = 72.8 – 43.2 = 29.6 = P(3)

*Wasted part of cost is calculated as:

(P(1) – P(3)) / P(1) = (96 – 29.6) / 96 x €16,400 = €11,343

(5.4) Where only part of the land comprised in the lease is sublet, only a proportion of the lease’s acquisition cost and enhancement expenditure is deductible when computing the chargeable gain. This proportion is calculated by the value of the land comprised in the lease with the value of the land comprised in the sublease at the time the sublease is granted. Any remaining expenditure is attributed to the part not disposed of.

(6.1) Where a premium is payable under a short lease (a lease not longer than 50 years), for income tax purposes (section 98) part of the premium will be treated as rent receivable at the time of the letting agreement. The part of the premium taxed as income is the entire premium as reduced by 2% for each complete year (excluding the first year) comprised in the term of the lease.

Normally, the part of a premium taxed as income is not included as consideration in the capital gains tax computation. This exclusion does not apply if the premium arises on the creation of a lease which is regarded as a part-disposal, i.e., where a short lease is created out of a freehold or long lease.

(6.2) Where a premium arising on the creation of a short lease out of another short lease is also taxed under income tax rules (section 98), and the premium is regarded as consideration for capital gains tax purposes, the amount taxed as income is deductible in computing the gain accruing on the disposal. This may not be used to create or increase a loss.

(6.3) A deemed premium arising on the sale of land with right to reconveyance (section 100) which is taxed as income is not included as consideration in the capital gains tax computation. This exclusion does not apply if the premium arises on the creation of a lease which is regarded as a part-disposal, i.e., on the creation of a short lease out of a freehold or a long lease.

Where the deemed premium arising on the creation of a short lease out of another short lease is also taxed under income tax rules (section 100), and the deemed premium is regarded as consideration for capital gains tax purposes, the amount taxed as income is deductible in computing the gain accruing on the disposal. This may not be used to create or increase a loss.

(6.4) In (1) and (2), a premium includes a lump sum in lieu of rent (section 98(3)) and a lump sum paid by the tenant to vary the lease terms (section 98(4)).

(6.5) The general rule (section 551) that prevents revenue type income receipts from being treated as consideration chargeable to capital gains tax does not apply to receipts from land or buildings (section 75, Part 4 Chapter 8).

Example

06.04.2003 X buys a freehold property for €60,000, including expenses of purchase.

06.04.2009 X grants a 46 years lease for a premium of €30,000 and a rent. The value of the interest in the property retained (i.e., of the right to receive rent for the term of the lease plus the reversion is €45,000.

Income tax computation:

Premium received

30,000

Less €30,000 x (46 – 1)/50

27,000

Schedule D liability on

3,000

Capital gains tax computation:

Proceeds (2009)

30,000

Less taxed under Schedule D

3,000

27,000

Less part cost allowable (2003):

€60,000 x (30,000 – 3,000) / 30,000 45,000 =

21,600

45,000

Chargeable gain

NG/NL

The cost of the interest retained is €38,400 (€60,000 – €21,600). If the lease had been granted for 61 years, there would be no Schedule D liability and the capital gain would have been computed as follows:

Proceeds (2009)

30,000

Less part cost allowable (2003):

60,000 x30,000 / (30,000 45,000) =

24,000

Chargeable gain

6,000

The cost of the interest retained would then be €36,000 (€60,000 – €24,000).

Source: Inspector Manual 19.2.21 (modified and updated)

The deduction under (b) cannot, however, create an allowable loss, neither can it augment an allowable loss already arrived at. As regards the computation generally of a gain arising from a premium taken on the grant of a short lease out of a lease with not more than fifty years to run, see Par. 18 et seq.

(7.1) For income tax purposes, a landlord who pays a premium on a lease for a premises which he/she leases to another person, is entitled to deduct part of the cost of that premium when computing his/her surplus under Schedule D Case V (section 103(2)). However, the cost of the premium is spread over the term of the lease. He/she does not get a full deduction for the premium when he/she pays it; instead he/she obtains a smaller deduction (by way of additional rent) for each year of the lease.

If the grant of the sublease gives rise to a capital gains loss, that loss is to be reduced by the total additional rent treated as paid over the term of the sublease. This may be used to create or increase a gain.

Example

The facts are the same as in Example 1 to para 5 except that X takes a profit rent under the sub-lease and therefore a premium of €12,000 (instead of the same rent and a premium of €16,000). The allowable expenditure is reduced in proportion of actual premium to notional full premium:

12,000/ 16,000 x €3,100 = €2,325 (instead of €3,100).

Source: Inspector Manual 19.2.21 (modified and updated)

Example

06.04.2003 X acquires a lease of a property on assignment for a payment of €16,200 (including expenses of acquisition) and an annual rent of €1,200.

At that date, the lease (which was originally for 99 years) has exactly 21 years to run.

06.04.2009 She sublets part of the property for a premium of €4,000 and an annual rent of €800 for a period of 16 years to 5 April 2025.

Income tax computation:

Premium received

4,000

Less €4,000 x (16 – 1)/50

1,200

Schedule D liability on

2,800

For the purposes of the capital gains tax computation, assume:

(a) The value of the head lease at 6 April 2009, €24,000.

(b) The amount included in (a) for the part of the property sublet €8,000.

(c) The amount of the premium which would have been obtainable if the rent payable under the sub-lease were equal to that part of the rent payable under the head lease which is applicable to the property sublet €5,000.

Proceeds (2009)

4,000

Less

Acquisition cost

5,400

Less wasted part of cost*

1,266

Allowable cost (2003)

4,133

4,133 x (4,000/5,000)

3,307

3,307

693

Less taxed under Schedule D

2,800

Chargeable gain or allowable loss

Nil

Note

1. The part of the total cost to X attributable to the property sublet is:

(value of part sublet/value of whole) x cost = (8,000/24,000) x 16,200 = 5,400

2. Table percentages: 21 years = 74.6; 18 years = 68.7; 2 years = 11.6. Sublease of 21 years = 68.7 – 11.6 = 57.1 = P(3)

*Wasted part of cost is calculated as:

(P(1) – P(3)) / P(1) = (74.6 – 57.1) / 74.6 x €5,400 = €1,266

3. The fraction for actual premium/ notional full premium = 4,000/ 5,000

Source: Inspector Manual 19.2.21 (modified and updated)

Example

29.09.1996 X takes a lease of a property for 21 years for a premium of €12,600. X incurs incidental expenditure of €200 on the acquisition, making the total cost €12,800.

29.09.2003, X grants a sub-lease for a period of 7 years for a premium of €1,000 and a rent equal to that payable by him under the head lease.

Income tax computation:

X is entitled to a deduction in respect of the premium he paid for the head lease. The annual deduction is (30/50) x (1/21) x €12,600 = €360

Premium received

1,000

Less €1,000 x (7 – 1)50

120

880

Less deduction for premium paid, 7 years at €360 a year

2,520

Schedule D allowance available over 7 years

1,640

CGT computation:

Proceeds (2003):

1,000

Less

Acquisition cost

12,800

Less wasted part of cost*

8,750

Allowable cost (1996-97)

4,050 no indexation

4,050

Loss

3,050

Reduce by Schedule D allowance

1,640

Loss allowable against capital gains

1,410

Note

Table percentages: 14 years = 59.0; 7 years = 35.4. Sublease of 7 years = 59.0 – 35.4 = 23.6 = P(3)

*Wasted part of cost is calculated as:

(P(1) – P(3)) / P(1) = (74.6 – 23.6) / 74.6 x €12,800 = €8,750

(7.2) The general rule (section 551) that prevents revenue type income receipts from being treated as consideration chargeable to capital gains tax does not apply to income treated as arising on the assignment of lease granted at undervalue (section 99).

(7.3) An income tax charge arising on a sale of land with a right to reconveyance may be estimated. Where, for example, the resale price varies with the resale date, it is taken as the lowest possible price under the terms of the sale. This estimated tax charge may, within six years of the resale date, be adjusted on the basis of the facts as they occurred (section 100(2)).

Where a variation of this kind to an income tax charge also affects the capital gains charge (see para 6), the appropriate adjustment must be made to the capital gains charge.

Example

01.07.2002 X acquires a freehold property for €20,000 (including expenses of acquisition).

01.07.2003 She sells the property for €25,000, subject to a right of repurchase at any time within three years after 30 June 2011, for €12,000.

Income tax computation:

Sale price

25,000

less repurchase price

12,000

Deemed premium

13,000

Less €13,000 x (10-1)/50

2,340

Schedule D liability on

10,660

CGT computation:

X is regarded as having made a part disposal of her interest in the land on 1 July 2002. Assume the value as at that date of her right of repurchase is agreed to be €6,000.

Proceeds (2003)

25,000

less taxed under Schedule D

10,660

14,340

Less part cost

€20,000 x 14,340 / (25,000 6,000) =

9,252 x 1.341

12,406

Chargeable gain

1,934

The remainder of the cost of the property, €10,748 (i.e., €20,000 – €9,252) represents the cost of the right retained. The cost of the property after repurchase will therefore be €22,746 (i.e., €10,748 + €12,000).

Where repayment of income tax is made in the circumstances contemplated by (b) of section 100(2), the capital gains tax computation is to be revised to take account only of the net amount of Income Tax borne.

Source: Inspector Manual 19.2.21 (modified and updated)

Example

X acquires a freehold property for €50,000 (including expenses of acquisition).

In 2009, X disposes of the freehold to Y in consideration of a sum of €45,000 together with the immediate grant by Y to X of a lease of the property for 99 years at a rent of €5,000 per annum. The market value of the lease is agreed with the taxpayer to be €10,000.

The transaction is a part disposal by X (the leasehold interest being retained and the freehold subject to the lease being disposed of) and the chargeable gain (subject to any allowable incidental expenses on the disposal) is computed as follows:

Proceeds (2009)

45,000

Less part cost allowable

€50,000 x 45,000 / (45,000 10,000) =

40,910

Allowable loss

4,090

Source: Inspector Manual 19.2.21 (modified and updated)

Example

The facts are the same as above except that the consideration for the disposal of the freehold is €54,000 (instead of €45,000) and X agrees to pay Y a rent of €6,000 per annum which is equal to the rent which would have been charged on the grant of a lease for the same period at no premium.

The market value of the lease would then be nil (instead of €10,000) The gain on the part disposal is the same as if the transaction had been dealt with as a full disposal, namely:

Proceeds (2009)

54,000

Less part cost allowable

€50,000 x 54,000 / 54,000 Nil =

50,000

Allowable loss

4,000

Source: Inspector Manual 19.2.21 (modified and updated)

Example

06.04.2003 C acquires by assignment, in consideration of a sum of €7,500 (including expenses of acquisition), a lease which then has sixty years to run. The rent payable under the lease is €800 per annum.

06.04.2009 C assigns the lease to D in consideration of a sum of €15,000 together with the immediate grant by D to C of a sub-lease of the property for twenty-one years at a rent of €1,800 per annum. The market value of the sub-lease held by C is agreed at €2,000.

The transaction is a part disposal by C of an asset which, at the time of disposal, is a “wasting asset” and the gain (subject to any allowable incidental expenses an the disposal) is computed as follows:

CGT computation:

Proceeds (2009)

15,000

Less:

Original cost

7,500

Less wasted part €7,500 x (100 – 95.5)/100

338

Amount allowable

7,162

Part allowable (2003)

€7,162 x 15,000 / (15,000 2,000)

6,320

Gain

8,680

Note

The balance of the cost attributable to the sub-lease held by C is €842 (€7,162 less €6,320), which should be “wasted” over the 21 years from 6 April 2003, in any computation on a subsequent disposal of the sub-lease.

Source: Inspector Manual 19.2.21 (modified and updated)

What income tax and capital gains tax implications arise where a lease contains terms under which the tenant is obliged to carry out work on a premises?

(8) Under income tax rules, where a lease contains terms under which the tenant is obliged to carry out work on the premises, the landlord is deemed to have received (in addition to the premium) an amount equal to the value of the tenant’s work on the premises. In other words, the initial premium is increased by the value of any work which the tenant promises to undertake (section 98(2)).

For capital gains tax purposes, the landlord is treated as having incurred enhancement expenditure equivalent to the value of the work done by the tenant.

(9.1) The following rules are used to ascertain the duration of a lease of land for capital gains tax purposes.

(9.2) If the terms of a lease provide that the landlord, by notice, determines its length, the lease will not be treated as lasting longer than the earliest date determinable by the landlord.

(9.3) If a term of the lease, or a circumstance, makes it unlikely that the lease will last its full length, the lease is treated as made for a period ending on the likely expiration date. This rule applies particularly to leases with periodic rent increases, and leases under which the tenant’s obligations are expected to become more onerous after a given date, where the renewal terms make it unlikely that the tenant will renew the lease at the review date.

(9.4) If the lease terms provide that the tenant may by notice extend its length, the lease will be treated as extending as long as determinable by the tenant (but this rule is overruled by the landlord’s right to determine the length of the lease).

(9.5) The duration of a lease is to be determined by reference to the facts known or ascertainable when the lease was granted or created.

(10.1) These capital gains tax lease rules (apart from paras 1, 2 and 6-8) apply to property other than land.

(10.2) A lease of movable property which is a wasting asset is assumed to end not later than the life of the wasting asset.

The following miscellaneous examples relate to mergers of leases with freehold.

Example

06.04.2003 X acquires a 25 year lease of a property for €16,220 (including expenses of acquisition).

06.04.2005 She acquires the freehold for €15,000 (including expenses).

06.04.2009 X sells the property for €42,000.

The chargeable gain (subject) to expenses of sale) is computed as follows

Proceeds (2009)

42,000

Less cost of lease

16,220

Less wasted part of cost*

3,900

Allowable cost of lease (2003)

12,330

Add cost of freehold (2004)

15,000

27,330

Overall gain

14,670

Note

Table percentages: 25 years = 81.1 = P(1); 15 years = 61.6 = P(3)

*Wasted part of cost is calculated as:

(P(1) – P(3)) / P(1) = (81.1 – 61.6) / 81.1 x €16,220 = €3,900

Source: Inspector Manual 19.2.21 (modified and updated)

Example

06.04.2003 X acquires, by assignment to him for €19,200 (including expenses), a lease of a property which has 41 years to run. The lease is subject to a 21 year lease granted on 6 April 1987, at a rack rent.

06.04.2005 He pays €6,000 to the sub-lessee for his rights under the sub-lease. The sub-lease becomes merged in the head lease.

06.04.2009 He assigns his rights under the head lease for €50,000 (net after expenses of disposal).

As the original lease was subject to a sub-lease at rack rent, Schedule 14 para 2(2) does not apply and the original expenditure of €19,200 is deemed to “waste” from 6 April 2003 to 6 April 2009.

Capital gains tax computation:

Proceeds (2009)

50,000

Original expenditure

19,200

Less part not allowable*

1,520

Allowable cost (1993-94)

17,680

17,680

Expenditure on extinguishing sub-lease

6,000

Less part not allowable**

285

Allowable cost (2005)

5,715

5,715

23,395

Chargeable gain

26,605

Note

*Table percentages: 41 years = 96.0 = P(1); 31 years = 88.4 = P(3)

Wasted part of cost is calculated as:

(P(1) – P(3)) / P(1) = (96.0 – 88.4) / 96.0 x €19,200 = €1,520

**Table percentages: 36 years = 92.8 = P(1); 31 years = 88.4 = P(3)

Wasted part of cost is calculated as:

(P(1) – P(3)) / P(1) = (92.8 – 88.4) / 92.8 x €6,000 = €285

Source: Inspector Manual 19.2.21 (modified and updated)

Example

06.04.2003 X acquires for €7,460 the balance of a lease which then has 21 years to run.

06.04.2005 X acquires for €2,320 the immediately superior leasehold interest which then has 30 years to run.

06.04.2005 He assigns his rights for €15,000 (net after expenses of disposal).

Capital gains tax computation:

Proceeds (2009)

15,000

Less:

Original expenditure

7,460

Less wasted part*

1,050

Balance

6,410

Less wasted part**

455

Allowable cost (2003)

5,955

5,955

Consideration for superior lease

2,320

Less wasted part***

165

Allowable cost (2005)

2,155

2,155

8,120

Chargeable gain

6,880

Note

*(74.6 – 64.1) / 74.6 x €7,460

**(87.3 – 81.1) / 87.3 x €6,410

***(87.3 – 81.1) / 87.3 x €2,320

Schedule 15 List of bodies for purposes of section 610

Schedule 16 Building societies: change of status

Schedule 17 Reorganisation into companies of trustee savings banks

Schedule 17A Accounting standards

What are “relevant accounting standards”?

(1) This Schedule sets out transitional arrangements to deal with double-counting and non-counting of profits for tax purposes where a company changes the basis on which its accounts are prepared from generally accepted accounting practice (GAAP) to international financial reporting standards (IFRS). Three areas which could give rise to difficulty are addressed:

(a) amounts receivable and amounts deductible,

(b) bad debts,

(c) gains and losses on financial assets.

The term relevant accounting standards is used to denote IFRS and Irish GAAP in so far as it reflects IAS.

(2.1) A figure for non-counting of profits and non-counting of expenses is calculated, and this amount is referred to as a deductible amount. A figure for non-counting of profits and double-counting of expenses is also calculated, and this amount is referred to as a taxable amount.

(2.2) If the taxable amount exceeds the deductible amount, the excess is treated as a trading receipt, arising in five equal instalments, the first instalment of which arises in the first IFRS accounts period. The amount is to be charged in accounting periods falling wholly or partly within the five year period beginning with the start of the accounting period in which the change is made.

If any of those instalments falls into the company’s last accounting period, any “unused” instalments are brought forward and made taxable in that period.

(2.3) If the deductible amount exceeds the taxable amount, the excess is treated as a deductible trading expense arising in five equal instalments, the first instalment of which arises in the first IFRS accounts period. The amount is to be treated as deductible in accounting periods falling wholly or partly within the five year period beginning with the start of the accounting period in which the change is made.

If any of those instalments falls into the company’s last accounting period, any “unused” instalments are brought forward and made deductible in that period.

(2.4) To the extent that an increase or decrease in the value of a financial asset is taxed (or relieved) under paragraph 4, it is not taxed (or relieved) under this paragraph.

Example

In the year ended 31 December 2008, your firm receives an up front payment of €300,000 in respect of a three year contract. Under existing Irish GAAP, it is recognised as arising, and taxed, on receipt. Under IFRS, it is treated as arising over the period of the contract.

2008 2009 2010 2011 2012
Irish GAAP 300,000
IFRS 100,000 100,000 100,000

The deductible amount is €200,000, i.e, the additional 2 X 100,000 that would be subject to tax under IFRS in 2009 and 2010, which would not otherwise be taxable. This is spread in five equal instalments as follows:

2008 2009 2010 2011 2012
Taxable 300,000 100,000 100,000
Deductible (40,000) (40,000) (40,000) (40,000) (40,000)
260,000 60,000 60,000 (40,000) (40,000)

The net taxable amount over the five years remains €300,000.

Example

Your company uses IFRS from 1 January 2008. You prepare accounts to 31 December. Your opening (general) bad debts provision, or joining, is €20,000. At 31 December 2008, your current bad debt provision is €15,000. The excess (€5,000) is deductible in 2008.

(3.1) It is normal accounting practice in the case of a trading company which extends credit to provide for doubtful debts. The provision typically has two parts: a general provision (for example, 2% of the value of outstanding debt) and included within that a more specific provision – composed of amounts owned by specific debtors which are unlikely to be collected. Accordingly, an increase in the specific provision results in a further deduction for tax purposes, while a decrease in the specific provision results in a taxable amount for tax purposes. Under existing tax rules, only a specific bad debt provision is tax deductible. A general provision for bad debts (current bad debts provision) is not tax deductible. Accordingly, any increase or decrease in the general provision is ignored for tax purposes.

(3.2) This rule applies where a company prepares its accounts under international financial reporting standards (IFRS).

(3.3) In a case where the level of its general provision for bad debts at the start of its first IFRS period (opening bad debts provision) exceeds its current bad debts provision (or specific bad debts provisions, if higher), the excess is allowed as a deductible trading expense for that period.

(4.1) This paragraph deals with gains and losses on financial instruments, i.e, financial assets and liabilities. Under IFRS rules, an increase value of such an asset is treated as a gain, and a decrease is treated as a loss, even though such gains and losses may not have been realised.

Where a company changes the basis on which it prepares its accounts to IFRS rules, there is a potential for double counting and non-counting of unrealised gains and losses.

A figure, known as a deductible amount is calculated, and this consists of a company’s:

(a) unrealised losses that might not be counted,

(b) unrealised gains that might be double counted,

under IFRS for tax purposes.

A second figure, known as a taxable amount, is calculated, and this consists of a company’s:

(a) unrealised gains that might not be counted,

(b) unrealised losses that might be double counted,

under IFRS for tax purposes.

(4.2) If the taxable amount exceeds the deductible amount, the excess is treated as a trading receipt arising in five equal instalments, the first instalment of which arises in the first IFRS accounts period. The amount is to be charged in accounting periods falling wholly or partly within the five year period beginning with the start of the accounting period in which the change is made.

If any of those instalments falls into the company’s last accounting period, any “unused” instalments are brought forward and made taxable in that period.

Example

You are a financial firm which changes to IFRS from 1 January 2008. At 31 December 2008, your balance sheet shows a financial asset worth €200,000; the same asset was worth €150,000 on 1 January 2008. The unrealised gain is therefore €50,000 and this is treated as profit under IFRS.

If we assume the asset cost €180,000 in July 2007, then the “actual” gain (although still unrealised) is €20,000. The “loss” of €30,000 which might not otherwise be counted (i.e., the fall in value from €180,000 to €150,000) is a deductible amount. When set against the €50,000, the net gain is reduced to the actual (unrealised gain) of €20,000.

(4.3) If the deductible amount exceeds the taxable amount, the excess is treated as a deductible trading expense arising in five equal instalments, the first instalment of which arises in the first IFRS accounts period. The amount is to be treated as deductible in accounting periods falling wholly or partly within the five year period beginning with the start of the accounting period in which the change is made.

If any of those instalments falls into the company’s last accounting period, any “unused” instalments are brought forward and made taxable in that period.

(4.4) This anti-avoidance provision is designed to stop companies trying to circumvent the “five-year spreading” rule in (2) and (3). In the absence of such a provision, a company would have an incentive to avoid the five year rule by “crystallising” actual losses before the move to IFRS. This would mean the benefit of the losses would be obtained immediately instead of being spread.

The rule (see (5)) therefore applies where a company, in the six month period before moving to IFRS, sells securities and replaces them with similar securites within the period beginning four weeks before, and ending four weeks after, the disposal date.

Disposals before 1 January 2005 are ignored.

(4.5) The loss arising under (4) is treated as arising in five equal instalments, the first instalments of which arises in the first IFRS accounts period. The loss is to be allowed in accounting periods falling wholly or partly within the five year period beginning with the start of the accounting period in which the change is made.

If any of these instalments falls into the company’s last accounting period, any “unused” instalments are brought forward and treated as accruing in that period.

Schedule 18 Accounting for and payment of tax deducted from relevant payments and undistributed relevant income

This Schedule relates to income and gains accruing between 6 April 1990 and 5 April 1994; such income and gains are attributed to the unitholder. The collective investment undertaking pays no tax but must deduct withholding tax (like deposit interest retention tax) at the standard rate from any income paid to the unitholders. This Schedule ensures that retention tax deducted by collective investment undertakings from payments to investors is collected in a manner broadly similar to the manner in which deposit interest retention tax is collected from banks.

For gains accruing from 6 April 1994, income and gains are taxed at source on the undertaking for collective investment (section 738) at the standard rate of income tax. However, specified collective investment undertakings (section 734(1)) do not pay this tax, or withholding tax. Their income remains taxed at the level of the unitholders, who, being non-residents, also pay no tax.

(1.1) These rules apply to the collection of withholding tax which a collective investment undertaking has deducted from payments made to its Irish resident unitholders.

(1.2) A collective investment undertaking must complete a retention tax return for each tax year and file it with the Collector-General within 15 days of the end of the tax year (i.e., before 20 April). The retention tax return must show the amounts due to the unitholders and the retention tax on those amounts.

(1.3) The tax shown due on the retention tax return is to be self-assessed and paid by each collective investment undertaking on or before the due date for the return. There is no need for an inspector to estimate and assess tax due, unless the tax has not been paid by the due date.

(1.4) Inspectors retain the right to estimate and assess any retention tax underpaid. Interest on tax underpaid accrues from the payment due date.

(1.5) An inspector of taxes can make any assessments, adjustments or set-offs necessary to recover any unpaid or underpaid retention tax.

(1.6) If there is no appeal against the assessment, tax assessed or estimated by an inspector is due within one month of the date of the notice of assessment.

That due date does not displace any earlier payment date. Any tax found, on appeal, to have been overpaid must be repaid.

(1.7) The tax collection procedures (Part 42) are available to the Collector-General to enforce payment of any unpaid retention tax and interest.

The tax appeal procedures (Part 40) are available to an undertaking which disputes any amount of retention tax due. The Appeal Commissioners must hear and determine such an appeal as if it were an appeal against an income tax assessment. The appellant has a right, where necessary, to have his/her case reheard by a Circuit Court Judge. He/she also has a right to have a case stated for the opinion of the High Court on a point of law.

Interest on tax underpaid is charged at 0.0273% for each day or part of a day the tax remains unpaid.

Such interest is not an “annual payment” from which income tax must be withheld by the payer at the standard rate. It is a debt due to the Minister for Finance, for the benefit of the Central Fund, and is payable to the Revenue Commissioners.

Unpaid interest is treated as a part of the outstanding tax. In bankruptcy or liquidation proceedings, unpaid interest ranks equally with unpaid tax for payment in priority to other debts.

In any court proceedings to collect unpaid interest, a certificate signed by the Collector-General stating that an amount is due is evidence, until the contrary is proved, that the amount is so due. Such a certificate may be tendered in evidence without proof, and is deemed, until the contrary has been proved, to have been signed by the Collector-General.

(1.8) Yes. The retention tax return must be made on the appropriate Revenue return form. As the person completing the return, you must sign a declaration that the return is correct and complete.

What information statement must accompany payments to a underholder in receipt of payments from a collective investment undertaking?

(2) A collective investment undertaking (other than a specified collective investment undertaking) must, on making a payment which is subject to retention tax to a unitholder, give the unitholder a statement showing:

(a) the gross payment,

(b) the retention tax deducted from the payment,

(c) the net payment,

(d) the payment date,

(e) any other information needed to enable the correct tax payable by the unitholder on the payment to be determined.

Schedule 18A Restriction on set-off of pre-entry losses

How is the use of pre-entry losses by a group of companies restricted?

(1.1) This Schedule, which is similar to the loss-buying rules for income tax and corporation tax (section 401 andSchedule 9), counteracts use by a group of companies (the relevant group) of an acquired capital loss (pre-entry loss).

Example

Group X acquires a new subsidiary Y Ltd which is carrying an allowable loss of €500,000.

Group X is the relevant group. Y Ltd’s loss is a pre-entry loss, since the loss accrued before it joined Group X.

See Shepherd v Lyntress Ltd [1989] STC 617.

(1.2) There are two types of pre-entry loss:

(a) a realised loss, i.e., an allowable loss that accrued to a company before it joined the relevant group, or

(b) an unrealised (“latent”) loss, i.e., the pre-entry proportion of an allowable loss realised after entry to the group on disposal of a pre-entry asset.

For the calculation of (b) see para 2.

(1.3) A pre-entry asset is an asset held by a company immediately before it joined the relevant group, i.e., immediately before the relevant event occurred in relation to the company (see (3A) below).

Example

Group X acquires a new subsidiary Z Ltd which owns an asset (building) worth €500,000.

Group X is the relevant group. Z Ltd’s asset is a pre-entry asset, since the asset is owned by X Ltd before it joined Group X.

If the building is transferred to S Ltd (another Group X subsidiary) at no gain/no loss, and subsequently sold by S Ltd at a loss, that loss is a pre-entry loss.

(1.3A) An asset is a chargeable asset in relation to a company, if a chargeable gain would arise to the company on its disposal of the asset.

The relevant event means when a company joins a group. In the case of an asset being transferred to an Irish resident SE or SCE on its formation as part of a merger, it means when the asset became a chargeable asset in relation to:

(a) the SE/SCE, or

(b) the company which ceased to exist on the formation of the SE/SCE.

In the case of a company resident in the State it means when the company joined the relevant group, or when it joined the group with a chargeable asset.

In the case of a non-resident company it means when the company became resident in the State, or when it joined the group with a chargeable asset, whichever occurs first.

The company chargeable gains rules in sections 615 to 624, were revised by Finance Act 2001 section 38, to allow transfers of assets involving an Irish branch of an EU resident company to be treated on a tax neutral basis.

The concept of “the relevant event” aligns the rules in Schedule 18A (which disallows capital losses of an acquired company in the hands of the acquiring company) with changes to the company chargeable gains rules.

No tax is charged when the asset is transferred but the receiving company is treated as having acquired the asset at the cost to the transferring company. The receiving company will then have a chargeable gain when it disposes of the asset.

(1.4) An asset is not a pre-entry asset if:

(a) the asset is disposed of by a group member other than the company which brought the asset into the relevant group, and

(b) the asset, since coming into the relevant group has been the subject of an intra-group disposal to which the no gain/no loss rule (section 617) did not apply.

In other words, if the company that brought the asset into the group crystallises a gain or loss on the disposal of the (entire) asset, the loss restrictions do not apply to a further disposal of the asset by a different group member

Example

Continuing with the previous example, assume that the disposal of the building by Z Ltd to S Ltd crystallised an allowable loss which was used by Z Ltd against its chargeable gains.

The loss restrictions do not apply to a subsequent disposal of the building by S Ltd.

If the company that brought the asset into the group crystallises a gain or loss on the part disposal of the asset (i.e., retains any interest in the asset concerned), the asset remains a pre-entry asset.

Example

Continuing with the previous example, assume that Z Ltd leased the building to S Ltd (i.e., made a part disposal of the building) and crystallised an allowable loss which was used by Z Ltd against its chargeable gains.

The loss restrictions do apply to a subsequent disposal of the building by S Ltd.

(1.5) The relevant time is the time a company holding a pre-entry asset joins the relevant group, and:

(a) if a company leaves and later rejoins the same group more than once, an asset brought into the group on any of those occasions is a pre-entry asset,

(b) in the case of assets brought into the group on more than one of those occasions, the company is regarded as joining the group on the latest such occasion.

(1.6) Where the principal company (section 616(1)) of one group (the first group) joins another group (the second group), so that the two groups are regarded as one CGT group (section 616(3)), the members of the first group are treated as becoming members of the second group at that time.

The members of the first group are not regarded as having joined the enlarged group at the time mentioned in section 616(3), i.e., at the time they originally joined the first group.

In other words, subsidiaries of a taken-over group parent join the enlarged group at the same time as the parent. Their time of joining is not back-dated (as it would otherwise be) to the time they joined the taken-over group.

(1.7) The rule in (6) does not apply where:

(a) the same persons own the share capital of the principal company before and after the time it joins the second group, and

(b) the second group’s new principal company was not previously the principal company of any group, and the new principal company’s assets consist entirely (or almost entirely) of its shares in the first group’s principal company.

In other words, if a group reconstruction results in a new company being introduced as the principal company of an existing group, the group members are not treated as joining at the time of the new holding company. Their original dates for joining the group are allowed to stand.

Example

Group P is subjected to a reconstruction. The shares of group P’s principal company, Q Ltd, are acquired by a newly formed holding company, R Ltd. The new group is to be called Group Q.

The same persons own the share capital of P Ltd before and after the reconstruction.

Q Ltd, the Q group’s new principal company was not previously the principal company of any group. Its only assets are its shares in P Ltd.

The original members of the Group P (now members of Group Q) are regarded as having joined Group Q at the time they joined Group P.

(1.8) If the value of an asset (the second asset) held by a group company derives, in whole or in part, from the value of a pre-entry asset (the first asset) held at an earlier time by a group member, the second asset is also treated as a pre-entry asset.

This applies in particular where the first asset is a lease, and the second asset is the freehold of the same property, the lessee having acquired the freehold reversion.

Example

A Ltd joins the A group holding a leasehold interest in a building.

The lease is transferred at no gain/no loss (section 613) to B Ltd, another company in the A group, which subsequently acquires the freehold reversion, and then sells the freehold at a loss to an unconnected third party.

The loss is a loss on the disposal of a pre-entry asset.

What rules apply to determine if losses arising on the deemed disposals of life business assets and of CIUs are pre-entry losses?

(1.9) In determining whether a loss accruing on:

(a) the annual deemed disposal of life business fund assets (section 719),

(b) the annual deemed disposal of assets of an undertaking for collective investment (section 738(4)(a)),

is a pre-entry loss, the spreading rules in sections 720 and 738(4)(b) are ignored.

Where a company disposes of a pre-entry asset at a loss, how is the loss apportioned to the pre-entry asset?

(2.1)-(2.2) The pre-entry proportion of an allowable loss on the disposal of a pre-entry asset is calculated by reference to the lower of:

(a) The allowable loss that would have arisen had the asset been disposed of at market value at the time of entry to the group (i.e., at the relevant time: para 1(5)), and

(b) the allowable loss.

Allowable loss means after allowing for indexation (section 556).

Market value means the price the asset would fetch on sale in the open market (section 548).

(3.1) A company joining a group may only set an actual pre-entry loss, (i.e., a pre-entry loss which has already been realised) against:

(a) gains on disposals made by that company before the company joined the group, but within the accounting period containing the date on which the company joined the group (the entry date),

(b) gains on disposals of assets held by the company before joining the group,

(c) gains on disposals of assets acquired by the company after the entry date from outside the group and used exclusively for a trade carried on by the company before and after the entry date.

Example

On 1 May 2009, within its accounting period ended 31 December 2009, D Ltd realised a gain of €500,000 on a disposal of an asset.

On 30 June 2009 (the entry date), D Ltd joins the E group, bringing with it a pre-entry loss of €800,000.

The pre-entry loss of €800,000 may be set against the pre-entry chargeable gain of €500,000.

What are the rules on the use of unrealised pre-entry losses against gains where a company joins a group?

(3.2) A company joining a group may only set a latent pre-entry loss, (i.e., the pre-entry proportion of an as yet unrealised loss) against:

(a) gains on disposals made by that company (the initial company) before the company joined the group, but within the accounting period containing the date on which the company joined the group (the entry date),

(b) gains on the disposal of an asset, held by the company at the same time as the pre-entry asset, before joining the group,

(c) gains on the disposal of assets acquired by the company after the entry date from outside the group and used exclusively for a trade carried on by the company before and after the entry date.

Example

01.05.2009 Within its accounting period ended 31 December 2009, D Ltd realised a gain of €500,000 on a disposal of asset X.

30.06.2009 (the entry date), D Ltd joins the E group, bringing with it asset Y, (a pre-entry asset) which holds a latent, i.e., unrealised, loss of €800,000.

31.08.2009 D Ltd sells asset Y, crystallising a loss of €1,000,000.

The pre-entry proportion of the loss (i.e., €800,000) may be set against the pre-entry chargeable gain of €500,000.

(3.3) If two or more companies that are already in a group relationship join a new group, loss relief is still available within the previous group relationship. In other words, a pre-entry loss may be set against a gain:

(a) on a disposal of an asset held by the old group,

(b) on a disposal of an asset, held by the old group at the same time as the pre-entry asset, before joining the new group,

(c) on a disposal of assets acquired by the old group, after the entry date, from outside the new group and used exclusively for a trade carried on by the old group before and after the entry date.

Example

X Ltd, Y Ltd and Z Ltd together leave the A group and join the B group.

X Ltd holds asset F which is disposed of at a loss.

Y Ltd holds asset G which is disposed of at a gain.

Depending on the pattern of no gain/no loss transfers within the L group, the loss on asset F and the gain on asset G may both be crystallised in X Ltd, Y Ltd or Z Ltd.

The pre-entry proportion of the loss on asset F is deductible from a gain on asset G.

This applies, for example, where two or more companies leave one group and join another group at the same time.

(4.1) This anti-avoidance rule applies if within any three year period there is:

(a) a major change in the nature of a company’s business (see (2)) and the company is acquired by the group, or

(b) in the case of a company whose business has become small or negligible, the company is acquired by the group before the business is revived.

Example

(a) is intended to strike at the case where, following a change in ownership, the company’s trading activities are close enough to its previous business to make it difficult to establish to the satisfaction of the Appeal Commissioners (or the Circuit Court Judge) that there has been a cessation of one trade and the commencement of another.

For example, a company which formerly specialised in building houses might be taken over by a building group and fed with factory-building contracts.

A local draper’s shop might on take-over be developed into a branch of a multiple general outfitter.

(b) is intended primarily to strike at the integration of a loss-bearing company in a vertical group, but it applies generally where, following a take-over, there is a major change in the company’s customers, outlets or markets.

Source: Inspector Manual 12.3.5

An allowable loss incurred by the company for an accounting period beginning before being acquired by the group (including the “accounting period” ending with the acquisition date) cannot be used against other group members’ chargeable gains arising after that date.

See Bromarin AB and Anor v IMD Investments Ltd, [1999] STC 301.

(4.2) A major change in the nature or conduct of a trade or business would, for example, include a major change in customers, markets, property dealt in, or services provided. It would also include a trading company becoming an investment company, an investment company becoming a trading company, and a major change in the nature of investments made by an investment company.

A company decision to sell its products through a distribution company rather than direct to customers was held not to be a major change in the conduct of the trade: Willis v Peeters Picture Frame Ltd, [1983] STC 453.

The effect of the change on the taxpayer’s trade is taken into account in deciding whether the change is “major”:Pobjoy Mint Ltd v Lane, [1984] STC 327; Purchase v Tesco Stores Ltd, [1984] STC 304.

(4.3) An inspector may make an assessment within 10 years of the date on which the company is acquired by the group.

What are the rules on the use of group losses in cases of reconstruction and amalgamation in circumstances where a company leaves a group and joins another?

(5) When a company leaves one group and joins another, the shares in the company may be disposed of on a share-for-share basis (for example, on a company reconstruction or amalgamation: sections 584587), giving rise to no gain/no loss.

The losses accrued before the change of group, and assets held at the time of the change, are treated as if any membership period with the old group were included in the period of membership with the new group.

Example

A Ltd has subsidiary B Ltd which has subsidiary C Ltd.

As part of a scheme of reconstruction (section 584), A Ltd transfers B Ltd to D Ltd, which is not a member of the A group, at no gain/no loss. B Ltd and C Ltd both leave the A group and join the D Ltd group.

The period for which B Ltd was a member of the A group is treated as a period when it was a member of the D group.

The period for which C Ltd was a member of the A group is treated as a period when it was a member of the D group.

Schedule 18B Tonnage tax

How is a tonnage tax election made?

(1) A tonnage tax election must be made to the Revenue Commissioners on the prescribed form.

(2.1) A company may elect for tonnage tax within 36 months of the commencement date (the initial period).

(2.2) After the initial period, a company may only elect for tonnage tax in the circumstances mentioned in (3) and (4).

(2.3) A company that became a qualifying company after the initial period may elect for tonnage tax within 36 months of becoming a qualifying company. This only applies if the company was not previously a qualifying company.

(2.4) A group that became a qualifying group may elect for tonnage tax within 36 months of becoming a qualifying group. This only applies if the group was not previously a qualifying group or is not substantially the same as a previous qualifying group.

This could arise where a qualifying group became non-qualifying in the initial period by divesting itself of its shipping interest and then became qualifying by by buying most of those interests back. Such a group would be “substantially” the same group as before (Revenue Guidance Notes).

(2.5) This rule, which generally prevents a tonnage tax election being made outside the initial period, does not apply in the case of certain mergers and reconstructions etc (see Part 4).

(2.6) The Minister for Finance can vary or extend the period within which a tonnage tax election may be made

(3.1) A tonnage tax election takes effect from the first day of the accounting period in which it is made.

(3.2) A tonnage tax election may not be made for an accounting period beginning before 1 January 2002. If made for such a period, the election takes effect from the start of the accounting period which follows the period in which the election was made.

(3.3) Revenue may allow a tonnage tax election made within the initial period to take effect for an accounting period earlier than the period in which it is made. The earliest date on which an election can take effect is 1 January 2002.

(3.4) Revenue may allow a tonnage tax election made within the initial period to take effect for an accounting period following the period in which it is made. In exceptional circumstances, where it is commercially impractical for the election to take effect, they may allow the election to take effect from the beginning of the following accounting period.

Postponement might arise, for example, where a group carries out a reorganisation for tonnage tax and does not want the election to take effect until the reorganisation is complete.

Further postponement might arise where contractual arrangements make it impossible to unravel in time to meet the limit on chartered-in shipping, or in circumstances of unusually complex restructuring (Revenue Guidance Notes).

(3.5) In a group election, the rules in (1), (3) and (4) apply in relation to each qualifying company in the group by reference to that company’s accounting periods.

(3.6) In general a tonnage tax election takes effect from the time the company becomes a qualfiying company. However this does not apply if the company exceeds the 75% limit on chartered-in ships in the first and second accounting period following the election. In such a case, the election only applies for subsequent accounting periods.

(4.1) Unless the election ceases to have effect (see (2), (3) and para 6(3)), a tonnage tax election lasts 10 years.

(4.2) A tonnage tax election ceases if the company ceases to be a qualifying company or the group ceases to be a qualifying group.

(4.3) A tonnage tax election can be ceased where a company merger or reconstruction takes place.

What are the implications if a tonnage tax election ceases?

(5) When a tonnage tax election ceases, it ceases to apply to any company.

(6.1) A company or group that has a tonnage election in place may make a renewal election.

(6.2) A renewal election is treated in the same manner as an original tonnage tax election.

(6.3) A renewal election replaces an original tonnage tax election.

(7.1) These rules apply where a company temporarily ceases to operate a qualifying ship.

This is to allow a company which temporarily ceases to operate qualifying ships to remain witin tonnage tax. This might apply, for example, where a small company loses its only ship at sea. In such circumstances, the company could be excluded from tonnage tax for 10 years (section 697O) (Revenue Guidance Notes).

(7.2) These rules do not apply in the case of a company which continues to operate a ship which temporarily ceases to be a qualifying vessel.

(7.3) During a temporary cessation of use of any qualifying ships, the company can notify Revenue that it intends to resume operating such ships and to remain within the tonnage tax system. It is then treated as if it had continued to operate the ships it operated before the temporary cessation.

(8.1) A company is treated, for tonnage tax purposes, as operating any ship which it owns or which it charters in.

(8.2) A company is not treated as operating a ship if it has only chartered part of that ship. A company does not fail this test if it jointly charters a ship with one or more persons.

(8.3) Where a company charters a ship out on “bareboat terms”, it is not considered to own it.

(8.4) A company is treated as continuing to operate a qualifying ship which is chartered out on bareboat terms to athird party, i.e., any other person, or in the case of a group a group member which is not in the tonnage tax system or a non-group member.

(8.5) A company is treated as continuing to operate a qualifying ship which is chartered out on bareboat terms if the charter term is less than three years and the chartering out is caused by short term overcapacity.

(8.6) A company is treated as operating a qualifying ship if it contracts to provide shipping management services for a stated period under the following terms:

(a) it owns and controls the ship,

(b) it controls the day to day management of the ship, and has the right to appoint the master and crew, and plan the route,

(c) it controls the technical management of the ship and makes decisions as to repairs and maintenance,

(d) it controls the safety management of the ship and ensures all safety and survey certificates are up to date,

(e) it controls the training of the ships officers and crew,

(f) it manages the provision of stores and food for the ship,

and those terms are implemented for the period in question.

This is to ensure that real economic activity takes place before shipping management services can qualify for tonnage tax. The intention is to minimise the provision of “brass plate” style operations. All elements must be present in order for the company to be regarded as operating a qualifying ship. (Revenue Guidance Notes).

(9.1) A qualifying ship does not include a vessel of an excluded kind, i.e., a fishing vessel, pleasure craft, harbour or river ferry, offshore rig, tanker, dredger or non-seagoing tug.

A qualifying ship that starts to be used as such a vessel ceases to qualify unless the use as an excluded vessel amounts to not more than 30 days in the accounting period.

(9.2) The 30 day period mentioned in (9.1) is proportionately scaled back for an accounting period shorter than one year.

(9.3) The 30 day period mentioned in (9.1) is proportionately scaled back where a company operates a ship for only part of an accounting period.

(10.1)(a) This rule applies to machinery or plant bought before the company entered tonnage tax, which is used exclusively for the company’s tonnage tax trade.

(b) Where this rule applies:

(i) No balancing adjustment arises as a result of the machinery or plant being used for the tonnage tax trade.

(ii) The company is not entitled to a capital allowance in respect of the machinery or plant while it is used for the tonnage tax trade.

(iii) The company is not treated as having received a deemed wear and tear allowance (section 287) for any accounting period while the machinery or plant was used for the tonnage tax trade.

This effectively freezes the capital allowance situation of assets taken into tonnage tax. (Revenue Guidance Notes).

(10.2)(a) These rules apply where machinery or plant brought into a tonnage tax trade begins to be used for non-tonnage tax activities.

(b) In such a case:

(i) no balancing allowance is made on the change of use,

(ii) in making a balancing charge,

(I) no deemed wear and tear allowance (section 296) is made for any period in which the asset was used for the tonnage tax trade,

(II) the unallowed capital expenditure is taken as the amount that applied when the company entered tonnage tax,

(III) the disposal proceeds are taken to be the least of: the actual cost of the machinery or plant, the open market price when the company entered tonnage tax, and the sale proceeds or open market price when the asset was switched to non-tonnage tax activities.

(c) In addition:

(i) the machinery or plant is treated as two separate assets, one used exclusively for the tonnage tax trade and one in use for the non-tonnage tax activity,

(ii) the rules (i)-(ii) above apply to the part of the asset treated as used exclusively for the tonnage tax trade,

(iii) in determining the capital allowance or balancing charge applicable to the part of the asset used for non-tonnage tax activities, all relevant circumstances must be taken into account and in particular the extent to which the machinery or plant was used for the trade, and any balancing adjustment made must be just and reasonable.

The net effect is that any clawback of capital allowances only applies to capital allowances obtained before the company entered tonnage tax (Revenue Guidance Notes).

(11.1) This rule applies to machinery or plant bought before the company entered tonnage tax, which is used partly for the company’s tonnage tax trade and partly for other purposes.

(11.2) Where machinery or plant is bought before entering tonnage tax, and is used partly for the company’s tonnage tax trade and partly for other purposes:

(a) the machinery or plant is treated as two separate assets, one used exclusively for the tonnage tax trade and one in used for the non-tonnage tax activity,

(b) in determining the capital allowance or balancing charge applicable to the part of the asset used for non-tonnage tax activities, all relevant circumstances must be taken into account and in particular the extent to which the machinery or plant was used for the trade, and any balancing adjustment made must be just and reasonable,

(c) the rules in 10(1)(b) and 10(2)(b), which deal with the making of balancing adjustments in respect of an asset used for a tonnage tax trade, apply to thee part of the asset used for the tonnage tax trade as they would apply in the case of an asset used exclusively for a tonnage tax trade (see (10(1)(a)).

(12.1)-(12.2) This rule applies where a tonnage tax company incurs capital expenditure on an asset used partly for its tonnage tax trade and partly for another trade. In such a case:

(a) the machinery or plant is treated as two separate assets, one used exclusively for the tonnage tax trade and one in used for the non-tonnage tax activity,

(b) in determining the capital allowance or balancing charge applicable to the part of the asset used for non-tonnage tax activities, all relevant circumstances must be taken into account and in particular the extent to which the machinery or plant was used for the trade, and any balancing adjustment made must be just and reasonable

(13.1)-(13.2) This rule applies where a tonnage tax company diverts machinery or plant used exclusively for its tonnage tax trade to another trade. In such a case:

(a) if the asset is used wholly for another trade, the person is treated as having incurred in the chargeable period in which the asset is switched to that trade, capital expenditure equal to the lesser of:

(i) the capital expenditure incurred,

(ii) the open market price of the machinery or plant at the time it was switched to the other trade,

(b) if the asset is used partly for the tonnage tax trade and partly for the other trade:

(i) the machinery or plant is treated as two separate assets, one used exclusively for the tonnage tax trade and one in used for the other trade,

(ii) the company is treated as if it had incurred capital expenditure on the part of the asset in the accounting period in which the asset is switched to the other trade, and

(iii) in determining the capital allowance or balancing charge applicable to the part of the asset used for the other trade, all relevant circumstances must be taken into account and in particular the extent to which the machinery or plant was used for the trade, and any balancing adjustment made must be just and reasonable.

(14.1) This rule applies where a tonnage tax company diverts machinery or plant used exclusively for its non-tonnage tax activities to its tonnage trade.

(14.2) This rule applies where a tonnage tax company diverts machinery or plant used exclusively for its non-tonnage tax activities to its tonnage trade. In such a case:

(a) no balancing allowance is made on the change of use,

(b) in making a balancing charge,

(i) no deemed wear and tear allowance (section 296) is made for any period in which the asset was used for the tonnage tax trade,

(ii) the unallowed capital expenditure is taken as the amount that applied when the asset was switched,

(iii) the disposal proceeds are taken to be the least of: the actual cost of the machinery or plant, the open market price when the asset began to be used, and the sale proceeds or open market price when the asset was switched to tonnage tax.

(14.3) Where an asset switched to tonnage tax is only used partly for the tonnage tax trade:

(a) the machinery or plant is treated as two separate assets, one used exclusively for the tonnage tax trade and one in used for the other trade,

(b) no balancing adjustment arises in respect of the part of the asset used exclusively for the tonnage tax trade after the switch,

(c) the part of the asset retained for use in the tonnage tax trade is treated for balancing charge purposes in accordance with (2)(b).

(15.1) A balancing charge on a tonnage tax company is treated as arising in relation to a non-tonnage tax trade and is made in taxing that trade.

(15.2) The balancing charge is generally taxed in the accounting period in which it arises.

(15.3) A tonnage tax company may elect for relief from a balancing charge under either paragraph 16 or paragraph 17. Such an election is irrevocable and must be made with the company’s self-assessment return for the accounting period in which the charge arises.

(15.4) A tonnage company may only claim relief for balancing charges under the paragraph (i.e., 16 or 17) in which it elected to take relief.

(15.5) A tonnage tax company cannot claim relief on a balancing charge in the absence of an election under para 16 or 17.

What is the measure of relief where a company elects for relief on a balancing charge under para 16?

(16) Where a tonnage tax company elects for this relief, the amount of the balancing charge is reduced by 20% in respect of each complete year in which the company was subject to tonnage tax.

What is the measure of relief where a company elects for relief from a balancing charge under para 17?

(17) Where a tonnage tax company elects for this relief, the balancing charge is reduced by any pre-tonnage tax losses, including losses created by excess capital allowances, which are attributable to:

(a) activities which became part of the company’s tonnage tax trade, or

(b) a source of income which became subject to tonnage tax as relevant shipping income.

(18.1) This rule applies where a tonnage tax company with a balancing charge on the disposal of a qualifying ship incurs capital expenditure on another qualifying ship (the new asset) within five year of the disposal.

In such a case:

(i) if the balancing charge (as relieved under paragraph 16 or 17) is greater than the capital expenditure on the new asset, the balancing charge must only be made for the excess, and

(ii) if the capital expenditure on the new asset is greater than the balancing charge (as relieved under paragraph 16 or 17), no balancing charge must be made.

(18.2) A balancing charge arises if the new asset is disposed of or ceases to be used for the trade while the company is subject to tonnage tax.

(18.3) The balancing charge mentioned in (2) is calculated as follows:

(i) if the balancing charge (as relieved under paragraph 16 or 17) on the disposal of the asset is greater than the capital expenditure on the replacement asset, the balancing charge must only be made for the excess, and

(ii) if the capital expenditure on the replacement asset is greater than the balancing charge (as relieved under paragraph 16 or 17), no balancing charge must be made.

In other words, the balancing charge (as relieved under paragraph 16 or 17) may be deferred until the replacement asset is disposed of. Any balancing charge so deferred is recoverd on the disposal of the replacement asset if no reinvestment is made (Revenue Guidance Notes).

(18.4) The option which allows a trader to take a reduced capital allowance by offsetting a balancing charge against expenditure on replacement machinery or plant does not apply to balancing charges covered by this paragraph.

(18.5) This rule applies where machinery or plant (for example, a ship) is leased by a tonnage tax company in circumstances that the burden of the wear and tear falls on the company. In such a case the company is treated as having incurred the capital expenditure on the machinery or equipment and the machinery or plant is treated as belonging to the company.

(19.1) If a company leaves tonnage tax with machinery or plant acquired and used while in tonnage tax , the deemed cost of such machinery or plant is the lesser of:

(a) its cost, and

(b) its open market value on the date the company exits tonnage tax.

This paragraph sets out the capital allowance treatment of assets acquired while in tonnage tax following the company’s exit from tonnage tax on the expiry of its (10 year) election (Revenue Guidance Notes).

(19.2) For capital allowance purposes, the deemed cost of machinery or plant taken out the tonnage tax (see (1)) is treated as having been incurred on the day after the company exits tonnage tax.

(19.3) Under section 697O, a company is denied capital allowances on machinery or plant while it is in tonnage tax. This subparagraph deals with the capital allowance treatment of such assets on leaving tonnage tax.

All allowances that the company would have received had it not joined tonnage tax are to be made when the company leaves tonnage tax. In other words, the capital allowances that were frozen on entry to tonnage tax become available for the company’s new trade when it exits tonnage tax.

The wear and tear allowances given under this rule cannot exceed the cost of the machinery or plant, including the cost of any expenditure on renewal, improvement or reinstatement.

The annual wear and terar allowance given under this rule cannot exceed 20% (section 284(2)).

(20.1) If part of an industrial building is used for a company’s tonnage tax trade, that part does not qualify for an industrial building allowance.

(20.2) This rule applies where an industrial building which was bought before the company entered tonnage tax is disposed of or ceases to be used for the trade while the company is subject to tonnage tax.

In such a case:

(a) the disposal proceeds are taken to be the pre-tonnage tax market value of the company’s interest in the premises,

(b) the balancing charge, if any, may be relieved using the rules on paragraph 16 or 17.

(20.3) This rule applies where a tonnage tax company disposes of its interest in an industrial building. In such a case, the residue of expenditure available as a capital allowance to the acquirer of the building is calculated as if:

(a) the company had never been subject to tonnage tax,

(b) any allowances or charges that would have have applied had the company not been subject to tonnage tax once again become applicable.

(20.4) Where a company leaves tonnages tax, its industrial building allowances are computed as if it had never been subject to tonnage tax and any allowances or charges that would have applied were in fact applied.

In other words, the allowances frozen at the time of the company’s entry to tonnage tax are unfrozen when it leaves tonnage tax.

(21.1) This rule applies to a company that is a member of both a tonnage tax group and a non-tonnage tax group and there is nothing to prevent the non-tonnage tax group electing to be a tonnage tax group. In such a case the non-tonnage tax group is referred to a qualifying non-tonnage tax group, and the company is treated as a member of the tonnage tax group and not of the qualifying non-tonnage tax group.

(21.2) If a company is a member of two tonnage tax groups, it is treated as a member of the group whose tonnage tax election was made first. If the two elections were made at the same time, the company must choose which group it wishes to belong to for tonnage tax purposes.

(22.1) Revenue may agree with the companies in a tonnage tax group that one of the companies will represent the group in its dealings with Revenue.

(22.2) The agreement mentioned in (1) may:

(a) provide for cases where a company joins or leaves the group,

(b) provide for the termination of the agreement, and

(c) may provide for supplementary, incidental or consequential arrangements.

(22.3) The agreement must not affect:

(a) the requirement that an election for tonnage tax be made jointly by all members of the tonnage tax group, or

(b) any tonnage tax liability of a group member.

(23.1) A merger is a transaction by which one or more companies become members of a group.

A demerger is a transaction by which one or more companies cease to be members of a group.

(23.2) A reference to a merger by a group includes any merger affecting a member of the group.

(24.1) This rule applies where there is a merger between:

(a) two or more tonnage tax groups,

(b) one or more tonnage tax groups and one or more tonnage tax companies,

(c) two or more tonnage tax companies.

(24.2) Where this rule applies, the new group resulting from a merger is deemed to have made a group election, and is therefore treated as a tonnage tax group.

(24.3) The tonnage tax election of the group resulting from the merger continues in force until the longest election of the merging members would have expired.

(25.1) This rule applies where a tonnage tax group or company merges with a qualifying non-tonnage tax group or company (i.e., a group or company which would qualify for tonnage tax if it elected to do so).

(25.2) Where this rule applies, the resulting group may elect that:

(a) it be treated as if a group election had been made, with that election expiring on the expiry date of the existing tonnage tax group or company that is part of the merger,or

(b) the tonnage tax election ceases from the date of the merger.

(25.3) The election by the resulting group must be made jointly by all companies in the group by written notice to Revenue within 12 months of the merger.

(26.1) This rule applies where a tonnage tax group or company merges with a non-qualifying group or company (i.e., a group or company that does not qualify for tonnage tax).

(26.2) In such a case, the resulting group is a tonnage tax group as a result of the election of the tonnage tax group or company that is part of the merger.

(27.1) This rule applies where a non-qualifying group or company merges with a qualifying non-tonnage tax group or company (i.e., a group or company which would qualify for tonnage tax if it elected to do so).

(27.2) A group resulting from such a merger can elect for tonnage tax (see 27.1).

(27.3) The election by the resulting group must be made jointly by all companies in the group by written notice to Revenue within 12 months of the merger.

(28.1) This rule applies where a tonnage tax company leaves tonnage tax group but does not join another tax group.

(28.2) In such a case, the departing company remains a tonnage tax company as if it had made a single election for tonnage tax, and the election continues in force until the group election would have expired.

(28.3) The remaining group members (provided there are two or more) continue to be treated as a tonnage tax group under the previous election.

(29.1) This rule applies where a tonnage tax group splits into two or more groups.

(29.2) In such a case, each subgroup continues to be regarded as a tonnage tax group provided it contains a company that was a tonnage tax company before the demerger.

(29.3) The deemed election of each qualifying subgroup continues in force until the expiry date for of the original group election.

(30.1) A tonnage tax company must notify Revenue in writing when it joins or leaves a tonnage tax group.

(30.2) The written notice to Revenue must be provided within 12 months of the date on which the company joined or left the group.

(31.1) For tonnage tax purposes, a ship’s gross or net tonnage is calculated:

(a) in the case of a ship which is 24 metres or longer, in accordance with the IMO International Convention on Tonnage Measurement of Ships 1969,

(b) in the case of a ship shorter than 24 metres, in accordance with tonnage regulations (see (3)).

(31.2) A ship is not regarded as a qualifying ship unless it has a valid International Tonnage Certificate, or a tonnage certificate which measures its tonnage in the manner set out in the regulations mentioned in (3).

(31.3) Tonnage regulations means the regulations made under the Mercantile Marine Act 1955 section 91 or the corresponding law of another country.

What are the rules applying to a company ejected from tonnage tax on a second or subsequent occasion?

(32) This rule deals with the situation where a company is ejected from tonnage tax (section 697Q) and suffers the consequential 10 year ban from tonnage tax (section 697Q) on a second or subsequent occasion.

To prevent misinterpretation the 10 year ban applies from the date of the latest exit from tonnage tax. Otherwise it might be possible for the company to argue that it has served its 10 year ban and that the 10 year ban need only be served once.

What remedy is open to a tonnage tax company where it does not agree with Revenue that the treatment of a matter is just and reasonable?

(33) If a tonnage tax company and Revenue cannot agree what is “just and reasonable”, the company may appeal to the Appeal Commissioners. The appeal must be heard in the same manner as an appeal against a corporation tax assessment, and the rules relating to hearing of appeals (section 932 to 944A) apply.

What powers to Revenue have to delegate their powers and functions in relation to tonnage tax?

(34) Revenue may delegate their powers or functions in relation to tonnage tax to a nominated Revenue officer.

Schedule 19 Offshore funds: distributing funds

(1.1) To qualify as a distributing fund, an offshore fund must pursue a full distribution policy, i.e., during or within six months of the end of the account period it must distribute at least 85% of its income and Irish equivalent profits for that period.

The distribution must also be made in such a form that if received in the State by an Irish resident investor, it is taxed as untaxed or foreign source investment income (Schedule D Case III) and not as trading or professional income.

(1.2) An offshore fund is treated as pursuing a full distribution policy for an account period for which the fund has no income (or Irish equivalent profits) even though no distribution has been made.

An offshore fund that has not made a distribution qualifies as a distributing fund if the fund has a nominal level of income, i.e., if the level of income of the fund does not exceed 1% of the average value of the fund’s assets over the accounting period (Revenue Precedent 5067/95, 6 June 1995).

(1.3) An offshore fund is not treated as pursuing a full distribution policy for an account period for which accounts have not been made up.

(1.4) Where an offshore fund’s period of account includes two or more account periods, the income for the period of account is to be time apportioned to the two account periods contained in the period of account. Similarly, a distribution made for the period of account is to be time apportioned to the two account periods contained in the period of account.

Where a distribution is made out of specified income (but not for a specified period) the income is attributed to the account period in which it arose, and the distribution is treated as made for that period.

Example

X Ltd, an offshore fund, realises a once-off profit on a transaction, and declares a dividend from this income. The dividend is not attributed to a particular accounting period. The income and the distribution are therefore attributed to the period in which the income arose.

Where a distribution is made neither out of specified income nor for a specified period, it is treated as made for the last account period which ended before it was made.

(1.5) Where a distribution exceeds the income of the account period, the excess is justly and reasonably apportioned to any other account period falling within the period for which the distribution is made. Otherwise, the excess is treated as additional distributions made for preceding account periods, taking later account periods before earlier ones, until the excess is exhausted.

(1.6) Where by reason of an excess of losses over profits (taking these terms as understood in local law) local foreign law restricts the amount which an offshore fund may distribute for an account period, the amount thereby unavailable for distribution need not be counted when calculating the fund’s income for that period

(2.1)-(2.2) A disposal of an interest in a fund operating equalisation arrangements (an equalisation fund: section 742) is also subject to the distribution test. The fund is treated as having made a distribution equal to that part of the consideration represented by the income accrued to the date of the disposal.

The distribution test applies to a disposal in an equalisation fund if:

(a) the disposal is of a material interest (section 743) in the fund,

(b) the gain would (in the absence of the rules that tax a disposal of an interest in an equalisation fund as an offshore fund income gain) otherwise be taxed as an offshore income gain or would be so taxed if share reorganisations were treated as disposals for all purposes of the offshore fund legislation,

(c) the disposal is not covered by section 742(4), i.e., throughout the period in which the offshore fund operates equalisation arrangements, the income preceding the disposal was taxed in the hands of the investors as income from a foreign possession,

(d) the disposal is to the fund itself, or to the fund managers, in their capacity as fund managers.

(2.3) The distribution test is applied to the equalisation fund’s income accrued to date, i.e., the amount that would be credited to the fund’s equalisation fund if, on the disposal date, the interest was acquired as an initial purchase by another investor.

(2.4) Where you acquire your interest and dispose of it before a distribution is made (i.e., in the same account period), only the income accrued since the latest acquisition is treated as distributed.

Example

You acquire an interest in X Ltd, an equalisation fund, for €30,000, of which €1,000 is attributable to accrued income. Three months later, before receiving any distribution, you sell your interest back to X Ltd for €33,000, of which €2,200 is attributable to accrued income. X Ltd is treated as having distributed €2,200 – €1,000 = €1,200.

(2.5) A distribution by an equalisation fund is deemed:

(a) to be in such a form that if received in the State by an Irish resident investor, it would be taxed as untaxed or foreign source investment income (under Schedule D Case III),

(b) to be made from the fund’s income for the account period in which the disposal occurs,

(c) to be paid to the person who disposed of the interest.

(2.6) No, not unless it refers to that part of the account period for which the distribution is made during which the fund managers held the interest in their capacity as fund managers.

(2.7) You make an initial purchase if you subscribe for new shares or units in the fund, or buy shares or units from the fund managers (acting in their capacity as fund managers).

(3.1) This rule applies to an offshore fund (that is a unit trust whose trustees are all non-resident, or an arrangement under foreign law which creates rights of co-ownership (section 743(1)(b)-(c))). The rule applies to the income of such a fund which, if received by the fund’s Irish resident investors, would be taxed under Schedule D Case III.

(3.2) Even if such income does not pass the test (because it is not paid within six months of the end of that period, or because it is not received by the investors as Schedule D Case III income) when applying the distribution test to such a fund, such income may be added to income actually distributed to the fund’s investors.

(4.1)-(4.2) In applying the distribution test to an offshore fund that has income from dealing in commodities, half of the commodity dealing income may be ignored in determining the fund’s income and Irish equivalent profits for that income period. In other words, to meet the distribution test for a period, a fund dealing exclusively in commodities need only distribute 42.5% of its income for that period.

In this context, commodities means tangible assets (but not currency or financial assets) dealt in on a commodity exchange, and income from dealing in commodities includes income from dealing in commodity futures and traded options.

If the commodity dealing fund incurs a loss, the entire loss (not half) is taken into account in calculating the fund’s distributable income.

(4.3) Where a commodity dealing fund has other income, expenditure is apportioned justly and reasonably between the two types of income, and the distribution test is applied to the total of the other income and half the commodity dealing income.

If in computing the fund’s Irish equivalent profits, a deduction is claimed for management expenses, the commodity dealing business and the other investment business are treated as separate businesses.

(4.4) In applying the distribution test to an equalisation fund that has income from dealing in commodities, half of the commodity dealing income accrued to the date of the disposal may be ignored.

A less severe distribution test applies to commodity dealing offshore funds, because a fund operating in such a high risk market will need to retain a significant part of its income to provide for potential future losses. A commodity dealing fund adopting such a prudent strategy would have difficulty meeting the normal 85% distribution test.

(5.1)-(5.3) An offshore fund’s Irish equivalent profits are the fund’s total profits (excluding chargeable gains) chargeable to corporation tax for an account period, after any allowable deductions, assuming that:

(a) the offshore fund is a company resident in the State for the account period,

(b) the account period is the company’s accounting period,

(c) the company’s franked investment income (dividends from Irish resident companies) is treated as income from non-resident companies.

(5.4) Allowable deductions include:

(a) an amount unavailable for distribution due to foreign law restrictions on the amount which an offshore fund may distribute for an account period,

(b) Irish income tax, paid by the offshore fund through deduction at source, which has not been repaid,

(c) foreign tax which is taken into account in determining the fund’s income, but would otherwise be ignored in computing the fund’s Irish equivalent profits because it relates to capital rather than income.

A deduction is not given for tax credits attaching to the fund’s Irish franked investment income.

(5.5) In computing an offshore fund’s income and Irish equivalent profits for the purposes of the distribution test income from Irish government stocks, which would normally be exempt in the hands of a non-resident, must be included.

(6.1)-(6.2) An offshore fund (the primary fund) which does not qualify as a distributing fund for an account period because:

(a) more than 5% of its assets are invested in other offshore funds (section 744(3)(a)),

(b) more than 10% of the fund’s assets are invested in a single company (section 744(3)(b)),

(c) the fund owns more than 10% of the issued share capital of any company (section 744(3)(c)),

may qualify if the other fund in which the investment is held is itself certified as a distributing fund (a qualifying fund) for an account period that coincides with, or overlaps, the primary fund’s account period.

This relief only applies to two-tier arrangements, where the primary fund invests directly in the second offshore fund.

Example

25% of the assets of X Ltd, an offshore fund, are invested in Y Ltd, another offshore fund.

X Ltd, therefore, fails the distribution test under (a), (b) and (c).

However, if Y Ltd is itself a distributing fund, X Ltd’s interest in Y Ltd is ignored in determining whether or not X Ltd is a distributing fund.

If Y Ltd’s entire investment was in other offshore funds, X Ltd would fail the test.

(6.3) Whether a primary fund has more than 5% of its assets invested in other offshore funds, more than 10% of its assets invested in a single company, or owns more than 10% of another company’s issued share capital is to be decided subject to the modifications in paras 7 and 8.

(7) This rule applies in deciding whether a primary fund meets the distribution test, on the basis that its investment in another fund amounts to: 5% of the primary fund’s assets, in the case of single company more than 10% of the primary fund’s assets, or more than 10% of the company’s issued share capital.

If the primary fund has also directly invested in the second fund (company), in deciding the percentage holding, the primary fund is also attributed its proportionate share (see para 9) of investments made by the second fund.

(8.1) In deciding whether a primary fund with investments in a second fund has distributed 85% of its income for an account period, the primary fund’s Irish equivalent profits are to be treated as increased by its proportionate share (see para 9) of the second fund’s excess income for that account period.

(8.2) A qualifying fund’s excess income for an account period is the excess of its Irish equivalent profits over its distributions made for that period.

(8.3) Where the account periods of the primary fund and the second fund coincide, the primary fund is to be attributed its proportionate share of the second fund’s excess income for that period.

(8.4) If the account periods of the primary fund and the second fund do not coincide, the primary fund is to be attributed its proportionate share of the appropriate fraction of the second fund’s excess income for that period.

(8.5) The appropriate fraction is that part of the second fund’s account period which overlaps the primary fund’s account period. It is calculated as:

A
B

where-

A is the number of days in the primary fund’s account period which are also in the second fund’s account period,

B is the number of days in the second fund’s account period.

How is the proportionate share of the second fund’s investment computed?

(9.1)-(9.2) In the context of paras 7 and 8, the primary fund’s proportionate share of the second fund’s investments is computed as:

C
D

where-

C is the average value of the primary fund’s interest in the second fund, and

D is the average value of all interests in the second fund.

(10.1)-(10.2) An offshore fund that invests in a trading company (a company that only carries on a trade and does not deal in commodities, financial assets, futures or traded options, or carry on any banking or money lending business), is allowed, for the purposes of the distribution test, to have a larger percentage holding in another company.

(10.3)-(10.4) The offshore fund does not qualify as a distributing fund for an account period if:

(a) more than 20% of the fund’s assets are invested in a single company,

(b) the fund owns 50% or more of the issued share capital of any company.

Ensures that venture capital companies are not subject to the offshore funds legislation.

(11.1)-(11.2) The rule in (4) applies to an offshore fund with a wholly owned subsidiary, in other words, a subsidiary the whole of the issued share capital of which:

(a) in the case of a non-resident company, is directly and beneficially owned by the fund,

(b) in the case of a unit trust whose trustees are all non-resident, which is directly owned by the fund’s trustees for the benefit of the fund,

(c) in the case of any other foreign legal arrangement which creates rights of co-ownership, is owned in a manner corresponding to (a) or (b).

(11.3) In the case of a company with only one class of share capital, the whole of the issued share capital means at least 95% of the subsidiary’s share capital.

(11.4) In deciding whether an offshore fund with a wholly owned subsidiary meets the distribution test:

(a) a percentage (equal to the parent fund’s percentage holding of the subsidiary’s issued share capital) of the subsidiary’s receipts, expenditure, assets and liabilities is regarded as the parent fund’s receipts, expenditure, assets and liabilities,

(b) the parent fund’s interest in the subsidiary and payments passing between the parent and the subsidiary are ignored.

(12.1)-(12.3) Although an offshore fund would fail the distribution test if it owned more than 10% of any company’s issued share capital, this rule does not apply to an offshore fund’s shareholding in:

(a) a wholly owned subsidiary company (see 11(2)) whose business consists of dealing in material interests in the offshore fund in connection with the fund’s administration and management, and which is not entitled to receive a distribution in relation to the material interests it holds,

(b) a subsidiary management company (see (5)) whose only business is to provide management services (see (4)) to the fund (or to a fund which has an interest in the company), and which is paid an arm’s length remuneration for such services.

(12.4) Management services includes administrative and advisory services, and the holding of property used in connection with the management and administration of the fund.

(12.5) In deciding whether a company is a subsidiary management company of an offshore fund:

(a) business carried on by a wholly owned subsidiary of that company is regarded as carried on by that company,

(b) that company’s holding in its wholly owned subsidiary is ignored,

(c) that company pays its wholly owned subsidiary an arm’s length remuneration for its services.

(12.6) In (12.5), a wholly owned subsidiary is a company whose entire issued share capital is owned by the other company.

(13.1)-(13.2) A holding of more than 10% of the issued share capital of a company, which prevents an offshore fund from being certified as a distributing fund, is termed an excess holding.

(13.3) In applying the distribution test to such an offshore fund, an excess holding may be ignored if its value, together with the value of any other interests in non-qualifying offshore funds held by the fund, does not, in any time in the account period, exceed 5% of the fund’s total assets.

Are there circumstances where Revenue may disregard the failure of an offshore fund to qualify as a distributing fund?

(14) Where an offshore fund fails to qualify as a distributing fund for an account period because:

(a) more than 5% of the fund’s assets are invested in other offshore funds (section 744(3)(a),

(b) more than 10% of the fund’s assets are invested in a single company (section 744(3)(b),

(c) the fund owns more than 10% of the issued share capital of any company (section 744(3)(c),

Revenue may disregard the failure if they are satisfied the failure was not deliberate and was remedied without unreasonable delay.

Revenue may not disregard a failure to distribute 85% of the fund’s income.

(15.1) If an offshore fund when applying to be certified as a distributing fund for an account period, files its accounts for that period together with any other information that Revenue may reasonably require and complies with (2) and (3), Revenue must certify that an offshore fund is a distributing fund.

(15.2) An application for certification must be made by the fund, or a trustee or officer of the fund, within six months of the end of the account period to which the application relates.

(15.3) If Revenue determine that an offshore fund should not be certified as a distributing fund, they must notify the fund of their determination.

(15.4) If Revenue consider that the accounts or other information filed with an application for certification for an account period do not fully disclose all facts and considerations relevant to the application, they must notify the fund specifying the account period concerned.

(15.5) Where Revenue notify a fund that the accounts or information filed with the application for certification do not disclose all the relevant facts (see (4)), the fund is deemed never to have been certified. Any certificate previously issued becomes void.

The following information is required in support of an application for certification as a distributing fund:

(a) The fund’s full name.

(b) The account period for which certification is sought.

(c) A copy of the fund prospectus or explanatory memorandum for that account period.

(d) Whether the fund is an equalisation fund, together with details of the equalisation arrangements.

(e) An analysis of the fund’s investment portfolio, showing the percentage value of the fund’s assets in each investment, and identifying holdings in other offshore funds.

For each investment in an unquoted company, the analysis should show the fund’s percentage in each class of the company’s issued share capital.

For each wholly owned subsidiary dealing in commodities or having a material interest in the fund, and for a subsidiary management company (if any), a copy of the accounts covering the account period of the fund for which certification is sought.

(f) A computation of the fund’s Irish equivalent profits for the account period (or the fund’s surplus on realisations during the account period).

(g) For each class of share in the fund, the distribution made (or to be made) for the account period, or in the case of an equalisation fund, the deemed distributions made in the account period.

(16.1) An offshore fund, or a trustee or officer of the fund, may appeal within 30 days of the date of the notice under 15(2) or (3) to the Appeal Commissioners:

(a) against a Revenue determination that an offshore fund should not be certified as a distributing fund,

(b) against a Revenue notification that the accounts or information submitted with an application for certification do not fully disclose all the relevant facts.

(16.2) The Appeal Commissioners must hear and determine such an appeal in the same manner as an appeal against an income tax assessment. As appellant, you have a right, where necessary, to have your case reheard by a Circuit Court Judge. You also have a right to have a case stated for the opinion of the High Court on a point of law.

(16.3) The Appeal Commissioners have jurisdiction to review any Revenue decision relating to the grounds of the appeal.

Is an Irish resident investor entitled to appeal an income tax assessment on the grounds that the offshore fund should have been certified as a distributing fund?

(17) An Irish investor may not appeal an income tax assessment in respect of an offshore income investment gain on the grounds that the offshore fund in which he/she invested should have been certified as a distributing fund for the account period in question.

(18.1) Where an Irish investor in an offshore fund has received an income tax assessment in respect of an offshore income investment gain because the fund has not yet applied for certification, he/she may, by written notice, require Revenue to take action to determine whether the fund should be certified.

(18.2) On receiving the written notice, Revenue must invite the offshore fund to apply for certification for the account period in question.

(18.3) Revenue need not invite the offshore fund to apply for certification for an account period if an application for certification has already been made. The invitation does not need to be issued until the account period in question has expired. Once invited to apply for certification, the offshore fund has 90 days from the invitation date to apply.

(18.4) If an offshore fund does not apply for certification within six months of the end of the account period, or 90 days after the invitation, whichever is later, Revenue may determine whether the fund should be certified as if the fund had applied for certification.

(18.5) If two or more persons have requested Revenue to determine a fund’s certification status, Revenue’s obligations are fulfilled when they comply with any one of the requests.

(18.6) In deciding whether a fund should be certified, Revenue must consider all accounts and information given to them by the investor who first wrote to Revenue requesting them to determine the fund’s status. Those accounts and information are then treated as if they had been given with an application for certification by the offshore fund itself.

This enables Revenue to reject the accounts and information which in their opinion do not disclose all the relevant facts (para 15(4)).

(18.7) Where Revenue determine that an offshore fund which has not applied for certification (see (4)) should not be certified, and an investor in the fund later requests Revenue to determine the fund’s status and files accounts and information not previously given, Revenue may revise their initial determination and, if they see fit, certify the fund.

(18.8) If, following an investor’s request to Revenue to invite an offshore fund to apply for certification, the offshore fund does not do so, and Revenue, after 90 days (see (4)), determine the fund’s certification status, Revenue must notify the investor of that determination. There is no appeal against such a determination.

Notwithstanding any obligation to maintain secrecy on information supplied to Revenue in connection with certification, to whom are they not precluded from disclosing?

(19) The official secrecy rules that apply to Revenue are not to prevent Revenue disclosing to a person having an interest in the matter:

(a) any determination as to whether an offshore fund should be certified,

(b) the fact that a fund is deemed never to have been certified because accounts or information filed with the application for certification did not disclose all the relevant facts (see para 15(4)).

What powers of delegation do Revenue have as respects matters pertaining to offshore distributing funds?

(20) The Revenue Commissioners may nominate a Revenue officer to perform their functions in this regard.

Schedule 20 Offshore funds: computation of offshore income gains

What is a “material disposal” as regards the computation of offshore income gains?

(1) In this Part, a material disposal means a disposal of a material interest in a non-qualifying offshore fund (section 741) other than an equalisation fund (section 743).

(2.1) When calculating the tax due on a material disposal, the unindexed gain must first be computed.

(2.2) The unindexed gain is the amount that would be the chargeable gain on the disposal, if no allowance were made for indexation (section 556).

(3.1) Where the material disposal arises in the context of the transfer of a business to a company as a going concern in return for shares in that company (section 600), the capital gains tax relief, which allows a person to defer a chargeable gain arising on such a transfer, is not given.

Example

In 1987, your spouse acquired an interest in X Ltd., an offshore fund, for £15,000. In 1991, your spouse made a gift of his/her interest to you. In 1994, you sold the interest for £24,000. The market value of the interest on 6 April, 1990 was £20,000.

You are treated as having acquired the interest in 1987 and thus is also treated as having owned it on 6 April 1990. In computing your offshore income gain, you take as the base cost whichever is the higher of the 1987 acquisition cost or market value on 6 April 1990, i.e., the latter (£20,000).

Source: Revenue Guidance Notes

(3.2) If the computation under para 2 produces a loss, the unindexed gain is, for income tax purposes, treated as nil. In other words, the unindexed gain cannot give rise to an income tax loss.

(4.1)-(4.2) If the material interest disposed of was acquired (or is treated as acquired) before 6 April 1990, the gain since 6 April 1990 is computed as if the interest’s acquisition cost was its market value on 6 April 1990.

(4.3) In the case of a material disposal on or after 6 April 1990, if you are regarded as having acquired the interest so that no gain/no loss arose on your acquisition from the previous owner, you are regarded as having acquired the interest at the time (and for the same cost at which) the previous owner acquired the interest.

For example, where the interest was transferred to you from your spouse at no gain/no loss, on a later disposal, you would be entitled to your spouse’s acquisition cost (section 1028(5)).

(4.4) Where the interest mentioned in (3) changed ownership more than once in circumstances that no gain/no loss arose on the disposal, the person making the disposal takes the earliest acquisition date after 6 April 1990, or the latest acquisition date before 6 April 1990.

(5.1) The offshore income gain is the unindexed gain arising on a material disposal.

(5.2) If however, the material interest disposed of was acquired before 6 April 1990, and the gain since 6 April 1990is less than the unindexed gain, the offshore income gain is taken to be the gain since 6 April 1990.

(6.1) In the case of a disposal of a material interest in an offshore fund (section 741) which is an equalisation fund (section 743), the offshore income gain is the equalisation element relating to the interest disposed of.

(6.2) Because part of the distribution payment represents a refund of his capital investment, an investor in an equalisation fund is only taxed on the income part of that payment (the equalisation element) relating to his ownership period. This is the amount representing income accrued to the disposal date that would be credited to the investor’s equalisation account at the time his investment was acquired by another investor from the fund managers.

(6.3) A disposal of a material interest in an equalisation fund (section 743) is referred to as a disposal involving an equalisation element.

(6.4) If an interest (acquired on or after 6 April 1990) was acquired after the account period by reference to which the accrued income is calculated had begun, and disposed of again before the next distribution was made by the fund, the equalisation element is reduced. Only the part of the income accrued between the acquisition date and the disposal date (not the next distribution date) is taken to be the equalisation element (see para 2(4)).

If such an interest was acquired before 6 April 1990, only the part of the income accrued between 6 April 1990 and the disposal date is taken to be the equalisation element.

(6.5) If an interest (acquired before 6 April 1990) was acquired before the account period by reference to which the accrued income is calculated had begun, the equalisation element is reduced. Only the part of the income accrued between 6 April 1990 and the disposal date is taken to be the equalisation element.

(6.6) In computing the equalisation element in the case of an equalisation fund that deals in commodities, the part of the equalisation element relating to accrued income from commodity dealing (Schedule 19 para 4) is ignored.

(7.1) In the case of a disposal involving an equalisation element, the Part 1 gain is computed in accordance with para 8.

(7.2) If the resulting computation shows there is no Part 1 gain, there is no offshore income gain (and no tax charge on the investor). If the Part 1 gain is less than the equalisation element, the investor is taxed on the Part 1 gain.

Example

On 1 January 2008, you subscribe for an interest in X Ltd, an offshore fund operating equalisation arrangements, at a cost of €10,000.

On 1 January 2012, you redeem your interest for €14,000, which includes €1,000 income accrued since the last distribution on 30 June 2011.

Since the Part 1 gain of €4,000 (€14,000 – €10,000) is less than the equalisation element (€1,000), you are taxed on €1,000.

(8.1) In the case of a disposal involving an equalisation element, the Part 1 gain is the gain computed on the basis that the disposal of the interest in the equalisation fund is a disposal of an interest in a non-qualifying fund (which is not an equalisation fund).

(8.2) In computing the Part 1 gain on a disposal involving an equalisation element, a disposal on a share-for-share exchange which would not otherwise be considered a disposal (section 742(5)-(6)), is treated as a disposal.

(8.3) If a disposal involving an equalisation element produces a no gain/no loss result (except where the no gain/no loss result is caused by indexation), in computing the Part 1 gain, the actual gain or loss is taken.

Schedule 21 Purchase and sale of securities: appropriate amount in respect of the interest

HOW is an artificial loss accruing to a security dealer restricted when it is as a result of buying a security “cum div” and selling it “ex div”?

(1) An artificial loss accruing to a security dealer as a result of buying a security “cum dividend” and selling it “ex dividend” is restricted by treating the purchase price paid for the security as reduced by the accrued interest included in that price (the appropriate amount in respect of the interest). This means the appropriate proportion of the netinterest receivable by the dealer.

hOW is an artificial loss accruing to a tax-exempt body as a result of buying a security cum div and selling it ex div restricted?

(2) Similarly, an artificial loss accruing to a tax-exempt body, a charity or pension fund, as a result of buying a security cum dividend and selling it ex dividend, is restricted by treating the purchase price paid for the security as reduced by the accrued interest included in that price (the appropriate amount in respect of the interest). This means the grossed amount corresponding to the appropriate proportion of the net interest receivable by the tax exempt body.

(3.1)-(3.2) The appropriate proportion is the proportion which:

(a) the number of days from the earliest date on which the securities could, as regards the latest interest payment before the interest payment included in the first buyer’s purchase price began to accrue, have been quoted ex div on the Dublin Stock Exchange (the first relevant date), to the day before the first buyer bought the securities,

bears to:

(b) the number of days from the first relevant date to the day before the earliest date on which the securities could, as regards the interest receivable by the first buyer, have been quoted ex div on the Dublin Stock Exchange (the second relevant date).

(3.3) If the interest receivable by the first buyer was the first interest payable on the securities, the first relevant date is taken instead to be first day of the period (the relevant period) for which the interest was payable.

If the capital for the securities was not fully paid up at the start of the relevant period, and the capital was paid by instalments within that period, the interest is adjusted in proportion to the different levels of capital fully paid up in each sub-period of the relevant period. The total of the interest in these sub-periods is the appropriate proportion of the interest.

(3.4) If the securities are not quoted on the official list of the Dublin Stock Exchange, the Appeal Commissioners have power to determine the periods mentioned in 3(1)-(2).

Chargeable gains of life business: in determining “the appropriate amount in respect of the interest”, delete “in the opinion of the Appeal Commissioners”: section 711(2)(a).

Special investment schemes: in determining “the appropriate amount in respect of the interest”, delete “in the opinion of the Appeal Commissioners”: section 737(8)(c)(i).

Special portfolio investment accounts: in determining “the appropriate amount in respect of the interest”, delete “in the opinion of the Appeal Commissioners”: section 838(4)(d)(i).

Undertakings for collective investment: in determining “the appropriate amount in respect of the interest”, delete “in the opinion of the Appeal Commissioners”: section 738(7)(a).

How do the “bond washing” provisions apply?

(4) Paras 1-3 deal with quoted securities where the quoted price includes accrued interest and that accrued interest is not shown separately from the capital price of the security. If the quoted price does not include such interest (for example, in the case of short dated government securities), then the bargain price will be increased by the gross interest accrued from the last payment date to the bargain date.

In such cases, the appropriate amount in respect of the interest is this actual increase in the bargain price for the number of days gross interest to be added.

These “bond washing” rules apply where, on a sale of securities by a first buyer, interest payable on the securities is receivable by that first buyer (section 748(2)).

Interest, in this context, includes a distribution (section 748(1)).

Schedule 22 Dividends regarded as paid out of profits accumulated before given date

(1.1) Dividend stripping occurs where a security dealer, pension fund or charity becomes entitled to receive a dividend on shares acquired in the 10 year period preceding the dividend payment date, and the dividend is paid from profits accumulated before the shares were acquired (section 752).

A dividend is regarded as paid out of pre-acquisition profits (see below), i.e., profits accumulated before the acquisition date (the relevant date) if:

(a) it is declared for a period that ends before the relevant date,

(b) there are no profits in the period from the relevant date to the date on which the dividend is payable, or

(c) after taking account of the amounts to be set aside to pay dividends on other classes of the company’s shares, there are no profits available to pay the dividend in the period from the relevant date to the date on which the dividend is payable.

(1.2) If after making the adjustment in 1(1)(c) above, part of the profits is available to pay the dividend, but the net dividend on all shares exceeds the profits, part of the dividend is treated as paid out of accumulated profits. As far as possible, the dividend is treated as paid out of post-acquisition profits. The balance is treated as paid from pre-acquisition profits.

Example

The post-acquisition profits of your company are €50,000. The first post-acquisition dividend is €110,000.

The €110,000 dividend is treated, as far as possible, as paid out of the €50,000 and the balance of €60,000 is treated as paid from pre-acquisition profits.

(1.3) A dividend for a period that straddles the relevant date is to be treated as two separate dividends: one for the period before the relevant date, and one for the period after the relevant date. The dividend is allocated in proportion to the number of days in each separate period.

Example

On 1 January 2008, X Ltd acquired the entire share capital of Y Ltd. Y Ltd’s only asset was €200,000 in cash.

On 1 April 2006, X Ltd causes Y Ltd to pay a dividend of €200,000 in respect of the year ended 31 March 2008 to X Ltd. 9/12ths of the dividend, i.e., €150,000, is treated as paid for the nine month period ended 31 December 2008. The remaining 3/12ths of the dividend, i.e., €50,000, is treated as paid for the three month period ended 31 March 2008.

A dividend strip takes place when a person (security dealer, pension fund, charity) buys a company that is no longer in business but has accumulated cash reserves. The person then “strips” the cash from the company (causes it to declare a dividend), sells the shares at a loss, and claims a trading loss on the transaction. The person then reclaims the tax credit on the dividend by setting it against the loss.

The dividend stripping legislation (section 752) counteracts this by ensuring that the tax credit relating to pre-acquisition profits may not be claimed. In other words, the dividend tax credit may only be claimed to the extent to which it is paid from post-acquisition profits.

See Harrison (JP) (Watford) Ltd v Griffiths, (1962) 40 TC 281.

(2.1) The dividend stripping rules are not to be imposed on you as the person who buys shares in so far as the dividend extracted from the post-acquisition profits:

(a) is payable within one year of the acquisition date, and

(b) is (in the opinion of the Appeal Commissioners) normal when compared with the rate of dividend payable on those shares for the three year period ending on the acquisition date, or in a case where the shares were acquired by public issue or placing, when compared with dividend yields obtainable for comparable quoted shares.

(2.2) In considering whether a dividend rate is normal, when compared with previous dividends or dividends on comparable quoted shares, the Appeal Commissioners must have regard to all dividends paid and any share issues made in the respective periods. In particular, if the shares did not exist three years before the acquisition date the comparison is to be made with the shares for which those shares were exchanged.

The Appeal Commissioners may make any adjustments necessary to make a fair comparison.

(3.1) The company’s profits for the period beginning on the relevant date and ending on the dividend payment date (itspost-acquisition profits) are to be calculated in accordance with the rules in (2)-(5).

(3.2) There must be deducted from the post-acquisition profits an amount which in the opinion of the Appeal Commissioners, ought justly and reasonably to be set aside to pay dividends on other classes of shares, assuming that profits continue to be paid at a corresponding rate and having regard to the rights attaching to the different classes of shares.

(3.3) If no previous dividend was payable in the period beginning on the relevant date and ending on the dividend payment date, the whole of the company’s profits for the period, less any deduction allowed by (2), is to be regarded as available for payment of the dividend.

(3.4) If a previous dividend was payable for that period, the part of the dividend regarded as paid out of pre-acquisition profits must first be calculated (paras 1-2). Then the whole of the company’s profits for the period, less any deduction allowed by (2), is to be regarded as available for payment of the previous dividend, in so far as it is not treated as paid out of pre-acquisition profits, and the balance of the profits is treated as available for payment of the later dividend.

(3.5) Where the Appeal Commissioners are required to determine what should be set aside for payment of dividends on shares of any class, they may take into account the fact that those dividends are treated as paid out of pre-acquisition profits, and accordingly reduce the amount to be set aside.

(4.1)-(4.2) A company’s profits for a given period (the specified period) are its income for that period, as reduced by the corporation tax (including the surcharge on undistributed investment, estate, or service company income) payableby the company for any accounting period ending in the specified period. In this regard, the tax credits attached to distributions received by the company from Irish resident companies are also treated as corporation tax payable by the company.

For 1975-76 and previous tax years, a company’s profits would have been its income as reduced by any income tax (including surtax) paid, corporation profits tax payable, and capital gains tax payable, for a tax year in the specified period.

Tax payable means the tax payable before tax credit for foreign tax paid by the company in a country with a tax treaty with Ireland.

(4.3) If a company which is not a security dealer receives a distribution, tax payable does not include the tax credit attaching to a distribution that would have been treated as trading income if the company were a security dealer (section 752).

Similarly, if a company which is not a security dealer sells a security, tax payable does not include the tax element of the accrued interest (which otherwise would give rise to an artificial loss) comprised in the sale price for the security (section 749).

What deductions are permitted from the aggregate of a company’s income and gains?

(5.1)-(5.3) A company’s income for a given period (the specified period) is the total of its trading profits, other income (including franked investment income) and capital profits (whether taxable or not) arising in the specified period, lessthe total of the following deductions:

(a) a trading loss of the company in the specified period,

(b) group relief given to the company for an accounting period ending in the specified period,

(c) unrelieved (pre-corporation tax) capital allowances brought forward from 1975-76,

(d) unrelieved shipping allowances,

(e) unrelieved (corporation tax) capital allowances for industrial buildings, plant and machinery, mine development, purchase of patent rights, or scientific research,

(f) annual payments made by the company in the specified period under deduction of tax, and charges deductible against the company’s profits for any accounting period ending in the specified period,

(g) if the company is not a security dealer, and has received a distribution, the part of that distribution (including the corresponding tax credit) that would have been treated as trading income if the company were a security dealer (section 752),

(h) if the company is not a security dealer, the gross accrued interest comprised in the sale price for a security which otherwise would give rise to an artificial loss (section 749).

How is any apportionment of capital allowances and charges to be made where a tax year or accounting period falls partly within and partly outside the specified period?

(6) Where a tax year or accounting period falls partly within and partly outside the specified period, any apportionment of capital allowances, charges, etc. is to be made on a time basis.

Paragraphs 3 – 6 are concerned with computing the profits available for payment of a dividend.

Schedule 23 Occupational pension schemes

What is the procedure for making an application for approval of an occupational pension scheme?

(1) An application for approval of a retirement benefits scheme (section 771) must be made by the scheme’s administrator (section 770) before the end of the first tax year for which approval is required.

The application must be supported by:

(a) a copy of the deed or document setting up the scheme,

(b) a copy of the scheme’s rules and latest accounts,

(c) any other information, including any actuarial report or advice given to the scheme’s administrator, which Revenue consider relevant.

What obligations does the administrator of an approved occupational pension scheme have to furnish information and accounts to Revenue?

(2) An approved scheme is a retirement benefits scheme that has been approved by the Revenue Commissioners (section 770). The administrator of an approved scheme, and any employer who contributes to the scheme, must, within 30 days of an inspector’s request, send the inspector:

(a) details of contributions paid under the scheme,

(b) details of payments in respect of returns of contributions, pension commutation or other lump sum payments, other payments to an employer and pension-type benefits,

(c) a copy of the scheme’s latest accounts, together with any other information, including any actuarial report or advice given to the scheme’s administrator, which the inspector considers relevant.

Must returns, accounts and information be submitted to Revenue in a particular way?

(2A) The documents and information required by para 2 must be provided in the format specified in that paragraph.

What obligations are placed on the administrator?

(2B) The administrator must file returns electronically, in a format approved by Revenue.

What obligations has an administrator in respect of pre-retirement access to AVCs?

(2C) the administrator must, within 15 days of the end of each quarter beginning with the quarter ending 30 June 2013, electronically file with Revenue details of the number of transfers made, the aggregate value of the transfers and the amount of tax deducted.

(3.1) An unapproved scheme is a retirement benefits scheme which is not an approved scheme or a scheme established by law (a statutory scheme).

(3.2) Every employer with employees in an unapproved scheme must, within three months of the scheme coming into operation with regard to those employees, send details of the scheme to the inspector.

The employer must also, if requested to do so by the inspector, provide within the specified time limit details of any retirement benefits scheme operated by him/her, together with details of the employees participating in the scheme.

(3.3) The scheme’s administrator must, if requested to do so by the inspector, provide details of the scheme to the inspector.

(4.1) The employer is responsible for discharging the duties of a scheme’s administrator in relation to the scheme, if the administrator defaults, cannot be traced or dies. The employer is also liable for any tax owed by the administrator in his capacity as such.

(4.2) A tax charge on an employer or the scheme’s administrator is not to be affected by the fact that a scheme has terminated or ceased to be approved, or that the appointment of a scheme’s administrator has been terminated.

For example, in relation to contribution repayments to employees (section 780(5)) or a pension commutation payment (section 781(3)).

(4.3) If the employer is non-resident, employer includes the employer’s agent, branch or manager in the State.

(5.1) Regulations governing employee pension schemes can be made by Revenue.

(5.2) Any such regulations must be laid before Dáil Éireann.

What rules apply relating to a charge to tax in respect of unauthorised and certain other payments?

(6) These rules apply where a payment which is not a pension payment is made from approved pension scheme funds to an employee, for example, where an employee obtains a payment from the pension fund before retirement.

Is an employee charged to tax on a payment made which is not expressly authorised in the scheme rules or made when the scheme has not been approved?

(7) If the payment is not expressly authorised by the scheme rules, or is made when the scheme has not been approved, the employee is chargeable to tax under Schedule E on the payment for the tax year in which the payment is made (whether or not he/she receives the payment).

Can an employee charged to tax on unauthorised or unapproved payments also be charged to tax on the repayment of contributions to the scheme or a pension commutation payment?

(8) An employee who is charged to tax on a payment under para 7, will not be charged to tax on that payment as a repayment of his/her contributions to the scheme (section 780) or a pension commutation payment (section 781).

What does payment include in the context of occupational pension schemes?

(9) Payment includes payment by transfer of assets and other forms of non-cash payment.

See also Inspector Manual 30.1.3 and Tax Briefing 22.

Schedule 23A Specified occupations and professions

What sportspersons can ontribute up to 30% of their net relevant earnings to an approved pension fund?

An individual who is in one of the above occupations or professions can contribute up to 30% of his/her net relevant earnings (section 787) to an approved pension fund.

Schedule 23B Limit on tax-relieved pension funds

(1.1) The value of an individual’s uncrystallised pension rights on 7 December 2005 is taken as the aggregate value of his/her rights in the relevant pension arrangement of which he/she is a member.

A benefit crystallisation event that takes place on 7 December 2005 is deemed to have taken place on 8 December 2005.

(1.2) This subparagraph sets out the method used to value uncrystallised pension rights for defined contribution arrangements and defined benefit arrangements:

(a) In the case of a defined contribution arrangement, the value of the rights is calculated as the aggregate of the cash sums and any other assets held for the pension scheme on 7 December 2005 which represent the pension-holder’s rights under the scheme on that date.

(b) In the case of a defined benefit arrangement, the value of the rights is calculated as:

(RVF x AP) + LS

where:

RVF = relevant valuation factor on 1 January 2014. This is 20 (see section 787O).

AP = annual pension to which the member would be entitled if he/she acquired, on 7 December 2005, an actual pension in respect of the uncrystallised pension rights.

LS = lump sum to which the member would be entitled if he/she acquired, on 7 December 2005, an actual lump sum instead of a prospective right to such sum.

(1.3) Two assumptions underlie the valuation methods in (2)(b):

(a) The first assumption applies where the individual has not yet reached the age necessary, under the terms of the pension arrangement, to avoid any reduction in benefit on account of age. In such a case, it is assumed that he/she has reached that age on 7 December 2005.

(b) The second assumption is that your right to receive pension benefits did not arise as a result of mental or physical incapacity.

What is a BCE?

(2) A benefit crystallisation event (BCE) arises when an individual:

(a) becomes entitled to a pension, annuity or lump sum under a relevant pension agreement,

(b) exercises an option to transfer (on the date the pension or annuity becomes payable) an amount to him/herself, or to an ARF or AMRF,

(ba) fails to exercise an option to transfer PRSA assets and leave the assets in the PRSA,

(c) directs that a payment or transfer be made to a foreign pension fund,

(d) becomes entitled to a pension after the date on which it is due, and at an amount above the amount that would have been payable on the day it was due.

How are the amounts crystallised by each type of BCE calculated?

(3) This sets out how the amount crystallised by each type of BCE is calculated:

(a) In the case of a defined contribution pension scheme, the BCE is calculated as

P x A

where:

P is the amount of the initial pension on the assumption that there is no lump sum and no subsequent increase in the pension, and

A is the age related factor.

In other words, the BCE amount is the pension that will come into payment multiplied by the age-related factor.

(aa) However where there are accrued benefits at 1 January 2014 (the specified date) the BCE amount can be calculated as follows:

(APA x B) + ((P – APA) x A)

where APA is the accrued benefit (accrued pension amount) at 1 January 2014, and

B is 20, and

P and A are the same as in paragraph (a)

This allows the benefits to be split between those accrued up to 1 January 2014 and those that accrue after that date.

The administrator must be satisfied that there is an “accrued pension amount” and must retain the relevant records for 6 years.

(b) In the case of a defined benefit scheme, the BCE is calculated as the market value of the assets representing the individual’s pension rights that are used to buy the annuity.

(ba) Where an individual fails to exercise an option to transfer PRSA assets, the aggregate value of the funds left in the PRSA account.

(c) In the case of lump sum, the BCE is calculated as the amount of the lump sum paid.

(d) Where the individual transfer pensions assets to an ARF, the BCE is calculated as the market value of the transferred assets.

(e) Where the individual transfers pension assets to an overseas scheme, the BCE is calculated as equivalent to the payment made, or the market value of the transferred assets.

(f) This deals with the avoidance type transaction mentioned in 2(d) above. In such a case, the BCE is calculated as

A x IP

where:

A is the relevant age-related valuation factor, and

IP is the “increase in pension”, i.e., the amount by which the increased pension exceeds the pension that would normally have been expected, as increased by the permitted margin. If previous pension increases have given rise to BCEs, these mst be deducted in arriving at the value of the present BCE.

How is a standard fund threshold or personal fund threshold determined?

(4) This paragraph sets out how the threshold (standard fund, €5m, as indexed or personal fund) is to be calculated. This depends on how much, if any, of the threshold has previously been used (the previously used amount):

(a) If there have been no previous BCEs since 7 December 2005, the threshold is the full standard threshold (€5m, as indexed) or, if applicable, personal fund threshold.

(b) If previous BCEs since 7 December 2005 have exceeded the threshold (standard fund or personal fund, whichever is applicable), the current BCE is taxed at the higher rate.

(c) In any other case, i.e., where previous BCEs since 7 December 2005 have not exceeded the threshold, the figure is taken as the individual’s threshold (standard or personal fund) after deducting the previously used amount.

(5.1) The previously used amount means:

(a) If there has been one previous BCE, the amount crystallised by that BCE, as adjusted by the formula in (2).

(b) If there has been more than one previous BCE, the aggregate of the amounts crystallised by each BCE, with each even adjusted by the formula in (2).

(5.2) The formula used to make the adjustment is the higher of 1 and (A/B) where:

where-

A is the threshold (standard or personal fund, as appropriate) at the date of the current event, and

B is the threshold (standard or personal fund, as appropriate) at the date of the previous BCE.

What are the age-related valuation factors?

The age-related valuation factors are set out in the table above.

Schedule 23C Pre-Retirement Access to PRSA AVCs

What obligations has an administrator in respect of pre-retirement access to AVCs?

The administrator must, within 15 days of the end of each quarter beginning with the quarter ending 30 June 2013, electronically file with Revenue details of the number of transfers made, the aggregate value of the transfers and the amount of tax deducted.

Schedule 24 Relief from income tax and corporation tax by means of credit in respect of foreign tax

What definitions apply in respect of foreign tax credit?

1(1) Foreign tax means tax paid in a country with which Ireland has a double tax treaty (arrangements). It may also include tax paid in a country with which Ireland has no tax treaty. In such cases, the Irish Revenue may give unilateral relief for the foreign tax paid (with no reciprocal benefit from the Revenue authorities in the other country).

Where foreign tax is to be credited against Irish income tax or corporation tax (Irish taxes), the detailed rules in this Schedule are used to calculate the amount of credit to be allowed.

A relevant Member State means an EU State or an EEA State with which Ireland has a double treaty box treaty.

Aggregate of the tax value of the reduction is, in effect, the amount of credit unrelieved against income tax that is available for credit against USC.

(2) Foreign tax credit is only given for foreign tax chargeable under the laws of the treaty country. (It is not given for taxpaid in the treaty country which is not charged by that country).

How is credit given for foreign tax?

2(1) Where an Irish double tax treaty allows a tax credit for foreign tax against Irish tax, the Irish tax is to be reduced by the amount of the credit.

(2) In the case of a company, the foreign tax credit is given against the company’s corporation tax liability.

(2A) In the case of an individual the foreign tax credit is given first against income tax.

(3) This paragraph does not authorise the taking of any foreign tax credit which is not allowed by a tax treaty.

Do I need to be Irish resident to get credit for foreign tax?

3 In general, yes.

Credit for foreign tax is only given to an company for an accounting period in which that company is resident in the State.

A relevant company (one tax-resident in another EU State carrying on a trade through a branch in the State) may also be entitled to a credit for relevant foreign tax (see paras 9A to 9C below).

Revenue practice is that credit is given to a non-resident (but ordinarily resident) individual in respect of foreign tax on foreign income on the same basis as if the individual were resident in the State (Revenue Precedent RT353/96, 25 March 1997).

Is there a limit to the amount of foreign tax credit a company can claim?

4(1) In the case of a company, the foreign tax credit is limited to the corporation tax attributable to the foreign income.

(2) The corporation tax attributable to any income (or gain), measuring that income (or gain) according to Irish tax law, is the corporation tax properly attributable to that part of the company’s income (or gains), i.e., the relevant income or the relevant gain. See (4) below.

(2A) The formula for calculating doubly-taxed trading income from which foreign tax is deducted does not apply to foreign branch profits. The actual profits of the foreign branch are treated as doubly-taxed.

(4) The corporation tax attributable to the relevant income is the corporation tax at the standard rate for the accounting period in which the income arises (the relevant accounting period). If the standard rate does not apply to the income, the corporation tax rate is whichever or the following rates is appropriate:

(a) 25%, i.e., the higher rate of corporation tax that applies to income under Case III, IV, V, income from mining or petroleum activities and income from dealing in (non-residential) land (section 21A),

(b) the standard rate of income tax, where:

(i) the investment income reserved for policyholders of a life company (i.e., their share of the company’s unrelieved profits) is relieved (section 713(3)), or

(ii) the income of an undertaking for collective investment is relieved (section 738(2)),

(d) 20%, where the income of a special investment fund is relieved (section 723(6)), and

(e) 20%, i.e., the special rate of corporation tax applicable to income and gains from dealing in residential land (section 644B).

This ensures that the foreign tax credit cannot exceed the tax that would be payable if the income were taxed in the State.

(5) If the company is entitled to a deduction for charges, management expenses or other costs which can be set against more than one type of income, the company may allocate the common deduction against such of its profits as it thinks fit. This allows the company to obtain maximum credit for each doubly taxed source of income, as the common deduction may be “tailored” to ensure the foreign tax credit is maximised.

Double tax credit relief is to be allocated on the basis of net income. All deductions must be allocated.

Under the Ireland/US Double Tax Treaty (SI 477/1997) portfolio investors are not entitled to credit for underlying taxes. They are only entitled to credit for withholding taxes (15%).

“Relevant profits” means profits as computed for accounting purposes and not for foreign tax purposes: Bowater Paper Corporation v Murgatroyd, (1968) 46 TC 52.

(6) Trade charges must not be allocated on the basis outlined in para 5. They must be allocated based on turnover in the respective foreign jurisdictions.

Is there a limit to the amount of foreign tax credit an individual can claim?

5(1) As an individual, the foreign tax credit is limited to the Irish income tax charged on the foreign income at a special effective rate (the specified rate), which is calculated by dividing the total income tax payable by you for the tax year in question by your total income for that year.

(2) In calculating the specified rate, the total income tax payable by you for the tax year means your total tax liability before any foreign tax credits are taken into account, but does not include retained tax on charges. Your total incomemeans your income net of income that has been covenanted to other persons.

(3) If credit for foreign tax is allowed under this Schedule, it cannot be claimed under section 830.

The effective rate (appropriate rate) means the rate at which the taxpayer has borne (or is liable to bear) tax on total income.

The foreign effective rate means the rate at which the taxpayer has borne (or is liable to bear) tax on foreign income.

Foreign taxes may comprise an underlying tax, and a withholding tax. The sum of these taxes combines to form the foreign effective rate.

The amount of the foreign income chargeable to tax in Ireland is calculated by regrossing the foreign income (net of foreign tax) by the lower of either:

(a) the Irish effective rate, or

(b) the foreign effective rate.

The credit for the foreign tax deducted is not automatically the actual amount of the foreign tax incurred. It is arrived at by multiplying the amount of foreign income finally included in the computation of the liability by the lower effective rate.

This can also be stated as the difference between:

(a) the amount of the foreign income chargeable to tax in Ireland, and

(b) the amount of the net foreign income (after deduction of foreign tax).

Step 1 – Calculate total income (provisional) chargeable to Irish tax

Total income is the gross income, including the foreign income (inclusive of direct foreign tax suffered). If the foreign income is a dividend bearing a tax credit, the dividend plus tax credit must be included.

Step 2 – Calculate taxable income (provisional)

Taxable income is total income less reliefs given as a deduction against total income:

(l) gifts to approved bodies (section 848A).

Step 3 – Calculate Irish tax liability (provisional)

Irish tax liability is the tax on taxable income before deductions in respect of:

Step 4 – Calculate the effective rates

The foreign effective rate in respect of foreign income is computed by dividing the tax paid in the foreign country on the relevant foreign income by the amount of the relevant foreign income (inclusive of the tax) which is subject to double taxation.

The Irish effective rate is (L/M) x 100 where M is the total income (step 1 result) and L is the Irish tax liability (step 3 result).

Step 5 – regross foreign income at the lower effective rate

The foreign income (net of foreign tax deducted) is regrossed at the lower effective rate to determine the amount of foreign income chargeable to Irish income tax using the formula:

Foreign income (Net) x              100               = Regrossed Foreign Income
(100 – effective rate)

Step 6 – calculate final liability to Irish tax

Include all sources of income, including revised gross foreign income (from step 5).

Allow all deductions, allowances, relieves and tax credits.

The DTR in respect of each foreign income source is calculated by reference to the regrossed foreign income at the relevant lower effective rate.

Maximum credit for foreign tax: the DTR cannot exceed to the amount of Irish tax on the same income.

Example

See: Tax Briefing 13, January 1994

Is there a limit to the foreign tax credit that can be claimed against USC?

5(1)(a) The tax credit cannot exceed the effective rate of USC, i.e. the USC charge divided by the income on which it is charged.

(b) The amount of the credit is calculated by reference to the formula.

(2) When an individual is jointly assessed the total USC must be apportioned between the spouses or civil partners.

Example

Mr X, an Irish resident, bought a warehouse in Finland in 2008 for €400,000.

Rental income in 2013 is €25,000 on which Finnish tax of €8,000 is payable.

In Ireland loss relief under section 381 of €21,000 is available reducing the taxable amount to €4,000. The lower of the two countries’ effective rates is 15%.

The credit against income tax is –

[TABLE [[” Income Tax at 41%”€1,640 [”- Credit for foreign tax, €4,000 at 15%”€600 ]

The unrelieved amount of Finnish tax (€8,000 -€4,000 = €4,000) can be relieved against USC at the effective rate of USC, say, 5%.

[TABLE [[” Relief €4,000 @ 15%” €200[” “ ]

If there was no loss relief income tax would have absorbed the full tax credit and there would be no credit against USC.

Can foreign tax credits give rise to a repayment of tax?

6 Foreign tax credits cannot give rise to a repayment of tax. The total foreign tax credit for a tax year cannot exceed your income tax liability for that tax year (net of retained tax on charges).

Double tax credit relief (DTR) is not automatically equal to the amount of foreign tax incurred. The calculation of DTR for assessment purposes is a computerised process – staff in the tax districts do not calculate it.

DTR is available in respect of foreign income received by Irish residents from countries with which we have double taxation conventions/agreements, to the extent that such agreements/conventions provide for the granting of credit (direct and/or indirect). Relief is given by regrossing the foreign income (net of foreign tax) at the lower of the Irish effective rate and the effective rate of the relevant foreign country and bringing that regrossed income into the final computation of liability to Irish tax. Credit is then given in respect of the regrossed foreign income at the lower effective rate. DTR is calculated separately on each foreign source. Foreign tax incurred on one source is not available for set-off against another source.

How is foreign tax to be treated in the computation of income

7(1) Foreign tax is to be computed for the purposes of income tax (or corporation tax) in accordance with this paragraph.

(2) If the income tax (or corporation tax) depends on the amount of income received in the State, the income received in the State is to be treated as increased by so much of the foreign tax credit as is allowable against the income tax (or corporation tax).

In other words, it is the gross foreign income (including foreign direct tax credit) which is taken into the effective rate computation (para 5).

(3) If the gross foreign income (including foreign tax credit) is not included in the effective rate computation (for example, if the net foreign income is used), then no foreign tax credit is to be given.

Where foreign dividends give rise to an indirect foreign tax credit (see paras 8-9), the income to be included in the effective rate computation need not include the indirect tax credit.

Nevertheless where the gross foreign income is included in the effective rate computation, and the foreign tax credit relating to that income cannot be credited against the corresponding Irish tax, the net foreign income figure may be used.

(4) The effective rate computation (para 5), is to be made on the basis that the foreign income is included gross (i.e., including foreign direct tax credit) in the figure for your total income, but the foreign tax credit is not included in the figure for your income tax payable.

How does the foreign tax credit against USC affect the computation of income?

7A(1) The computation of income for the purposes of USC is governed by this paragraph where a foreign tax credit is to be allowed against that income.

(2) Where the amount of USC payable is dependent on amounts received in the State the amount is increased by the amount of any tax credit allowable against income tax.

(3)The amount of foreign income liable to USC is the net income received regrossed at the foreign effective rate.

(4) The preceding subparagraphs apply to all income for which a credit for foreign tax is to be given under paragraph 5A.

Can foreign tax credit be based on imputed corporation tax?

8(1)-(2) Where an Irish investor receives a dividend from a company in a tax treaty country, and no foreign tax is charged either directly or by deduction on the dividend, the foreign tax credit is based on part of the foreign corporation tax, i.e., the part that relates to the proportion of the relevant profits represented by the dividend. The relevant profits are:

(a) the company’s profits for the period (the specified period) for which the dividend is paid,

(b) the profits (the specified profits) from which the dividend is paid, or

(c) if not (a) or (b), the profits for the last period for which accounts were prepared before the dividend became payable.

If the dividend mentioned in (a) or (c) exceeds the profits available for distribution for that period, the relevant profits are the profits for that period plus the profits of the most recent preceding period(s) to which the excess is allocated.

Can I claim indirect foreign tax credit?

9 A double tax treaty may allow credit for foreign tax which is not charged either directly or by deduction on the dividend (i.e., an indirect tax credit) but then limits that credit to certain classes of dividend.

If a dividend is paid, in relation to a class not covered by the treaty, by a subsidiary to a parent that controls at least half of the voting power in the subsidiary, credit is to be given as if the dividend were a dividend of the class in question.

Against what taxes will unilateral credit relief be given?

9A(1) Unilateral relief may be claimed by a company against Irish corporation tax on dividend income. The credit is given for foreign tax paid on a relevant dividend, i.e., a dividend received by an Irish parent company (or its 50% subsidiary) from the parent company’s 5% subsidiary in a non-tax treaty country.

In this regard, foreign tax paid on a relevant dividend includes:

(a) foreign tax the subsidiary is liable to pay by deduction at source or otherwise, as a consequence of paying the dividend, and

(b) the part of the foreign tax on the subsidiary’s profits which is attributable to the profits represented by the dividend.

(2) Unilateral relief is to be calculated as if a tax treaty giving credit relief were in force with the non-tax treaty country.

Unilateral relief may also be given in respect of a dividend received by a parent from its 25% subsidiary in a tax treaty country.

(3) The credit for the foreign tax paid on the dividend income is to be allowed against the corporation tax payable by the parent in Ireland (this now includes a branch of an EU company trading here) which is attributable to (see 4(2)) the dividend income.

(3A)-(4) The type of parent company that is entitled to a tax credit for tax paid by a foreign subsidiary is:

(a) a company resident in the State, and

(b) a company resident for tax purposes in an EU State other than Ireland or EEA State with which Ireland has a tax treaty where it is the company’s branch operation in Ireland that receives the dividend from the foreign subsidiary.

(5) Unilateral credit relief is not given in respect of:

(a) tax paid in a tax treaty country (unless credit cannot be given under existing treaty arrangements),

(b) foreign tax which qualifies for the unilateral credit relief (section 831) that may be claimed by an Irish parent company on dividend income received from a 35% subsidiary based in an EU State.

(6) Where a corporation tax assessment on a company with dividend income that qualifies for a unilateral tax credit is incorrect because the foreign tax credit is incorrect, an additional assessment may be made to recover the tax undercharge.

(7) Unilateral credit relief is only given in respect of tax which corresponds to Irish corporation tax and capital gains tax.

A UK company was held not entitled to tax credit for trade tax incurred by trading subsidiaries of German holding company (partner), as it had not received the dividends: Memec plc v IRC, [1998] STC 754.

Can I get credit for underlying tax borne by a subsidiary?

9B(1) These rules allow Revenue to give a credit against Irish corporation tax to a parent company (relevant company). The credit is given for foreign tax (underlying tax) borne by a non-resident company (a foreign company) which is related to (see (5)) the parent company.

(1A) The type of parent company (relevant company) that is entitled to a tax credit for underlying tax is:

(a) a company resident in the State, and

(b) a company resident for tax purposes in an EU State or EEA State with which Ireland has a tax treaty other than Ireland or where it is the company’s branch operation in Ireland that is taxed on the dividend income.

(2) This paragraph gives an Irish company a tax credit in respect of dividends received from its foreign subsidiaries.

Credit is also given in respect of:

(a) underlying tax paid by the foreign company on dividend income it has received from a 5%-related third company which is a 5% subsidiary of the foreign company’s “Irish” parent (see (1A); or that parent’s 50% subsidiary – see (5) below),

(b) tax charged directly on the dividend which neither the foreign company nor the third company would have borne had the dividend not been paid.

Underlying tax is the tax borne by the dividend-paying subsidiary which is attributable to the profits represented by the dividend.

(3) Credit is also given in respect of

(a) underlying tax paid by the third company on dividend income it has received from a 5%-related fourth company which is a 5% subsidiary of the third company’s Irish parent (or that parent’s 50% subsidiary – see (5) below), or

(b) tax charged directly on the dividend.

This applies to any number of subsidiaries in a chain of companies provided each is related to (i.e., is a 5% subsidiary of) the one before, and each is connected with (i.e., is a 5% subsidiary of) the “Irish” parent (see (1A)), or of a 50% subsidiary of that parent.

(4) In applying (3) and (4) to an Irish company paying a dividend, credit is only given for Irish corporation tax and any foreign tax credit to which the company is entitled under this Schedule.

In applying (3) and (4) to a foreign company paying a dividend, credit is only given if it would have been given had the dividend recipient been an “Irish” company (see (1A)).

(5) Two companies are related if 5% of the first company’s voting power is controlled, directly or indirectly, by the second company (or its subsidiary).

A company is a subsidiary of a company that owns more than 50% of its ordinary share capital.

Two companies are connected if 5% of the first company’s voting power is controlled, directly or indirectly, by the second company (or its subsidiary).

In practical terms this means that a subsidiary must be owned to the extent of at least 5% by the company above it and also to the extent of at least 5% by the Irish parent.

See also section 222 (dividends from non-resident subsidiary) and section 847 (credit for foreign tax suffered on profits of branch on non-treaty country)

Can an Irish branch of a foreign company claim foreign tax credit?

9C(1)-(2) Where the Irish branch of a company resident for tax purposes in an EU State or EEA State with which Ireland has a tax treaty other than Ireland (relevant company) has suffered foreign tax (relevant tax), the relevant company is entitled to the same relief available to an Irish resident company.

Foreign tax, in this regard, excludes tax suffered in the company’s home country.

What rate of tax credit is given for foreign tax suffered on relevant interest?

9D(1) Relevant foreign tax means foreign tax suffered by an Irish company on interest income in a country with which Ireland has no tax treaty.

Relevant interest means interest which is taxed as trading income in the hands of the company receiving it and from which foreign tax has been deducted.

Relevant interest is taxable at the standard rate of corporation tax.

The corporation tax referable to relevant interest is calculated by applying the standard rate or corporation tax (12.5%) to the income of the company referable to the relevant interest. The income referable to relevant interest is calculated by apportioning the company’s trading income between relevant interest and other income in the accounting period:

Relevant interest  x  trading income (increased by relevant foreign tax)
total amount receivable in the course of the trade

(2) The credit for foreign tax suffered on relevant interest is given at 84% in 2002, 87.5% in 2003 and later years. The credit cannot exceed the amount of foreign tax.

Can I claim credit for tax suffered by a branch in a non-treaty country?

9DA(1) An Irish company trading through a foreign branch can claim unilateral relief in the form of a credit for foreign tax suffered against Irish corporation tax even where there is no tax treaty between Ireland and the foreign territory.

(2) Unilateral relief is calculated on the same basis that it would be calculated if a tax treaty existed between Ireland and the territory in question.

(3) The credit is given by allowing the foreign tax arising on an Irish company’s foreign branch trade to be credited against corporation tax on the same income.

(4) This unilateral relief is only given in respect of a company which is Irish tax resident, or which is resident for corporate tax purposes in another EU State and the doubly taxed income relates to its branch in the Republic of Ireland.

(5) The unilateral credit does not apply where:

(a) a tax treaty already exists between Ireland and the territory concerned, except to the extent that the treaty does not give credit for such tax, or

(b) where credit is already due under paragraph 9D which allows a credit for foreign withholding tax on income received as trading income.

(6) An assessment which involves unilateral credit may be amended as required to ensure the profits are correctly assessed and the correct amount of credit is given.

(7) Unilateral credit is only given under this paragraph for tax on branch profits which corresponds to corporation tax and capital gains tax.

Can I claim unilateral relief in respect of foreign tax on royalty income?

9DB (1) Relevant royalties are royalties which:

(a) are taxed as part of the recipient’s trading income, and

(b) have been subject to relevant foreign tax, i.e. foreign withholding tax deducted from such royalties for which no double tax treaty credit relief is available.

Royalties means payment for the use of, or the right to use, intellectual property (for example, copyright, patents, know how).

The corporation tax attributable to relevant royalties is 12.5% of the amount by which relevant royalties exceedrelevant foreign tax.

The income referable to relevant royalties is:

gross trading income                                 x               relevant royalties             
(before deducting relevant foreign tax)       total amount receivable from trade

(2) The corporation tax is reduced by 87.5% of any relevant foreign tax borne in respect of relevant royalties provided it does not exceed the corporation tax payable and attributable to the relevant royalties.

(4) Excess foreign tax credit, which cannot be relieved under a tax treaty or under unilateral relief may be used to reduce the income referable to other foreign trading royalty income.

(5) A company whose trading income includes royalties from non-residents may

(a) reduce the foreign royalty income by any unrelieved foreign tax, and

(b) allocate such reductions to such of its foreign royalty income as it sees fit.

(6) The aggregate reductions under subpara (5) cannot exceed the aggregate of the unrelieved foreign tax in respects of all relevant royalties for an accounting period.

Can I claim unilateral relief in respect of foreign tax on leasing income?

9DC(1) A company can claim unilateral relief for withholding tax (relevant foreign tax) suffered on relevant leasing income in a non-treaty country.

Relevant foreign tax means tax corresponding to income tax or corporation tax, which has been deducted from the lease payment and has not been repaid, for which credit is not allowed under a tax treaty.

Relevant leasing income means leasing income receivable as part of a company’s trading income and from which relevant foreign tax has been deducted.

(2) In the absence of any special relief, the company gets a deduction in respect of the foreign tax in calculating its trading income. Such a deduction equates to a tax credit of 12.5%.

The relief operates by allowing the company a tax credit for the unrelieved foreign tax, i.e., the remaining 87.5% balance of the foreign tax.

Example

Company suffers €100 foreign tax.

Company gets trading income deduction for €100. This equals a tax credit of €12.50.

Company gets a further tax credit of not more than €87.50.

Can I “pool” unrelieved foreign tax credit?

9E(1) The excess foreign tax (unrelieved foreign tax) after the Irish tax has been fully credited is not lost; it may be pooled and set against other foreign dividends. Since 1 January 2007, there are two ‘pools’: the 12.5% pool (specified dividends) and the 25% pool (relevant dividends).

Excess foreign tax credits in respect of dividends taxed at 25% are available for set off against dividends taxed at 12.5% (but not vice versa).

(2) The unrelieved foreign tax in respect of a relevant dividend is calculated using the formula-

100 – R x D

100

where-

R is the higher rate of corporation tax, and D is the reduced foreign tax,

i.e., by treating the dividend as 75%, (net of 25% credit).

The corporation tax payable in respect of relevant dividends is reduced by unrelieved foreign tax.

If the unrelieved foreign tax exceeds the corporation tax payable in respect of relevant dividends, the excess may be carried forward and treated as unrelieved foreign tax in the next accounting period, and so on.

The corporation tax payable in respect of relevant dividends is reduced by unrelieved foreign tax.

(3) A specified dividend is a relevant dividend which is not taxed at 25%, i.e., is taxed at 12.5% (section 21B).

The unrelieved foreign tax in respect of a specified dividend is calculated using the formula-

100 – R x D
100

i.e., by treating the dividend as 87.5% (net of 12.5% credit).

The corporation tax payable in respect of specified dividends is reduced by the unrelieved foreign tax in respect of such dividends.

If the unrelieved foreign tax (in respect of specified dividends) exceeds the corporation tax payable in respect of such dividends, the excess may be carried forward and treated as unrelieved foreign tax in respect of specified dividends in the next accounting period, snd so on.

Example

Foreign dividend received into Ireland: €700

Foreign tax suffered: €300 (30% x €1,000

Gross foreign dividend: €1,000

Taxed in Ireland: €700

Irish tax: €700 x 25% = €175

D: €300

R: 25

By “normal” calculation the unrelieved foreign tax would be €300 – €175 = €125. However the formula calculates the unrelieved foreign tax as: [(100 – 25 )/100] x D = .75 x 300 = €225.

Example

Continuing with the previous example:

Irish tax: €175

Foreign tax credit: €225

Excess: €50 (usable against other foreign dividends received in the period)

Can I claim credit for unrelieved foreign tax against tax on interest from associate companies?

9F(1) In the absence of specific provisions, to the extent that such foreign tax exceeds Irish tax on the interest (theaggregate amount of corporation tax payable by a company for an accounting period in respect of relevant interest of the company for the accounting period from foreign companies), it cannot be offset against Irish tax.

The new rules allow such unrelieved foreign tax to be credited against tax on other interest from associated companies, provided such interest is sourced in a tax treaty country.

(2) The unrelieved foreign tax is calculated as:

100 – R x D
100

where

R is the higher (25%) corporate tax rate, and

D is the surplus foreign tax.

(3) The unrelieved foreign tax (see (2)) can be used to reduce the company’s corporation tax in respect of relevant interest from foreign companies.

Example

Your company receives €100,000 in interest from X Co, an American company (a 25% subsidiary).

Irish tax (Schedule D Case III): €100,000 x 25% = €25,000

Foreign tax: €100,000 x 30% = €30,000

Surplus foreign tax: €5,000

Unrelieved foreign tax: 75% x €5,000 = €3,750.

Can I “pool” excess foreign branch tax?

9FA(1) An Irish company with a foreign branch can offset foreign tax attributable to its foreign branch incomeagainst the aggregate amount of corporation tax payable … in respect of foreign branch income. In other words, it allows “pooling” of excess foreign branch tax.

(2) The formula ((100 – R)/100) x D is used to calculate the unrelieved foreign tax in respect of the foreign branch income. If the foreign branch income is “trading” income, the figure for “R” is 12.5%; if it is non-trading income it is 25%.

(3) A company can reduce the tax on its foreign branch income by the unrelieved foreign tax on that income.

(4) A company can carry forward unrelieved foreign tax.

Example

German branch pays 26% tax (€26,000) on profits of €100,000.

French branch pays 33.33% (€33,000) tax on profits of €100,000.

UK branch pays 19% tax (€19,000) on profits of €100,000.

Isle of Man branch pays nil tax on profits of €100,000.

Total foreign tax attributable to foreign branch income = €78,000.

Irish company which owns the four branches pays 12.5% (€50,000) tax on the total branch profits (€400,000).

The €78,000 (actually, only 87.5% of it: see below) can be credited against the €50,000. In effect, the company is using the excess German, French and UK tax to pay the Irish tax on the Isle of Man income.

Continuing with the previous example:

German tax is €26,000

Irish tax is €12,500

D is the surplus foreign tax, i.e., €13,500

87.5% of the surplus foreign tax is available for offset.

Can I claim relief for capital gains tax paid in a non-treaty country?

9FB(1) This paragraph provides unilateral relief for foreign capital gains tax (or corporation tax on chargeable gains) against Irish capital gains tax (or corporation tax on chargeable gains) in situations where there is currently no double tax relief (see below).

(2) Unilateral relief for capital gains tax is calculated on the basis that a treaty existed between the Republic of Ireland and the jurisdiction in question.

(3) This subparagraph is the one that allows the relief. Where you dispose of a foreign asset, you are to be allowed credit for the foreign capital gains tax (or corporation tax on chargeable gains) against the Irish capital gains tax (or corporation tax on chargeable gains).

(4) Unilateral credit for capital gains tax (see (3)) is not given if double tax relief is already given under a treaty or in any other form in this Schedule.

(5) An assessment which involves unilateral credit may be amended as required to ensure that the profits are correctly assessed and the correct amount of credit is given.

(6) Unilateral relief only applies to foreign capital gains tax.

(7) Unilateral relief for capital gains tax only applies to the following countries: Belgium, Cyprus, France, Germany, Italy, Japan, Luxembourg, Netherlands, Pakistan and Zambia.

It is arguable that relief should also apply to any country which is an EU Member State, as otherwise, Ireland would be discriminating against them (compared to all other EU Member States).

Can I claim double tax relief in respect of foreign dividend income taxed on a consolidated basis?

9G(1) This paragraph deals with double tax relief in respect of dividend income received from a foreign company that is taxed on a consolidated basis. It applies where:

(a) Tax is payable by a responsible company in respect of the aggregate profits of several consolidated companies, and

(b) a dividend is paid by one of the consolidated companies (the paying company) to a non-consolidated company, or by a non-consolidated company (the third company) to one of the consolidated companies.

(2) For the purposes of double tax relief:

(a) the consolidated companies are treated as a single company,

(b) a dividend paid by one of the consolidated companies to a recipient company is treated as paid by the single company,

(c) a dividend paid by a third company to any of the consolidated companies is treated as paid to the single company,

(d) the single company is treated as related to the recipient company if the paying company would be so treated,

(e) the third company is treated as related to the single company if it would be so treated in relation to the consolidated company to which it paid the dividend,

(f) the single company is treated as tax resident in the state in which the responsible company is tax resident.

As a result, the single company has a single aggregate figure for relevant profits, and its foreign tax figure is the figure for the responsible company.

If a consolidated company is connected with a company to which it pays a dividend, the single company is also treated as connected with the recipient company.

A dividend paid by a consolidated company to an outside company is treated as paid by the single company to that outside company.

Can I claim foreign tax credit in respect of dividends paid out of transferred profits?

9H(1) This rule applies where a foreign company (the first company) pays tax on its profits, those profits end up in (other than by way of dividend) another company and become profits of that second company and the second company than pays a dividend.

(2) In allowing credit for foreign tax, the second company is treated as having paid the tax paid by the first company.

(3) The rules in (1) and (2) are subject to the following:

(a) The foreign tax credit available to an Irish company must not exceed the tax credit that would have applied had the first company paid a dividend to the second company.

(b) The credit is not available if the profits of the first company ended up in the second company as part of a tax avoidance scheme.

When is additional credit available for dividends?

9I An additional credit is available in respect of dividends that are for companies that are resident in the State or a Member State of the EU and that are not derived from profits of a connected company that is not resident in a Member State.

The additional credit is the difference between the tax on the dividend received at the lower of the Irish rate (12.5% or 25%)and the rate of tax payable in the source country and the tax credit allowable under the normal rules.

In effect this provision increases the tax credit to the nominal or headline rate of the source country or to 12.5% or 25% whichever is lower.

The additional credit is not allowed for pooling under paragraph 9E nor in respect of dividends paid out of transferred profits under paragraph 9H.

What happens if I elect not to take a foreign tax credit?

10 If you elect not to take a double tax treaty foreign tax credit, you are not to be given credit for that tax.

What happens if a claim for foreign tax credit is incorrect?

11 Where an income tax or corporation tax assessment on a taxpayer with income from a tax treaty country is incorrect because the foreign tax credit is incorrect, an additional assessment may be made to recover the tax undercharge. If the income in question was paid through a paying agent, the additional assessment may be made under Schedule D Case IV.

Is there a time limit for claiming foreign tax credit?

12(1)-(2) A claim for foreign tax credit must be made in writing to the inspector where you are an individual, within six years of the end of the tax year for which the foreign income is charged to income tax. Where you are a company, the claim must be made within six years of the end of the accounting period in which the foreign income is charged to corporation tax.

If the inspector refuses the claim, you may appeal to the Appeal Commissioners. The Appeal Commissioners must hear and determine such an appeal in the same manner as an appeal against an income tax assessment. you have a right, where necessary, to have your case reheard by a Circuit Court Judge. You also have a right to have a case stated for the opinion of the High Court on a point of law.

How long does the inspector have to recover excessive tax credit?

13 An assessment to recover excessive foreign tax credit must be made within six years of the date of the original assessment, adjustment or determination. The six year time limit also applies to a claim by a taxpayer to adjust an assessment on the basis that insufficient foreign tax credit was given.

Schedule 24A Arrangements made by the Government with the Government of any territory outside the State in relation to affording relief from double taxation and exchanging information in relation to tax

What domestic legislation records the text of Ireland’s tax treaties?

This Part lists the statutory instruments which give effect to Ireland’s tax treaties.

What domestic legislation records the text of Ireland’s air transport agreements?

This Part lists limited tax treaties which give relief to pilots and cabin crew who might be subject to double taxation.

What domestic legislation records the text of Ireland’s tax information exchange agreements?

This Part lists the statutory instruments which give effect to Ireland’s tax information exchange agreements.

Schedule 25 Convention between the Government of Ireland and the Government of the United States of America for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income

Note: This Schedule is now spent. See section 826.

Schedule 25A Exemption from tax in the case of gains on certain disposals of shares

Section 626B exempts an investor company in relation to disposals of shares in its investee companies, i.e., 5% subsidiaries.

Section 626C supplements section 626B by providing an equivalent exemption for disposals of share options and convertibles.

Schedule 25A provides specific guidance on the interaction of sections 626B and 626C with existing sections.

(1.1) On a reorganisation or reduction of share capital, the new shares stand in place of the old shares – they take the acquisition date and cost of the old shares for capital gains tax purposes (section 584).

Shares are regarded as derived from other shares where such a reorganisation or reduction has happened in sequence to the same shares.

(1.2) If an investee company disposes of shares in an investor company, it might not qualify for exemption on the grounds that it has not held the shares in question for the required continuous 12 month period. This would be unfair if the shares in question were acquired, in a no gain/no loss transfer, on a reorganisation or reduction of share capital – and were simply replacement shares for previous shares held in the investee company.

This paragraph deals with that situation. In such a case, the ownership period for the shares being disposed of is extended backwards to the start of the ownership period of the shares from which they are derived.

(1.3) In (1.2), a no gain/no loss transfer is a disposal at a price which ensures no gain or loss arises to the person making the disposal.

(1.4) Where the rule in (1.2) extends the share ownership period of the investor company (the first-mentioned company) into the ownership period of the predecessor company (the other company) the investor company is treated as having the same entitlement to shares and rights attaching to such shares as the predecessor.

(1.5) This rule applies where an investor company’s share ownership period is extended into that of the predecessor company. In deciding whether the predecessor company meets the 10% (or 5%) holding requirements, holdings held by the predecessor’s fellow group members (other than as part of a life business fund) count as part of the predecessor’s holding (section 626(1)(b)(ii)).

(2.1) In certain situations for capital gains tax purposes, an investor company is deemed to have disposed of and immediately reacquired shares in an investee company. This might happen, for example, where the investee company leaves the group within 10 years of a reconstruction or amalgamation (section 625).

(2.2) An investor company’s share ownership period does not extend backwards into the share ownership period of the predecessor company if there has been a deemed disposal and reacquisition of the shares concerned.

(3.1) Section 626B exempts an investor company in relation to disposals of shares in its investee companies, i.e., 5% subsidiaries.

In theory, it might be possible for a company holding say 4% of a another company to “temporarily” acquire the additional 1% it needs to reach the 5% required to make a tax-exempt disposal. The 1% would be bought subject to a conditions that the interim company would sell it back to the original owner.

This paragraph counteracts such arrangements. Shares acquired subject to a repurchase agreement are deemed, for the purposes of capital gains tax relief on disposal of shares by an investor company in an investee company, to remain owned by the original owner.

(3.2)-(3.3) The period of the repurchase agreement begins when the shares are transferred to the interim owner and ends when they are transferred back to the original owner.

The rules in this paragraph apply when shares are (temporarily) transferred subject to a repurchase agreement.

(3.4) In determining whether the interim holder meets the 10% (or 5%) shareholding in the investee company, shares acquired subject to a repurchase agreement are ignored.

(3.5) If the shares are reacquired by the original owner (or a 51% group member of the original owner) during the period of the repurchase agreement, the rule in (4) which disqualifies that holding from counting as part of the investor’s holding is disapplied. In other words, the temporarily transferred shares are now back to the position they would have been in had they not been temporarily transferred.

(4.1) Section 626B exempts an investor company in relation to disposals of shares in its investee companies, i.e., 5% subsidiaries.

This paragraph replicated the rules in paragraph 3, for stock lending arrangements.

In theory, it might be possible for a company holding say 4% of a another company to “temporarily” acquire the additional 1% it needs to reach the 5% required to make a tax-exempt disposal. The 1% would be bought subject to a conditions that the borrower would sell it back to the lender.

This paragraph counteracts such arrangements. Shares acquired subject to a stock-lending arrangement are deemed, for the purposes of capital gains tax relief on disposal of shares by an investor company in an investee company, to remain owned by the original owner.

(4.2) The period of the stock-lending arrangement begins when the shares are transferred to the borrower and ends when they are transferred back to the lender.

(4.3) The rules in this paragraph apply when shares are (temporarily) transferred subject to a stock lending arrangement.

(4.4) In determining whether the interim holder meets the 5% shareholding in the investee company, shares acquired subject to a stock lending arrangement are ignored.

(4.5) If the shares are reacquired by the lender (or a 51% group member of the lender) during the period of the repurchase agreement, the rule in (4) which disqualifies that holding from counting as part of the investor’s holding is disapplied. In other words, the temporarily transferred shares are now back to the position they would have been in had they not been temporarily transferred.

(5.1) Section 626B exempts an investor company in relation to disposals of shares in its investee companies, i.e., 5% subsidiaries.

In theory, it might be possible for an company to fail the 5% holding requirement because it has not held the shares for the required (12 month) period. This would be unfair if the shares in question were acquired on a share for share basis as part of a reorganisation or reduction of share capital (section 584), company amalgamation by exchange of shares (section 586), company reconstruction or amalgamation (section 587) .

(5.2) This paragraph deals with the situation outlined in (1). In such a case, the old shares (original shares) and the new shares which replace them (the new holding) are treated as the same asset.

(5.3)-(5.4) If the percentage holding requirement for the investor company can be met by the rules in this paragraph (for example where there are several successive share-for-share deals), it is treated as met.

If an asset has become worthless can a claim for a loss arising be made?

(6) A person with an asset that has become worthless can make a negligible value claim in order to crystallise the unrealised losses and use those losses against chargeable gains (section 538). Such a claim may not be made if a gain on the disposal of the shares would be exempt under section 626B.

In other words, if the exemption is claimed, a loss can’t also be claimed.

When is a deemed sale and reacquisition treated as taking place where a company ceases to be a member of a group?

(7) A group member that leaves the group with a group asset is treated as having disposed of and immediately reacquired the asset for capital gains tax purposes, thereby crystallising any latent capital gain accrued since the asset was acquired by the group (section 623).

This rule may conflict with section 626B, which allows an investor company to dispose of shares held in its investee companies, i.e., 5% subsidiaries.

If such a conflict arises, and the gain in question would not have given rise to a charge under section 626B, thensection 623(4)applies with the effect that the transaction is exempt.

(8.1) A group member that transfers an asset to trading stock is treated as having disposed of and immediately reacquired the asset for capital gains tax purposes, thereby crystallising any latent capital gain accrued since the asset was acquired by the group (section 623).

If the assets in question are shares, and gain in question would not have given rise to a charge under section 626B, then the shares are treated as acquired at market value in computing any trading profit that may arise on their future sale.

(8.2) Section 618 allows intra-group asset transfers to be made on a no gain/no loss basis for capital gains tax purposes. It applies here as it does to appropriation to and from stock in trade

Schedule 25B List of specified reliefs and method of determining amount of specified relief used in a tax year

What is the purpose of this Schedule 25B?

This Schedule lists various tax incentives, which, for 2008 and later tax years, are restricted in the extent to which they can reduce taxable income:

(a) property tax incentives,

(b) exemptions in respect of artistic income, stallion and greyhound fees, and patent royalties,

(c) relief for donations,

(d) investment incentives (BES relief, film relief and interest relief on borrowings used to invest in a company or partnership).

Schedule 25C Determination of amount of relief to be treated as referable to specified reliefs as respects relief carried forward from tax year 2006 to tax year 2007

Schedule 26 Replacement of harbour authorities by port companies

Schedule 26A Donations to approved bodies

Donations to which approved bodies qualify for tax relief?

(1) Gifts made to the bodies listed qualify for tax relief (see section 848A).

What is an approved body for education in the arts?

(1) A donation to an approved body is tax deductible provided the donor does not treat the donation as a trading expense or covenanted income (section 848A).

An approved body is:

(a) a (third level) college for which the entrance requirement is related to performance in the Leaving Certificate, a university matriculation exam, the foreign equivalent, or

(b) a body permanently established on a full-time basis to teach approved subjects, contribute to the advancement of those subjects on a national or regional basis, which is prohibited in its constitution it from distributing profits or assets to its members.

An approved subject means the practice of:

(a) architecture,

(b) art and design,

(c) music and musical composition,

(d) theatre arts,

(e) film arts,

(f) any other subject approved by the Minister for Finance for this relief.

Can the Minister withdraw approval as an eligible charity?

(2) The Minister for Finance may write to an institution to revoke its approved status for donations. The relief is then withdrawn from the date of the notice.

A list of authorised bodies is available on the revenue website: www.revenue.ie

What may Revenue do on receipt of a properly completed application form as respects charitable status?

(1)-(2) Revenue may, on receipt of a properly completed application form, issue an authorisation to a charitable body in the State, stating that the body is an eligible charity.

What will prevent Revenue from issuing an authorisation to a charity?

(3) Revenue may not issue an authorisation to a charity unless:

(a) The charity is established for charitable purposes only (see section 207).

(b) The income of the charity is applied for charitable purposes only (see section 207).

(c) The charity has been given exemption from tax under section 207 for not less than two years preceding the application date.

(d) The charity provides Revenue with any information they need to determine whether it qualifies as an eligible charity.

(e) The charity complies with any conditions imposed by the Minister for Justice, Equality and Law Reform.

What information is an eligible charity obliged to publish in such manner as the Minister for Finance may reasonably require?

(4) An eligible charity must publish audited accounts, comprising an income and expenditure account and balance sheet together with any other information the Minister for Finance may reasonably require.

Do the official secrecy rules prevent Revenue from revealing the names and addresses of an eligible charity?

(5) No.

For what period of time is an eligible charity’s authorisation valid?

(6) An eligible charity’s authorisation is valid for the period specified by Revenue on the authorisation. Revenue may not grant an authorisation for longer than five years.

When an eligible charity no longer meets the compliance requirements under the legislation, what must Revenue do?

(7) If Revenue are satisfied that an eligible charity no longer meets the requirements mentioned in paras 3-4, they must write to the charity by registered post to withdraw the charity’s authorisation. The authorisation is then withdrawn from the date specified in the withdrawal notice.

A list of authorised bodies is available on the revenue website: www.revenue.ie

Schedule 27 Forms of declarations to be made by certain persons

This Schedule lists the declarations to be sworn by prospective Appeal Commissioners, inspectors of taxes, Revenue-appointed assessors, the Collector-General and tax collection staff, the Clerk to the Appeal Commissioners, and a Commissioner for Offices.

Schedule 28 Statements, lists and declarations

Schedule 29 Provisions referred to in sections 1052, 1054, and 1077E

What provisions give rise to a penalty for non-compliance?

This Schedule lists sections that require returns or information to be filed with Revenue. Failure to file the return or information may lead to the imposition of a penalty. See sections 1052-1054.

For capital gains tax purposes, Schedule 29 is to be read as including:

Column 1 Column 2 Column 3
Returns by issuing houses, stockbrokers, auctioneers, etc (section 914) Appeals against assessments (section 945) Deduction from consideration on disposal of certain assets (section 980)

Schedule 30 Repeals

What legislation was repealed on commencement of the Taxes Consolidation Act 1997?

This section lists the repealed legislation which the Taxes Consolidation Act 1997 has replaced.

Repealed:

Finance Act 1928 section 34(2);

Income Tax (Amendment) Act 1967;

Finance Act 1967 Part I, section 25 (in so far as it relates to income tax), section 27(2) and (6), Schedule 3 Part I;

Finance (Miscellaneous Provisions) Act 1968 Parts I and IV, sections 25-27, 29(2), Schedule Parts I-IV;

Finance Act 1968 Part I, sections 37-39, 48(2) and (5);

Finance (No. 2) Act 1968 sections 8, 11(4);

Finance Act 1969 Parts I-II, sections 63, 64, 65(1), 67(2) and (7), Schedule 4 Part I, Schedule 5 Part I;

Finance Act 1970 Part I, sections 57-59, 62(2) and (7);

Finance (No. 2) Act 1970 sections 1, 8(2) and (5);

Finance Act 1971 Part I, sections 52(2) and (6);

Finance Act 1972 Part I, sections 42, 43, 46, 48(2) and (5), Schedule 1, Schedule 3-4 (in so far as they relate to income tax);

Finance Act 1973 Part I, sections 92 (except in so far as it relates to death duties and stamp duty), 98(2) and (6), Schedule 3 and 5;

Finance (Taxation of Profits of Certain Mines) Act 1974;

Finance Act 1974 Part I, sections 86, 88(2) and (5), Schedules 1-2;

Finance Act 1975 Part I, section 57(2) and (5), Schedules 1-2;

Finance (No. 2) Act 1975 sections 1 and 4(2);

Finance Act 1976 Part I, sections 81(1) and (3)(a), 83(2) and (6), Schedule 1, Schedule 5 Part I;

Finance Act 1977 Part I, sections 53, 54 (in so far as it relates to income tax, corporation tax and capital gains tax), 56(2) and (7), Schedule 1, Schedule 2 (in so far as it relates to income tax, corporation tax and capital gains tax);

Finance Act 1978 Part I, sections 46, 47, 52(1), 54(2) and (8), Schedules 1-2, Schedule 4 Part I;

Capital Gains Tax (Amendment) Act 1978;

Finance Act 1979 Part I, section 59(2) and (6), Schedules 1-2;

Finance Act 1980 Part I, sections 89, 96(2) and (7), Schedule 1;

Finance Act 1981 Part I, sections 52, 54(2) and (7), Schedule 1;

Finance Act 1982 Part I, sections 105(2) and (7), Schedules 1-3;

Finance Act 1983 Part I, Part V, sections 120 (in so far as it relates to income tax, corporation tax and capital gains tax), 122(2) and (6), Schedule 4 (in so far as it relates to income tax, corporation tax and capital gains tax);

Finance Act 1984 Part I, sections 116(2) and (7), Schedules 1-2;

Finance Act 1985 Part I, sections 69, 71(2) and (7), Schedule 1;

Finance Act 1986 Part I, sections 112-116, 118(2), (7) (in so far as it relates to income tax, corporation tax and capital gains tax) and (8), Schedules 1-4;

Income Tax (Amendment) Act 1986;

Finance Act 1987 Part I, sections 52, 55(2) and (7);

Finance Act 1988 Part I, sections 70-74, 77(2), (7) (except in so far as it relates to the Local Loans Fund) and (8), Schedules 1-3;

Judicial Separation and Family Law Reform Act 1989 section 26;

Finance Act 1989 Part I, sections 86-89, 95, 98, 100(2), (7) (except in so far as it relates to capital acquisitions tax) and (8), Schedule 1;

Finance Act 1990 Part I, sections 131, 136-138, 140(2) and (8), Schedules 1-6;

Finance Act 1991 Part I, sections 126, 128, 130, 132(2) and (8), Schedules 1-2;

Oireachtas (Allowances to Members) and Ministerial and Parliamentary Offices Act 1992 section 4;

Finance Act 1992 Part I, Part VII (except section 248 in so far as it relates to residential property tax), section 254(2),(8) (except in so far as it relates to residential property tax) and (9), Schedules 1-2;

Finance (No 2) Act 1992 Part I, section 30(2);

Finance Act 1993 Part I, sections 140 and 143(2) and (8), Schedule 1;

WCTIPA 1993 sections 10-13

Finance Act 1994 Part I, Part VII Ch I, sections 161 (except in so far as it relates to stamp duty), 162, 163(2), 164, 166(2) and (8), Schedules 1-2;

Finance Act 1995 Part I, Part VII Ch I, sections 172-177, 179(2), (8) and (9), Schedules 1-4;

Finance Act 1996 Part I, Part VI, sections 139, 143(2), (7) and (8), Schedules 1-5;

Disclosure of Certain Information for Taxation and Other Purposes Act 1996 sections 5-6, 10-12;

Criminal Assets Bureau Act 1996 sections 23, 24(1)-(2);

Family Law (Divorce) Act 1996 section 31;

Finance Act 1997 Part I, Part VII, sections 157-160(1), 166(2), (8) and (9), Schedules 1-6 and 9-10.

Schedule 31 Consequential amendments

What part of the TCA 1997 contains the updates of income tax, corporation tax and capital gains tax references with the correct references to the TCA Act?

This Schedule updates income tax, corporation tax and capital gains tax references in other Acts with the correct references to the Taxes Consolidation Act 1997.

Schedule 32 Transitional provisions

Schedule 33 Specific Anti-Avoidance Provisions for the Purposes of Part 33

To what does this schedule apply?

This schedule lists the relevant specific anti-avoidance provisions for the purposes of the general anti-avoidance provisions of part 33.